HSBC 2009 Annual Report Download - page 33

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movements in the fair value of HSBC’s own long-
term debt from underlying performance.
Income of US$3.8 billion was recorded due to a
fair value movement on assets held to back insurance
and investment contracts, compared with an expense
of US$4.8 billion in 2008. This reflected investment
gains in the current year driven by improved market
performance, predominantly affecting the value of
assets held in unit-linked and participating funds in
Hong Kong, the UK and France.
• To the extent that the investment gains related to
assets held to back investment contracts, the
expense associated with the corresponding
increase in liabilities to customers was also
recorded under net income from financial
instruments designated at fair value. This
expense amounted to US$1.3 billion in 2009
compared with an income of US$1.5 billion in
2008 when liabilities fell in line with declining
asset markets.
• To the extent that the investment gains related to
assets held to back insurance contracts, they
were offset by a corresponding increase in ‘Net
insurance claims and movement in liabilities to
policyholders’ to reflect the extent to which
unit-linked policyholders, in particular,
participate in the investment performance
experienced in the associated asset portfolios.
2008 compared with 2007
Reported net income from financial instruments
designated at fair value decreased by
US$231 million to US$3.9 billion in 2008.
On an underlying basis, in particular excluding a
large income from movements in the fair value of
the Group’s own long-term debt, a net expense of
US$2.7 billion was recorded, compared with income
of US$1.1 billion in 2007.
A negative movement of US$5.1 billion was
recorded in the fair value of assets held to back
insurance and investment contracts, compared with a
positive reported movement of US$2.1 billion in
2007. This reflected investment losses driven by
falling equity and bond markets, predominantly
affecting the value of assets held in unit-linked and
participating funds in Hong Kong, France and the
UK. The negative movement in fair value is partially
offset by a corresponding reduction in ‘Net
insurance claims and movement in liabilities to
policyholders’, where unit-linked policyholders in
particular participate in the investment performance
experienced on the investment portfolios held to
support the liabilities.
For assets held to meet liabilities under
investment contracts the corresponding reduction in
the liability to customers is also reported within net
income from financial instruments designated at fair
value. A reduction of US$1.8 billion in the fair value
of liabilities held under investment contracts
compared with a reported increase in the fair value
of liabilities of US$940 million in 2007.
Gains less losses from financial investments
2009
US$m
2008
US$m
2007
US$m
Net gain from disposal of:
– debt securities ................................................................................................... 463 19 120
– equity securities ................................................................................................ 407 1,216 1,864
– other financial investments .............................................................................. 8 4 14
878 1,239 1,998
Impairment of available-for-sale equity securities .................................................. (358) (1,042) (42)
Gains less losses from financial investments .......................................................... 520 197 1,956
2009 compared with 2008
Reported gains less losses from financial
investments increased by US$323 million to US$520
million. On an underlying basis, they increased by
US$546 million.
Net gains on the disposal of debt securities
increased significantly, due to gains recorded on the
sale of mortgage-backed securities in North
America. They were supplemented by smaller gains,
principally on the disposal of available-for-sale
bonds in Latin America and the UK.
Sales of Visa shares contributed significant
gains during 2008, with additional gains from further
sales in 2009. Other gains recognised during 2008,
including those recorded on the sale of MasterCard
shares, were not repeated in 2009.
A significantly lower level of impairments on
equity investments was recognised in 2009 than in