HSBC 2012 Annual Report Download - page 40

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance by income and expense item
38
movements of US$3.9bn in 2011. The adverse fair
value movements arose in 2012 as credit spreads
tightened in Europe and North America, having
widened during 2011.
Net income arising from financial assets held to
meet liabilities under insurance and investment
contracts reflected net investment gains in 2012 as
global equity market conditions improved, compared
with net investment losses in 2011. This
predominantly affected the value of assets held to
support unit-linked contracts in the UK and Hong
Kong, insurance contracts with discretionary
participation features (‘DPF’) in Hong Kong,
and investment contracts with DPF in France.
The investment gains or losses arising from
equity markets result in a corresponding movement
in liabilities to customers, reflecting the extent to
which unit-linked policyholders, in particular,
participate in the investment performance of the
associated asset portfolio. Where these relate to
assets held to back investment contracts, the
corresponding movement in liabilities to customers
is also recorded under ‘Net income/(expense) from
financial instruments designated at fair value’. This
is in contrast to gains or losses related to assets held
to back insurance contracts or investment contracts
with DPF, where the corresponding movement in
liabilities to customers is recorded under ‘Net
insurance claims incurred and movement in liabilities
to policyholders’.
Within net income from financial instruments
designated at fair value were favourable foreign
exchange movements in 2012, compared with
adverse movements in 2011, on foreign currency
debt designated at fair value issued as part of our
overall funding strategy. An offset from assets held
as economic hedges was reported in ‘Net trading
income’.
Gains less losses from financial investments
2012
US$m
2011
US$m
2010
US$m
Net gains/(losses) from disposal of:
– debt securities ...................................................................................................... 781 712 564
– equity securities ................................................................................................... 823 360 516
– other financial investments ................................................................................. 5 12 (7)
1,609 1,084 1,073
Impairment of available-for-sale equity securities ..................................................... (420) (177) (105)
Gains less losses from financial investments ............................................................. 1,189 907 968
Gains less losses from financial investments
increased by US$282m on a reported basis
and US$310m on a constant currency basis.
The increase was driven by higher net gains
from the disposal of available-for-sale equity
securities, notably in Hong Kong as a result of the
sale of our shares in four Indian banks. In addition,
we reported a rise in disposal gains in Principal
Investments in GB&M.
Higher gains were also reported on the disposal
of available-for-sale government debt securities,
principally in the UK as part of Balance Sheet
Management’s structural interest rate risk
management activities. This was partly offset by
losses on the disposal of legacy assets in GB&M in
the UK (see page 18), together with the non-
recurrence of gains in 2011 on the disposal of
available-for-sale debt securities in our Insurance
business in RBWM, also in Europe.
There were higher impairments of available-for-
sale equity securities due to significant write-downs
in 2012 on three holdings, two of which were in our
direct investment business, which is in run-off.
Net earned insurance premiums
2012
US$m
2011
US$m
2010
US$m
Gross insurance premium income .............................................................................. 13,602 13,338 11,609
Reinsurance premiums ............................................................................................... (558) (466) (463)
Net earned insurance premiums ................................................................................. 13,044 12,872 11,146