Barclays 2009 Annual Report Download - page 231

www.barclays.com/annualreport09 Barclays PLC Annual Report 2009 229
26 Insurance assets and liabilities continued
Movements in insurance liabilities and reinsurance assets
Movements in insurance assets and insurance contract liabilities were as follows:
2009 2008
Gross Reinsurance Net Gross Reinsurance Net
£m £m £m £m £m £m
At beginning of year 2,152 (123) 2,029 3,903 (157) 3,746
Change in year (12) 31 19 (1,751) 34 (1,717)
At end of year 2,140 (92) 2,048 2,152 (123) 2,029
Assumptions used to measure insurance liabilities
The assumptions that have the greatest effect on the measurement of the amounts recognised above, and the processes used to determine them were
as follows:
Long-term business – linked and non-linked
Mortality – mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the Group’s own
experience. A margin is added to ensure prudence – for example, future mortality improvements for annuity business.
Renewal expenses level and inflation – expense reserves are a small part of overall insurance liabilities, however, increases in expenses caused by unanticipated
inflation or other unforeseen factors could lead to expense reserve increases. Expenses are therefore set using prudent assumptions. Initial renewal expense
levels are set by considering expense forecasts for the business and, where appropriate, building in a margin to allow for the increasing burden of fixed costs
on the UK closed life book of business. The inflation assumption is set by adding a margin to the market rate of inflation implied by index-linked gilt yields.
Short-term business
Short-term business – for single premium policies the proportion of unearned premiums is calculated based on estimates of the frequency and
severity of incidents.
Changes in assumptions
There have been no changes in assumptions in 2009 that have had a material effect on the financial statements.
Uncertainties associated with cash flows related to insurance contracts and risk management activities
The assumptions used to determine uncertainties in cash flows and the processes used to manage risk were as follows:
Long-term insurance contracts (linked and non-linked)
For long-term insurance contracts where death is the insured risk, the most significant factors that could affect the frequency and severity of claims are the
incidence of disease, such as AIDS, or general changes in lifestyle, such as in eating, exercise and smoking. Where survival is the insured risk, advances in
medical care and social conditions are the key factors that increase longevity.
The Group manages its exposure to risk by operating in part as a unit-linked business, prudent product design, applying strict underwriting criteria,
transferring risk to reinsurers, managing claims and establishing prudent reserves.
Short-term insurance contracts
For payment protection contracts where inability to make payments under a loan contract is the insured risk, the most significant factors are the health of
the policyholder and the possibility of unemployment which depends upon, among other things, long-term and short-term economic factors. The Group
manages its exposure to such risks through prudent product design, efficient claims management, prudent reserving methodologies and bases, regular
product, economic and market reviews and regular adequacy tests on the size of the reserves.
Absa insures property and motor vehicles, for which the most significant factors that could affect the frequency and severity of claims are climatic change
and crime. Absa manages its exposure to risk by diversifying insurance risks accepted and transferring risk to reinsurers.
Sensitivity analysis
The following table presents the sensitivity of the level of insurance contract liabilities disclosed in this note to movements in the actuarial assumptions used
to calculate them. The percentage change in variable is applied to a range of existing actuarial modelling assumptions to derive the possible impact on net
profit after tax. The disclosure is not intended to explain the impact of a percentage change in the insurance assets and liabilities disclosed above.
2009 2008
Net profit Net profit
Change in after tax Change in after tax
variable impact variable impact
%£m %£m
Long-term insurance contracts:
Improving mortality (annuitants only) 10 – 10 1
Worsening of mortality (assured lives only) 10 14 10 20
Worsening of base renewal expense level 20 11 20 19
Worsening of expense inflation rate 10 3 10 1
Short-term insurance contracts:
Worsening of claim expense assumptions 10 5 10 3
Any change in net profit after tax would result in a corresponding increase or decrease in shareholders’ equity.
The above analyses are based on a change in a single assumption while holding all other assumptions constant. In practice this is unlikely to occur.