HSBC 2012 Annual Report Download - page 245

243
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Remaining contractual maturity of investment contract liabilities
(Audited)
Liabilities under investment contracts by
insurance manufacturing subsidiaries
Linked
investment
contracts
Other
investment
contracts
Investment
contracts
with DPF
Total
US$m US$m US$m US$m
At 31 December 2012
Remaining contractual maturity:64
– due within 1 year ................................................................... 195 458 4 657
– due between 1 and 5 years .................................................... 675 – – 675
– due between 5 and 10 years .................................................. 731 – – 731
– due after 10 years .................................................................. 2,061 – – 2,061
– undated72 ................................................................................ 5,029 3,762 24,370 33,161
8,691 4,220 24,374 37,285
At 31 December 2011
Remaining contractual maturity:64
– due within 1 year ................................................................... 191 438 8 637
– due between 1 and 5 years .................................................... 595 – 3 598
– due between 5 and 10 years .................................................. 548 – – 548
– due after 10 years .................................................................. 2,063 – – 2,063
– undated72 ................................................................................ 4,416 3,583 21,477 29,476
7,813 4,021 21,488 33,322
For footnotes, see page 249.
Present value of in-force long-term
insurance business
(Audited)
Our life insurance business is accounted for using
the embedded value approach which, inter alia,
provides a risk and valuation framework. The PVIF
asset at 31 December 2012 was US$4.8bn (2011:
US$4.1bn), representing the present value of the
shareholders’ interest in the profits expected to
emerge from the book of in-force policies at that
date.
The PVIF calculation projects expected cash
flows, adjusted for a variety of assumptions made
by each insurance operation to reflect local market
conditions and management’s judgement of future
trends. The main assumptions relate to economic
and non-economic assumptions and policyholder
behaviour. Assumptions are subject to uncertainty
and can contribute to volatility in the results of the
Insurance business.
The key drivers of the movement in the value
of the PVIF asset are the expected cash flows from:
• new business adjusted for anticipated maturities
and assumptions relating to policyholder
behaviour (‘Value of new business written
during the year’);
• unwind of the discount rate less the reversal
of expected cash flows for the period (‘Expected
return’);
• changes in non-economic operating assumptions
such as mortality or lapse rates (‘Change in
operating assumptions’);
• impacts arising from changes in projected future
cash flows associated with operating assumption
experience variances compared to those
assumed at the start of the period (‘Experience
variances’);
• changes related to future investment returns
(‘Changes in investment assumptions’); and
• the impact of actual investment experience on
future cash flows compared to those assumed at
the start of the period (‘Investment return
variances’).
The valuation of the PVIF asset includes explicit
risk margins for non-economic risks in the projection
assumptions and explicit allowances for financial
options and guarantees using stochastic methods.
Risk discount rates are set on an active basis with
reference to market risk free yields.
The following table shows the movements
recorded during the year in respect of total equity
and PVIF of insurance operations.