HSBC 2008 Annual Report Download - page 35

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Net insurance claims incurred and movement in liabilities to policyholders
2008
US$m
2007
US$m
2006
US$m
Insurance claims incurred and movement in liabilities to policyholders:
– gross ......................................................................................................... 9,206 9,550 5,072
– reinsurers’ share ...................................................................................... (2,317) (942) (368)
– net1 ........................................................................................................... 6,889 8,608 4,704
1 Net insurance claims incurred and movement in liabilities to policyholders arise from both life and non-life insurance business. For
non-life business, amounts reported represent the cost of claims paid during the year and the estimated cost of notified claims. For life
business, the main element of claims is the liability to policyholders created on the initial underwriting of the policy and any subsequent
movement in the liability that arises, primarily from the attribution of investment performance to savings-related policies. Consequently,
claims rise in line with increases in sales of savings-related business and with investment market growth.
2008 compared with 2007
Reported net insurance claims incurred and
movement in liabilities to policyholders decreased
by 20 per cent to US$6.9 billion. HSBC acquired the
remaining interest in HSBC Assurances in France in
March 2007 and, in October 2007, sold the Hamilton
Insurance Company Limited and Hamilton Life
Assurance Company Limited in the UK. On an
underlying basis, net insurance claims incurred and
movement in liabilities to policyholders fell by
22 per cent.
The reduction in net insurance claims incurred
and movement in liabilities to policyholders
primarily reflected the impact of markedly weaker
investment markets worldwide. This led to a
reduction in liabilities to policyholders on unit-
linked and, to a certain extent, participating policies
where policyholders participate in the investment
performance of the assets supporting the liabilities.
As noted above, the losses experienced on the assets
held to support insurance contract liabilities are
reported in ‘Net income from financial instruments
designated at fair value’.
The decline arising from market value
movements was partially offset by an increase in
claims incurred and movement in liabilities to
policyholders driven by new business growth, most
significantly in France, the UK and Hong Kong. In
addition, 2007 was affected by the implementation
of an FSA regulatory change, which led to lower
gross liability valuations in that year, along with a
reduction in the corresponding reinsurers’ share.
A significant increase in the reinsurers’ share of
claims incurred and movement in liabilities to
policyholders was primarily driven by the above
regulatory change plus an increase in a reserve
provision on a unit-linked product in Hong Kong,
which was fully reinsured. In addition, a significant
one-off reinsurance transaction was undertaken in
France during 2008.
2007 compared with 2006
Reported net insurance claims incurred and
movement in liabilities to policyholders of
US$8.6 billion were 83 per cent higher than in 2006
following the acquisition of the remaining shares in
HSBC Assurances in France in March 2007 and
HSBC Bank Panama in late 2006. The increase was
32 per cent on an underlying basis.
Growth in net insurance claims incurred and
movement in liabilities to policyholders was largely
driven by the life insurance business. This reflected a
combination of business growth, and was in line
with higher net earned insurance premiums and,
where policyholders participate in the investment
performance of the assets supporting the liabilities,
higher investment returns on unit-linked and
participating policies. This was most notable in
Hong Kong, the UK and Brazil. There was an
offsetting increase in ‘Net income from financial
instruments designated at fair value’ which reflected
these investment returns. In addition, FSA rule
changes in the UK led to a lower valuation of the
liabilities to policyholders on life policies.