HSBC 2008 Annual Report Download - page 413

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risk of a prolonged and severe economic recession in the UK, accompanied by higher discount rates reflecting
increased investor perceptions of risk. Management’s current assessment is that the probability of this downside risk
scenario is low. Accordingly, based on the conditions at the balance sheet date, management determined that a
reasonably possible change in any of the key assumptions described above would not cause an impairment to be
recognised in respect of Personal Financial Services – Europe or Commercial Banking – Europe.
Private Banking – Europe: the revenues in Private Banking – Europe are predominately generated through HSBC’s
client relationships. For 2009, the forecast cash flows reflect the downward pressure on brokerage and portfolio
management fees, with the latter being affected by the decline in equity market values. Thereafter, the nominal long-
term growth rates described in the table above have been used. Based on the conditions at the balance sheet date,
management determined that a reasonably possible change in any of the key assumptions described above would not
cause an impairment to be recognised in respect of Private Banking – Europe.
Global Banking and Markets – Europe: the cash flows generated by Global Banking and Markets – Europe are
diversified and there is no one key assumption that drives the cash flow projection of this CGU.
The forecast cash flows in the 2009 plan continue to reflect challenging global economic conditions. One of the key
factors which may impact the carrying value of this CGU is the level of impairment charges which may emerge in
the future, particularly in respect of holdings of available-for-sale sub-prime and Alt-A Residential MBSs. Based on
management’s current assessment of the credit quality of these securities, which includes stressed scenarios for
collateral defaults and house prices, and the level of credit support available, management determined that based on
the conditions at the balance sheet date a reasonably possible change in impairment of available-for-sale sub-prime
and Alt-A Residential MBSs would not cause an impairment to be recognised in respect of Global Banking and
Markets – Europe.
Personal Financial Services – Latin America: the assumptions included in the cash flow projections for Personal
Financial Services – Latin America reflect the economic environment and financial outlook of the countries within
this segment, with Brazil and Mexico being two of the largest countries included within this segment. Key
assumptions include the growth in lending and deposit volumes, the credit quality of the loan portfolios and
operational efficiency improvements. Based on the conditions at the balance sheet date, management determined that
a reasonably possible change in any of the key assumptions described above would not cause an impairment to be
recognised in respect of Personal Financial Services – Latin America.
The present value of in-force long-term insurance business
Movement on the PVIF
2008 2007
US$m US$m
At 1 January .................................................................................................................................................. 1,965 1,549
Value of new business written during the year ............................................................................................ 452 380
Acquisition of subsidiaries or portfolios ...................................................................................................... – 390
Movement from in-force business (including investment return variances and changes in
investment assumptions) .......................................................................................................................... (311) (204)
Exchange differences and other movements ................................................................................................ (73) (150)
At 31 December ............................................................................................................................................ 2,033 1,965
PVIF-specific assumptions
The key assumptions used in the computation of PVIF for HSBC’s main life insurance operations were:
2008 2007
UK Hong Kong France UK Hong Kong France
% % % % % %
Risk free rate ............................... 4.30 1.14 4.03 4.30 3.51 4.26
Risk discount rate ....................... 8.00 11.00 8.00 8.00 11.00 8.00
Expenses inflation ....................... 3.50 3.00 2.00 3.40 3.00 2.00
The PVIF represents the value of the shareholder’s interest in the in-force business of the life insurance operations.
The calculation of the PVIF is based upon assumptions that take into account risk and uncertainty. To project these