HSBC 2012 Annual Report Download - page 42

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance by income and expense item
40
Change in present value of in-force long-term insurance business
2012
US$m
2011
US$m
2010
US$m
Value of new business ................................................................................................ 1,027 943 737
Expected return ........................................................................................................... (420) (428) (85)
Assumption changes and experience variances ......................................................... 69 (30) 59
Other adjustments ....................................................................................................... 61 241 (6)
Change in present value of in-force long-term insurance business ........................... 737 726 705
Reported other operating income of US$2.1bn
increased by 19% in 2012. On a constant currency
basis, it rose by 25% as a result of business disposals
during the year.
We continued to rationalise our portfolio in non-
strategic markets, resulting in a number of gains and
losses on disposal which are excluded from our
underlying results (see page 28). These included
gains of US$108m on the sale of our RBWM
operations in Thailand, US$130m on the sale of
our shareholding in a property company in the
Philippines, US$163m on the sales of the HSBC and
Hang Seng general insurance businesses in Hong
Kong, US$102m following the completion of the
sale of our general insurance manufacturing business
in Argentina, and US$212m following the sale of our
shares in Global Payments Asia-Pacific Ltd. The
gains on disposal were partly offset by an investment
loss on a subsidiary of US$85m in the Middle East
and North Africa and a loss of US$62m on the
sale of our operations in Costa Rica, Honduras and
El Salvador.
Reported other operating income in 2011
included a gain of US$181m arising from a dilution
of our holding in Ping An following its issue of share
capital to a third party and a gain of US$83m from
the sale of HSBC Afore S.A. de C.V. (‘HSBC
Afore’), our Mexican pension business.
On an underlying basis, excluding the gains
and losses on disposal totalling US$747m in 2012
and US$354m in 2011, other operating income rose.
This was due to lower losses on foreclosed properties
due to the reduction in foreclosure activity in the US,
less deterioration in housing prices during 2012 and,
in some markets, improvements in pricing compared
with 2011 in the US.
The present value of in-force (‘PVIF’) long-term
insurance business asset was broadly in line with
2011. The value of new business from the sale of life
insurance products, favourable investment returns,
together with the recognition of a PVIF asset relating
to the unit-linked pension products in Brazil
contributed to a rise. In addition, there were lower
adverse changes to non-economic assumptions,
including mortality and lapse rates in Hong Kong
and North America in 2012. These factors were
substantially offset by adverse assumption changes in
2012, principally relating to the valuation of
policyholder options and guarantees in Hong Kong,
along with the non-recurrence of a gain of US$237m
(US$243m as reported) recognised upon refinement
of the PVIF asset in 2011.
The increase in other operating income was
partly offset by losses recognised on the sale of
syndicated loans in Europe and on the
reclassification of certain businesses to held for sale
in South America. In addition, a gain on sale and
leaseback of branches in Mexico recognised in 2011
did not recur.
Net insurance claims incurred and movement in liabilities to policyholders
2012
US$m
2011
US$m
2010
US$m
Insurance claims incurred and movement in liabilities to policyholders:
– gross .................................................................................................................... 14,529 11,631 11,969
– reinsurers’ share ................................................................................................. (314) (450) (202)
– net53 ..................................................................................................................... 14,215 11,181 11,767
For footnote, see page 120.
Net insurance claims incurred and movement in
liabilities to policyholders increased by 27% on a
reported basis, and by 33% on a constant currency
basis.
The increase in liabilities to policyholders largely
resulted from gains in the fair value of the assets
where the policyholders bear the investment risk,
particularly in relation to unit-linked insurance