HSBC 2009 Annual Report Download - page 439

437
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 2010 plan reflect the effect of current flatter yield curves, more stable risk positions
and lower volumes offset by increased transaction and management revenue as client risk appetite recovers. 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 a
reasonably possible change in key assumptions 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
2009 2008
US$m US$m
At 1 January .................................................................................................................................................. 2,033 1,965
Value of new business written during the year ............................................................................................ 600 452
Movement from in-force business (including investment return variances and changes in
investment assumptions) .......................................................................................................................... (84) (311)
Exchange differences and other movements ................................................................................................ 231 (73)
At 31 December ............................................................................................................................................ 2,780 2,033
PVIF-specific assumptions
The key assumptions used in the computation of PVIF for HSBC’s main life insurance operations were:
2009 2008
U
K
Hong Kon
g
France UK Hong Kong France
% % % % % %
Risk free rate ............................... 3.50 2.58 3.46
4.30 1.14 4.03
Risk discount rate ....................... 7.00 11.00 8.00
8.00 11.00 8.00
Expenses inflation ....................... 3.50 3.00 2.00
3.50 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
cash flows, a variety of assumptions regarding future experience is made by each insurance operation which reflects
local market conditions and management’s judgement of local future trends. Some of the Group’s insurance
operations incorporate risk margins separately in the projection assumptions for each product, while others
incorporate risk margins into the overall discount rate. Both factors are reflected in the wide range of risk discount
rates applied.