HSBC 2006 Annual Report Download - page 232

HSBC HOLDINGS PLC
Report of the Directors: The Management of Risk (continued)
Insurance operations > Insurance risk
230
1 Insurance contracts and investment contracts with discretionary participation features (‘DPF’) 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 In 2006, Mexico and Panama were reclassified from the North America segment to Latin America. Comparative information has been
restated accordingly. See Note 13 on the Financial Statements.
(Audited)
The above table of life insurance policyholders’
liabilities provides an overall summary of the life
insurance activity across the Group. For life
insurance business, insurance risk varies
considerably depending on the type of business.
The principal risks are mortality, morbidity, lapse
and surrender, investment/market risk and expense
levels. As indicated above, the geographic and
product diversity of HSBC’s life insurance business
assists in mitigating the exposure to insurance risk.
This can be supplemented at the operating subsidiary
level by additional underwriting and claims handling
procedures.
Mortality and morbidity risks are primarily
mitigated through medical underwriting and the
ability in a number of cases to amend the premium in
light of changes in experience. The risk associated
with lapses and surrenders is generally mitigated by
the application of surrender charges. Market risk is
usually mitigated through a combination of directing
the investment policy to match liabilities and sharing
risk with policyholders. In the case of unit-linked
business, market risk is generally borne by
policyholders, while for life business with a
discretionary participation feature, it is shared with
policyholders through the management of bonuses.
Analysis of non-life insurance risk – net written insurance premiums1
(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
2006
Accident and health ............................................ 26 97 5 – 10 138
Motor .................................................................. 185 15 13 – 157 370
Fire and other damage ........................................ 221 22 5 2 9 259
Liability ............................................................... 1 13 2 8 24 48
Credit (non-life) .................................................. 264 – – 173 – 437
Marine, aviation and transport ............................ 1 11 3 – 12 27
Other non-life insurance contracts ..................... 13 24 – 37 20 94
Total net written insurance premiums ................ 711 182 28 220 232 1,373
2005 (restated2)
Accident and health ............................................ 33 67 3 3 6 112
Motor .................................................................. 192 20 11 4 302 529
Fire and other damage ........................................ 251 34 3 5 61 354
Liability ............................................................... 229 17 2 91 14 353
Credit (non-life) .................................................. 225 – – 202 – 427
Marine, aviation and transport ............................ – 16 4 – 22 42
Other non-life insurance contracts ..................... 10 29 – 17 12 68
Total net written insurance premiums ................ 940 183 23 322 417 1,885
1 Net written insurance premiums represent gross written premiums less gross written premiums ceded to reinsurers.
2 In 2006, Mexico and Panama were reclassified from the North America segment to Latin America. Comparative information has been
restated accordingly. See Note 13 on the Financial Statements.
(Audited)
The above table of non-life net written insurance
premiums provides an overall summary of the
non-life insurance activity of the Group.
The main risks associated with non-life business
are underwriting risk and claims experience risk.
Underwriting risk is the risk that HSBC does not
charge premiums appropriate to the cover provided
and claims experience risk is the risk that portfolio
experience is worse than expected. HSBC manages
these risks through pricing (for example, imposing
restrictions and deductibles in the policy terms and
conditions), product design, risk selection, claims
handling, investment strategy and reinsurance
policy. The majority of non-life insurance contracts