HSBC 2009 Annual Report Download - page 269

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measures which take account of specific local
market conditions and regulatory requirements.
Specifically, the Group manages its exposure
to insurance risk by applying formal underwriting,
reinsurance and claims-handling procedures
designed to ensure compliance with regulations.
This is supplemented with stress testing. In addition,
manufacturing entities are required to obtain
authorisation from Group Insurance Head Office to
write certain classes of business, with restrictions
applying to commercial and liability non-life
insurance, in particular.
Local ALCOs and Risk Management
Committees are required to monitor certain risk
exposures, mainly for life business where the focus
is on reviewing the risks associated with the duration
and cash flow matching of insurance assets and
liabilities.
Reinsurance is also used as a means of
mitigating exposure, in particular to aggregations of
catastrophe risk. Specific examples are as follows:
• Accident and health insurance. Potential
exposure to concentrations of claims arising
from isolated events such as earthquakes are
mitigated by the purchase of catastrophe
reinsurance.
• Motor insurance. Reinsurance protection is
arranged to avoid excessive exposure to larger
losses, particularly from personal injury claims.
• Fire and other damage to property. Portfolios at
risk from catastrophic losses are protected by
reinsurance in accordance with information
obtained from professional risk-modelling
organisations.
Although reinsurance provides a means of
managing insurance risk, such contracts expose the
Group to counterparty risk, the risk of default by the
reinsurer (see page 277).
The following tables provide an analysis of
HSBC’s insurance risk exposures by geographical
region and by type of business. By definition, HSBC
is not exposed to insurance risk on investment
contracts, so they are not included in the insurance
risk management analysis.
Insurance contracts sold by HSBC primarily
relate to core underlying banking activities, such as
savings and investment products, and credit life
products. The Group’s manufacturing focuses on
personal lines, e.g. contracts written for individuals,
which tend to be of higher value than commercial
lines. The focus on the higher volume, lower
individual value personal lines contributes to
diversifying insurance risk.
Life business tends to be longer-term in nature
than non-life business and frequently involves an
element of savings and investment in the contract.
Accordingly, separate tables are provided for life and
non-life businesses, reflecting their distinctive risk
characteristics. The life insurance risk table provides
an analysis of insurance liabilities as the best
available overall measure of insurance exposure,
because provisions for life contracts are typically set
by reference to expected future cash outflows
relating to the underlying policies. The table for
non-life business uses written premiums as the best
available measure of risk exposure because policies
are typically priced by reference to the risk being
underwritten.