RBS 2008 Annual Report Download - page 231

RBS Group Annual Report and Accounts 2008230
Notes on the accounts continued
24 Insurance business (continued)
Group
Life Investment
contracts contracts
Movement in provision for liabilities under life contracts and under linked and other investment contracts £m £m
At 1 January 2007 2,209 2,246
Acquisition of subsidiaries 2,275 3,245
Premiums received 784 140
Fees and expenses (30) (25)
Investment return 251 93
Actuarial adjustments (493) —
Account balances paid on surrender and other terminations in the year (468) (320)
Exchange and other adjustments 168 176
At 1 January 2008 4,696 5,555
Premiums received 868 330
Fees and expenses (21) (38)
Investment return 17 (970)
Actuarial adjustments (233) —
Account balances paid on surrender and other terminations in the year (734) (455)
Transfers to disposal groups (686) —
Exchange and other adjustments 591 904
At 31 December 2008 4,498 5,326
Investment contracts are presented within customer deposits.
Changes in assumptions during the year were not material to the profit recognised.
Group
2008 2007
Assets backing linked liabilities £m £m
Debt securities 4,500 2,899
Equity securities 4,816 6,863
Cash and cash equivalents 81 68
The associated liabilities are:
Linked contracts classified as insurance contracts 4,189 4,398
Linked contracts classified as investment contracts 5,208 5,432
There are no options and guarantees relating to life assurance contracts that could in aggregate have a material effect on the amount, timing and
uncertainty of the Group’s future cash flows.
The Group is exposed to insurance risk, either directly through its
businesses or through using insurance to reduce other risk exposures.
Insurance risk is the risk of fluctuations in the timing, frequency or
severity of insured events, relative to the expectations of the Group at
the time of underwriting.
Underwriting and pricing risk
The Group manages underwriting and pricing risk through the use of
underwriting guidelines which detail the class, nature and type of
business that may be accepted; pricing policies by product line and by
brand; and centralised control of policy wordings and any subsequent
changes.
Claims management risk
The risk that claims are handled or paid inappropriately is managed
using a range of IT system controls and manual processes conducted
by experienced staff. These, together with a range of detailed policies
and procedures ensure that all claims are handled in a timely,
appropriate and accurate manner.
Reinsurance risk
Reinsurance is used to protect against the impact of major catastrophic
events or unforeseen volumes of, or adverse trends in, large individual
claims and to transfer risk that is outside the Group’s current risk
appetite.
Reinsurance of risks above the Group’s risk appetite is only effective if
the reinsurance premium makes economic sense and the counterparty
is financially secure. Acceptable reinsurers are rated A- or better unless
specifically authorised.