HSBC 2009 Annual Report Download - page 280

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Insurance operations > Financial risks > Credit risk
278
submitted to Group Credit Risk for concurrence. The
form and content of the mandates must accord with
centrally set investment credit risk guidance
regarding credit quality, industry sector
concentration and liquidity restrictions, but allow for
the inclusion of local regulatory and country-specific
conditions. The assessment of the creditworthiness
of issuers and counterparties is based primarily upon
internationally recognised credit ratings and other
publicly available information.
Investment credit exposures are monitored
against limits by the local insurance manufacturing
subsidiaries, and are aggregated and reported to
Group Credit Risk, the Group Insurance Credit Risk
Meeting and the Group Insurance Risk Committee.
Stress testing is performed by Group Insurance Head
Office on the investment credit exposures using
credit spread sensitivities and default probabilities.
The stresses are reported to the Group Insurance
Risk Committee.
As noted above, under certain circumstances,
the Group is able to dilute the effect of investment
losses by sharing them with policyholders. However,
when, for example, a contract includes a guarantee,
losses which would result in a breach of the
guaranteed benefits due to the policyholder are borne
by the Group.
A number of tools are used to manage and
monitor credit risk. These include an Early Warning
Report which is produced on a weekly basis to
identify investments which may be at risk of future
impairment. This report is circulated to senior
management in Group Insurance Head Office and
the Regional Chief Risk Officers, and risk reduction
strategies are implemented when considered
appropriate. Similarly, a watch list of investments
with current credit concerns is circulated weekly.
Credit quality
(Audited)
The following table presents an analysis of treasury
bills, other eligible bills and debt securities within
HSBC’s insurance business by measures of credit
quality. The definitions of the five credit quality
classifications are included on page 225. Only assets
supporting non-linked liabilities are included in
the table as financial risk on assets supporting
linked liabilities is predominantly borne by the
policyholder. 90.9 per cent (2008: 93.7 per cent)
of the assets included in the table are invested in
investments rated as ‘Strong’.