HSBC 2007 Annual Report Download - page 273

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Financial risks
(Audited)
HSBC’s insurance businesses are exposed to a range
of financial risks, including market risk, credit risk
and liquidity risk. Market risk includes interest rate
risk, equity risk and foreign exchange risk. The
nature and management of these risks is described
below.
Manufacturing subsidiaries are exposed to
financial risk, for example, when the proceeds from
financial assets are not sufficient to fund the
obligations arising from non-linked insurance and
investment contracts. Certain insurance-related
activities undertaken by HSBC subsidiaries such as
insurance broking, insurance management (including
captive management) and insurance, pensions and
annuities administration and intermediation, are
exposed to financial risk, but not to a significant
extent.
In addition to policies provided for Group-wide
application through the Group Instruction Manuals,
insurance manufacturing subsidiaries may
implement additional risk management procedures
which reflect local market conditions and regulatory
requirements.
In many jurisdictions, local regulatory
requirements prescribe the type, quality and
concentration of assets that HSBC’s insurance
manufacturing subsidiaries must maintain to meet
insurance liabilities. Within each subsidiary, ALCOs
are responsible for ensuring that exposures to
financial risks remain within local requirements and
risk mandates (as agreed with Group Insurance Head
Office), and ensure compliance with the control
framework established centrally through the Group
Instruction Manuals.
The following table analyses the assets held in
HSBC’s insurance manufacturing subsidiaries at
31 December 2007 by type of liability, and provides
a view of the exposure to financial risk:
Financial assets held by insurance manufacturing subsidiaries
(Audited)
At 31 December 2007
Life linked Life non-linked Non-life Other
contracts1 contracts2 insurance3 assets4 Total5
US$m US$m US$m US$m US$m
Trading assets
Debt securities ...................................... – 37 22 35 94
Financial assets designated at fair value
Treasury bills ........................................ 51 – 96 34 181
Debt securities ...................................... 7,741 3,591 28 2,272 13,632
Equity securities ................................... 10,386 8,822 6 686 19,900
18,178 12,413 130 2,992 33,713
Financial investments
Held-to-maturity:
Treasury bills ........................................ – – – – –
Debt securities ...................................... – 6,253 144 408 6,805
– 6,253 144 408 6,805
Available-for-sale:
Treasury bills ........................................ – 2 126 130 258
Other eligible bills ................................ – – 176 172 348
Debt securities ...................................... – 13,677 563 2,065 16,305
Equity securities ................................... – 10 62 164 236
– 13,689 927 2,531 17,147
Derivatives................................................. 302 83 1 30 416
Other financial assets7 .............................. 1,282 4,376 1,175 1,483 8,316
19,762 36,851 2,399 7,479 66,491