HSBC 2008 Annual Report Download - page 264

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Insurance operations > Financial risks > Market risk
262
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 risks, 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 the administration and
intermediation of insurance, pensions and annuities
are exposed to financial risks, but not to a significant
extent.
Risk management procedures which reflect local
market conditions and regulatory requirements may
be implemented by HSBC’s insurance
manufacturing subsidiaries in addition to policies
provided for Group-wide application through the
Group Instruction Manuals. In many jurisdictions,
local regulatory requirements prescribe the type,
quality and concentration of assets that these
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 2008 by type of contract, and provides
a view of the exposure to financial risk:
Financial assets held by insurance manufacturing subsidiaries
(Audited)
At 31 December 2008
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 ...................................... – – 35 4 39
Financial assets designated at fair value
Treasury bills ........................................ 31 197 – 8 236
Debt securities ...................................... 4,091 3,109 52 1,625 8,877
Equity securities ................................... 6,141 4,684 – 337 11,162
10,263 7,990 52 1,970 20,275
Financial investments
Held-to-maturity:
Debt securities ...................................... – 10,411 170 510 11,091
Available-for-sale:
Treasury bills ........................................ – 4 130 128 262
Other eligible bills ................................ – – 272 126 398
Debt securities ...................................... – 14,602 254 1,596 16,452
Equity securities ................................... – 11 34 216 261
– 14,617 690 2,066 17,373
Derivatives ................................................ 173 204 – 24 401
Other financial assets6 ............................... 843 4,752 1,106 2,110 8,811
11,279 37,974 2,053 6,684 57,990