HSBC 2010 Annual Report Download - page 159

157
Overview Operating & Financial Review Governance Financial Statements Shareholder Information
Insurance risk
(Audited)
Insurance risk is the risk, other than financial risk,
of loss transferred from the holder of the insurance
contract to the issuer (HSBC). The principal
insurance risk we face is that, over time, the cost of
acquiring and administering a contract, claims and
benefits may exceed the aggregate amount of
premiums received and investment income.
The cost of claims and benefits can be
influenced by many factors, including mortality and
morbidity experience, lapse and surrender rates and,
if the policy has a savings element, the performance
of the assets held to support the liabilities.
Life and non-life business insurance risks are
controlled by high-level policies and procedures set
centrally, taking into account where appropriate
local market conditions and regulatory requirements.
Formal underwriting, reinsurance and claims-
handling procedures designed to ensure compliance
with regulations are applied, supplemented with
stress testing.
As well as exercising underwriting controls, we
use reinsurance as a means of mitigating exposure
to insurance risk, in particular to aggregations of
catastrophe risk. When we manage our exposure
to insurance risk through the use of third-party
reinsurers, the associated revenue and manufacturing
profit is ceded to them. Although reinsurance
provides a means of managing insurance risk, such
contracts expose us to credit risk, the risk of default
by the reinsurer (see page 165).
The following tables analyse our insurance risk
exposures by geographical region and by type of
business.
Analysis of life insurance risk – liabilities to policyholders74
(Audited)
Europe
Hong
Kong
Rest of
Asia-
Pacific
North
America
Latin
America
Total
US$m US$m US$m US$m US$m US$m
At 31 December 2010
Life (non-linked) ................................................. 1,679 17,989 789 1,004 2,122 23,583
Insurance contracts with DPF75 ...................... 327 17,203 278 – – 17,808
Credit life ........................................................ 565 –72 36 2 675
Annuities ........................................................ 471 –31 760 1,622 2,884
Term assurance and other long-term
contracts ..................................................... 316 786 408 208 498 2,216
Life (linked) ........................................................ 2,274 3,235 485 – 4,502 10,496
Investment contracts with DPF75,76 ..................... 22,052 – 22 – – 22,074
Insurance liabilities to policyholders .................. 26,005 21,224 1,296 1,004 6,624 56,153
At 31 December 2009
Life (non-linked) ................................................. 2,998 14,456 526 1,026 1,973 20,979
Insurance contracts with DPF75 ...................... 1,128 14,095 227 – – 15,450
Credit life ........................................................ 953 – 20 50 – 1,023
Annuities ........................................................ 452 – 28 777 1,554 2,811
Term assurance and other long-term
contracts ..................................................... 465 361 251 199 419 1,695
Life (linked) ........................................................ 2,125 2,896 437 – 3,528 8,986
Investment contracts with DPF75,76 ..................... 20,979 – 35 – – 21,014
Insurance liabilities to policyholders .................. 26,102 17,352 998 1,026 5,501 50,979
For footnotes, see page 174.
Our most significant life insurance products are
investment contracts with DPF issued in France,
insurance contracts with DPF issued in Hong Kong
and unit-linked contracts issued in Hong Kong, Latin
America and the UK.
The principal drivers of our insurance risk are
described below. The liabilities for long-term
contracts are set by reference to a range of
assumptions around these drivers. These typically
reflect the issuers’ own experiences. The type and
quantum of insurance risk arising from life insurance
depends on the type of business, and varies
considerably.
• mortality and morbidity: the main contracts
which generate exposure to these risks are term
assurance, whole life products, critical illness