HSBC 2007 Annual Report Download - page 271

269
Insurance contracts Investment contracts
Contracts
with
DPF1
Unit-
linked Annuities
Term
assurance2
Non-life
Unit-
linked Other
Other
assets4
Total
US$m US$m US$m US$m US$m US$m US$m US$m US$m
At 31 December 2006
Financial assets:
– trading assets ............... – – – – 117 – – 39 156
– financial assets
designated at fair
value ............................ 1,418 2,998 366 950 94 10,041 1,597 974 18,438
– derivatives ................... 96 417 – – – 363 3 – 879
– financial investments .. 3,842 – 1,223 390 1,554 – 1,441 2,173 10,623
– other financial assets ... 794 52 719 138 712 222 428 632 3,697
Total financial assets ......... 6,150 3,467 2,308 1,478 2,477 10,626 3,469 3,818 33,793
Reinsurance assets ............ 2 58 271 773 665 – – 48 1,817
PVIF5 ................................ – – – – – – – 1,549 1,549
Other assets and
investment properties...... 538 203 395 356 215 154 204 614 2,679
Total assets ........................ 6,690 3,728 2,974 2,607 3,357 10,780 3,673 6,029 39,838
Liabilities under
investment contracts
designated at fair value ... – – – – – 10,003 3,275 – 13,278
Liabilities under
investment contracts
carried at amortised
cost ................................. – – – – – – 216 – 216
Liabilities under
insurance contracts ......... 6,389 3,685 2,773 1,864 2,939 – 20 – 17,670
Deferred tax ...................... – – – – – – – 403 403
Other liabilities ................. – – – – – – – 2,322 2,322
Total liabilities .................. 6,389 3,685 2,773 1,864 2,939 10,003 3,511 2,725 33,889
Total equity ....................... – – – – – – – 5,949 5,949
Total equity and
liabilities7 ....................... 6,389 3,685 2,773 1,864 2,939 10,003 3,511 8,674 39,838
1 Discretionary participation features.
2 Term assurance includes credit life insurance.
3 New category disclosed following HSBC’s acquisition of HSBC Assurances. Although investment contracts with DPF are financial
investments, HSBC continues to account for them as insurance contracts as permitted by IFRS 4.
4 Other assets comprise shareholder assets.
5 Present value of in-force long-term insurance contracts and investment contracts with DPF.
6 Do not include assets, liabilities and shareholders’ funds of associated insurance company, Ping An Insurance.
7 Do not include assets, liabilities and shareholders’ funds of associated insurance companies, HSBC Assurances and Ping An Insurance.
A principal tool used to manage the Group’s
exposure to insurance risk, in particular for life
insurance contracts, is asset and liability matching.
Models are used to assess the effect of a range of
future scenarios on the values of financial assets and
associated liabilities, and ALCOs employ the
outcomes in determining how the assets and
liabilities should be matched. The stresses applied
include factors which impact on insurance risk such
as mortality and lapse rates. Of particular importance
is the need to match the expected pattern of cash
inflows with the benefits payable on the underlying
contracts which, in some cases, can extend for many
years. The table above shows the composition of
assets and liabilities and demonstrates that there was
an appropriate level of matching at the end of 2007.
It may not always be possible to achieve a complete
matching of asset and liability durations, partly
because there is uncertainty over the receipt of all
future premiums and partly because the duration of
liabilities may exceed the duration of the longest
available dated fixed interest investments.