RBS 2010 Annual Report Download - page 348

26 Insurance business continued
Group
Movement in provision for liabilities under life contracts and under linked and other investment contracts
Life
contracts
£m
Investment
contracts
£m
At 1 January 2009 4,498 5,326
Premiums received
- continuing operations 250 349
- discontinued operations 278 —
Fees and expenses (16) (13)
Investment return 400 442
Actuarial adjustments (205) —
Account balances paid on surrender and other terminations in the year (546) (712)
Exchange and other adjustments (180) (263)
At 1 January 2010 4,479 5,129
Premiums received 237 46
Fees and expenses (13) (16)
Investment return 100 228
Actuarial adjustments (174) —
Account balances paid on surrender and other terminations in the year (434) (159)
Disposal of subsidiaries (4,032) (5,115)
Exchange and other adjustments (95) (113)
At 31 December 2010 68 —
Investment contracts are presented within customer deposits.
Changes in assumptions during the year were not material to the profit recognised.
Group
2010 2009 2008
Assets backing linked liabilities £m £m £m
Debt securities —4,484 4,500
Equity securities —4,642 4,816
Cash and cash equivalents —102 81
The associated liabilities are:
-linked contracts and participating bonds classified as insurance contracts —4,175 4,189
- linked contracts classified as investment contracts —5,053 5,208
Insurance risk
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
arange 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 is economic and the counterparty is financially
secure. Acceptable reinsurers are rated A- or better unless specifically
authorised.
Reserving risk
Reserving risk relates to both premiums and claims. It is the risk that
reserves are assessed incorrectly such that insufficient funds have been
retained to pay or handle claims as the amounts fall due. Claims
development data provides information on the historical pattern of
reserving risk.
RBS Group 2010346
Notes on the accounts continued