HSBC 2008 Annual Report Download - page 259

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contracts, so they are not included in the insurance
risk management analysis.
Life business tends to be longer-term in nature
than non-life business and frequently involves an
element of savings and investment in the contract.
Accordingly, separate tables are provided for life and
non-life businesses, reflecting their distinctive risk
characteristics. The life insurance risk table provides
an analysis of insurance liabilities as the best
available overall measure of insurance exposure,
because provisions for life contracts are typically set
by reference to expected future cash outflows
relating to the underlying policies. The table for non
life business uses written premiums as the best
available measure of risk exposure because policies
are typically priced by reference to the risk being
underwritten.
Analysis of life insurance risk – liabilities to policyholders
(Audited)
Europe
Hong
Kong
Rest of
Asia-
Pacific
North
America
Latin
America
Total
US$m US$m US$m US$m US$m US$m
At 31 December 2008
Life (non-linked)
Insurance contracts with DPF1 ....................... 1,015 11,213 216 – – 12,444
Credit life ........................................................ 252 – – 65 – 317
Annuities ........................................................ 379 – 28 805 1,363 2,575
Term assurance and other long-term
contracts ..................................................... 1,316 107 99 136 376 2,034
Total life (non-linked) ........................................ 2,962 11,320 343 1,006 1,739 17,370
Life (linked) ........................................................ 1,548 2,276 310 – 1,933 6,067
Investment contracts with DPF1,2 ....................... 17,732 – 34 – – 17,766
Insurance liabilities to policyholders .................. 22,242 13,596 687 1,006 3,672 41,203
At 31 December 2007
Life (non-linked)
Insurance contracts with DPF1 ........................... 940 8,489 231 – – 9,660
Credit life ........................................................ 235 – – 82 – 317
Annuities ........................................................ 413 – 28 1,154 1,532 3,127
Term assurance and other long-term
contracts ..................................................... 675 74 85 125 307 1,266
Total life (non-linked) ........................................ 2,263 8,563 344 1,361 1,839 14,370
Life (linked) ........................................................ 1,720 2,019 467 – 2,193 6,399
Investment contracts with DPF1,2 ....................... 18,954 – 29 – – 18,983
Insurance liabilities to policyholders .................. 22,937 10,582 840 1,361 4,032 39,752
1 Insurance contracts and investment contracts with discretionary participation features (‘DPF’) can give policyholders the contractual
right to receive, as a supplement to their guaranteed benefits, additional benefits that may be a significant portion of the total
contractual benefits, but whose amount and timing is determined by HSBC. These additional benefits are contractually based on the
performance of a specified pool of contracts or assets, or the profit of the company issuing the contracts.
2 Although investment contracts with DPF are financial investments, HSBC continues to account for them as insurance contracts as
permitted by IFRS 4.
(Audited)
The above table of liabilities to life insurance
policyholders highlights that the most significant
products are investment contracts with DPF issued in
France, insurance contracts with DPF issued in Hong
Kong and unit-linked contracts issued in Hong
Kong, Latin America and Europe.
The liabilities for long-term contracts are set by
reference to a range of assumptions which include
lapse and surrender rates, mortality and expense
levels. These assumptions typically reflect each
entity’s own experience. Economic assumptions,
such as investment returns and interest rates, are
usually based on market observable data. Changes in
underlying assumptions affect the liabilities. The
sensitivity of profit after tax and shareholders’ equity
to changes in both economic and non-economic
assumptions are considered below.
Insurance risk arising from life insurance
depends on the type of business, and varies
considerably. The principal risks are mortality,
morbidity, lapse, surrender and expense levels.