HSBC 2012 Annual Report Download - page 253

251
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Market risk
48 The standard deviation measures the variation of daily revenues about the mean value of those revenues.
49 Revenues within the daily distribution graph include all revenues booked in Global Markets (gross of brokerage fees). The effect of any
month-end adjustments, not attributable to a specific daily market move, is spread evenly over the days in the month in question. The
2012 daily distribution of trading revenues excludes the effect of the one-off credit valuation adjustment on derivative assets of
US$903m.
50 Trading intent portfolios include positions arising from market-making and position taking.
51 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the
reduction in unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate, equity
and foreign exchange, together in one portfolio. It is measured as the difference between the sum of the VAR by individual risk type and
the combined total VAR. A negative number represents the benefit of portfolio diversification. As the maximum and minimum occur on
different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for these measures.
52 The total VAR is non-additive across risk types due to diversification effects.
53 Investments in private equity are primarily made through managed funds that are subject to limits on the amount of investment. Potential
new commitments are subject to risk appraisal to ensure that industry and geographical concentrations remain within acceptable levels for
the portfolio as a whole. Regular reviews are performed to substantiate the valuation of the investments within the portfolio.
54 Investments held to facilitate ongoing business include holdings in government-sponsored enterprises and local stock exchanges.
55 Instead of assuming that all interest rates move together, we group our interest rate exposures into currency blocs whose rates are
considered likely to move together. See ‘Cautionary Statement regarding Forward-Looking Statements’ on page 525.
Risk management of insurance operations
56 HSBC has no insurance manufacturing subsidiaries in the Middle East and North Africa.
57 The decline in life insurance liabilities in North America reflects the classification of the majority of this business as held for sale at
31 December 2012. At 31 December 2012, the held-for-sale North American life insurance liabilities by contract type comprised credit
life contracts (US$15m), annuities (US$723m) and term assurance and other long-term contracts (US$205m).
58 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 are 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.
59 Although investment contracts with DPF are financial investments, HSBC continues to account for them as insurance contracts as
permitted by IFRS 4.
60 Net written insurance premiums represent gross written premiums less gross written premiums ceded to reinsurers.
61 Term assurance includes credit life insurance.
62 The Other assets column shows shareholder assets as well as assets and liabilities classified as held for sale. The majority of the assets
for insurance businesses classified as held for sale are reported as ‘Other assets and investment properties’ and totalled US$2.0bn at
31 December 2012 (2011: US$0.1bn). Assets classified as held for sale consist primarily of debt securities, the majority of which have a
‘strong’ credit rating at 31 December 2012. All liabilities for insurance businesses classified as held for sale are reported in ‘Other
liabilities’ and totalled US$1.2bn at 31 December 2012 (2011: US$0.1bn). The majority of these liabilities were life and non-life
policyholder liabilities expected to mature after 5 years.
63 Present value of in-force long-term insurance contracts and investment contracts with DPF.
64 Does not include associated insurance companies, SABB Takaful Company and Bao Viet Holdings, or joint venture insurance
companies, Hana Life and Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.
65 Comprise life linked insurance contracts and linked long-term investment contracts.
66 Comprise life non-linked insurance contracts and non-linked long-term investment contracts.
67 Comprise non-life insurance contracts.
68 Comprise mainly loans and advances to banks, cash and intercompany balances with other non-insurance legal entities.
69 The table excludes contracts where the risk is 100% reinsured.
70 The majority of reserves for immediate annuities with guarantees are within insurance businesses that are held for sale at 31 December
2012.
71 Shareholders’ funds comprise solvency and unencumbered assets.
72 In most cases, policyholders have the option to terminate their contracts at any time and receive the surrender values of their policies.
These may be significantly lower than the amounts shown.
73 Value of net new business during the year is the present value of the projected stream of profits from the business.
74 Experience variances include the effect of the difference between demographic, expense and persistency assumptions used in the
previous PVIF calculation and actual experience observed during the year to the extent this impacts profits on future business.
Pension risk
75 In 2011 and 2012, alternative assets included ABSs, MBSs and infrastructure assets. In 2006, alternative assets included loans and
infrastructure assets.