HSBC 2012 Annual Report Download - page 235

233
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
The majority of the risk in our Insurance
business derives from manufacturing
activities and can be categorised as
insurance risk and financial risk. Insurance
risk is the risk, other than financial risk,
of loss transferred from the holder of the
insurance contract to the issuer (HSBC).
Financial risks include market risk, credit
risk and liquidity risk.
There were no material changes to our policies and
practices for the management of risks arising in the
insurance operations, including the risks relating to
different life and non-life products, during 2012.
A summary of our policies and practices
regarding the risk management of insurance
operations, and the main contracts we
manufacture, are provided in the
A
ppendix to
Risk on page 273.
HSBC’s bancassurance model
We operate an integrated bancassurance model
which provides wealth and protection insurance
products principally for customers with whom we
have a banking relationship. Insurance products are
sold through all global businesses, predominantly by
RBWM and CMB, through our branches and direct
channels worldwide.
The insurance contracts we sell largely relate to
the underlying needs of our banking customers,
which we can identify from our point-of-sale
contacts and customer knowledge. The majority
of sales are of savings and investment products and
term and credit life contracts. By focusing largely
on personal and SME lines of business we are able to
optimise volumes and diversify individual insurance
risks.
Where we have operational scale and risk
appetite, mostly in life insurance, these insurance
products are manufactured by HSBC subsidiaries.
Manufacturing insurance allows us to retain the risks
and rewards associated with writing insurance
contracts as part of the underwriting profit,
investment income and distribution commission
are kept within the Group.
Where we do not have the risk appetite or
operational scale to be an effective insurance
manufacturer, we engage through a handful of
leading external insurance companies in order to
provide insurance products to our customers through
our banking network and direct channels. These
arrangements are generally structured with our
exclusive strategic partners and earn the Group a
combination of commissions, fees and profit-share.
We distribute insurance products in all of our
geographical regions. We have core life insurance
manufacturing entities, the majority of which are
direct subsidiaries of legal banking entities, in seven
countries (Argentina, Brazil, Mexico, France, UK,
Hong Kong and Singapore). Our life insurance
manufacturing entities in the US are held-for-sale
at 31 December 2012.
Risk management of insurance operations in
2012
This section provides disclosures on the risks arising
from insurance manufacturing operations, including
insurance risk and financial risks such as market
risk, credit risk and liquidity risk.
Risks in these operations are managed within
the insurance entities using methodologies and
processes appropriate to the insurance activities,
but remain subject to oversight at Group level.
The consolidated Group liquidity and market
risk management disclosures exclude insurance
operations. The assets of the insurance
manufacturing subsidiaries are included within
the consolidated Group credit risk disclosures.
Operational and sustainability risks are covered
by the Group’s overall respective risk management
processes and are not included in this section.
Insurance risk
Insurance risk is principally measured in two ways:
• liabilities to policyholders on life insurance
contracts; and
• net written insurance premiums for non-life
contracts.
The insurance risk profile of our life insurance
manufacturing businesses did not change materially
during 2012 despite the increase in liabilities to
policyholders on these contracts to US$68bn
(2011: US$60bn). This growth in liabilities largely
resulted from market value gains on underlying
financial assets in addition to new business
generated during 2012.
The insurance risk profile of our non-life
insurance manufacturing businesses changed during
the year as net written insurance premiums declined
to US$656m (2011: US$993m). This was in line
with our strategy to focus on the manufacturing of
life insurance products, with non-life manufacturing
entities or portfolios in Argentina, Hong Kong,
Ireland and Singapore sold during 2012.
A principal risk we continue to face is that, over
time, the cost of acquiring and administering