HSBC 2009 Annual Report Download - page 36

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Financial summary > Group performance > Net insurance claims / Loan impairment charges
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the US, gains from the extinguishment of certain
debt issued by HSBC’s mortgage securitisation
vehicles in the UK and lower costs associated with
the provision of support to certain money market
funds.
2008 compared with 2007
Reported other operating income of US$1.8 billion
was 26 per cent higher than in 2007. This included
gains of US$425 million on the sale of the card
merchant acquiring business in the UK and
US$71 million on the sale of HSBC’s entire stake
in Financiera Independencia, a Mexican consumer
lending company. On an underlying basis, other
operating income fell by 23 per cent.
The difficult property market conditions in the
UK led to a loss in value of a property fund, lower
income from the sale of property fund assets and a
reduction in Group real estate disposals in 2008.
Similarly, in Hong Kong revaluation gains on
investment properties did not recur.
Life assurance enhancements to pension
products resulted in increased present value of in-
force long-term insurance (‘PVIF’) business, which
also benefited from the non-recurrence of regulatory
changes in 2007 in the UK.
During 2008, HSBC recognised a gain of
US$416 million in respect of the purchase of the
subsidiary of Metrovacesa which owned the property
and long leasehold comprising 8 Canada Square,
London.
Other operating income declined, driven by
losses on sale of the Canadian vehicle finance
business and other loan portfolios in 2008, in addition
to the non-recurrence of gains on disposal of fixed
assets and private equity investments in 2007.
Net insurance claims incurred and movement in liabilities to policyholders
2009
US$m
2008
US$m
2007
US$m
Insurance claims incurred and movement in liabilities to policyholders:
– gross ................................................................................................................. 12,560 9,206 9,550
– reinsurers’ share .............................................................................................. (110) (2,317) (942)
– net26 .................................................................................................................. 12,450 6,889 8,608
For footnote, see page 149.
2009 compared with 2008
Reported net insurance claims incurred and
movement in liabilities to policyholders increased by
81 per cent to US$12.5 billion. On an underlying
basis, they increased by 94 per cent.
The increase in net insurance claims incurred
and movement in liabilities to policyholders mainly
reflected the improvement in investment market
performance compared with 2008 described above
under ‘Financial instruments designated at fair
value’. Higher investment gains were broadly
matched by movement in liabilities to policyholders
on unit-linked and, to a certain extent, participating
policies whose policyholders share in the investment
performance of the supporting assets. The gains
generated on the assets held to support insurance
contract liabilities are reported in ‘Net income from
financial instruments designated at fair value’.
New business growth in a number of regions
during 2009, particularly Hong Kong and Singapore,
also contributed to an increase in the movement in
liabilities to policyholders, as did the non-recurrence
of a large one-off reinsurance transaction in France
in 2008. The decline in sales of a Guaranteed Income
Bond noted above had a corresponding effect on
movement in liabilities to policyholders in the UK.
As a consequence of a rising incidence and
severity of claims, aggregate charges of
US$310 million were made to strengthen reserves
in the UK motor book and the Irish reinsurance
business during 2009. The UK motor insurance
business was placed into run-off in September 2009.
2008 compared with 2007
Reported net insurance claims incurred and
movement in liabilities to policyholders decreased
by 20 per cent to US$6.9 billion. HSBC acquired the
remaining interest in HSBC Assurances in France in
March 2007 and, in October 2007, sold Hamilton
Insurance Company Limited and Hamilton Life
Assurance Company Limited in the UK. On an
underlying basis, net insurance claims incurred and
movement in liabilities to policyholders fell by
22 per cent.
The reduction in net insurance claims incurred
and movement in liabilities to policyholders
primarily reflected the impact of markedly weaker
investment markets worldwide. This led to a