Interim Report 18 of 25

RNS Number : 6299J

HSBC Holdings PLC

10 August 2012

 



Risk management of insurance operations

HSBC's bancassurance model .................................	176
Insurance risk in the first half of 2012 ..................	176
Balance sheet of insurance manufacturing subsidiaries by type of contract ..........................	178

The majority of the risk in our insurance business derives from manufacturing activities and can be categorised as insurance risk and financial risk. Insurance risk is the risk, other than financial risk, of loss transferred from the holder of the insurance contract to the issuer (HSBC). Financial risks include market risk, credit risk and liquidity risk.

There have been no material changes to our policies and practices for the management of insurance risk, including the risks relating to different life and non-life products, as described in the Annual Report and Accounts 2011.

A summary of HSBC's policies and practices regarding insurance risk and the main contracts we manufacture, is provided in the Appendix to Risk on page 183.

HSBC's bancassurance model

We operate a bancassurance model which provides insurance products for customers with whom we have a banking relationship. Insurance products are sold via all global businesses, mainly utilising retail branches, the internet and phone centres. RBWM customers attract the majority of sales and comprise the majority of policyholders.

Many of these insurance products are manufactured by our subsidiaries, where we have the risk appetite and operational scale. This allows us to retain the risks and rewards associated with writing insurance contracts as both the underwriting profit and the commission paid by the manufacturer to the bank distribution channel are kept within the Group.

Where we do not have the risk appetite or operational scale to be effective, third parties are engaged to manufacture insurance products for sale through our banking network. We work with a limited number of market-leading partners to provide the products. These arrangements earn us a commission.

Our bancassurance business operates in all six of our geographical regions with over 30 legal entities, the majority of which are subsidiaries of banking legal entities, manufacturing insurance products.

The insurance contracts we sell primarily relate to core underlying banking activities, such as savings and investment products, and credit life products.

Our manufacturing business concentrates on personal lines, e.g. contracts written for individuals. This focus on the higher volume, lower individual value personal lines contributes to diversifying risk.

Insurance risk in the first half of 2012

The principal insurance risk we face is that, over time, the cost of acquiring and administering a contract, claims and benefits may exceed the aggregate amount of premiums received and investment income. The cost of claims and benefits can be influenced by many factors, including mortality and morbidity experience, lapse and surrender rates and, if the policy has a savings element, the performance of the assets held to support the liabilities.

In respect of financial risks, subsidiaries manufacturing products with guarantees are usually exposed to falls in market interest rates and equity prices to the extent that the market exposure cannot be managed by utilising discretionary participation (or bonus) features ('DPF') within the policy.

The following tables analyse our insurance risk exposures by geographical region and by type of business. The insurance risk profile and related exposures remain largely consistent with those observed at 31 December 2011.

Analysis of life insurance risk - liabilities to policyholders⁶¹

	Europe		Hong         Kong		Rest of         Asia-      Pacific		North America62		Latin   America		Total
	US$m		US$m		US$m		US$m		US$m		US$m
At 30 June 2012
Life (non-linked) ...............................................	1,185		23,645		1,432		-		2,079		28,341
Insurance contracts with DPF63 ......................	329		22,028		395		-		-		22,752
Credit life .......................................................	167		-		59		-		-		226
Annuities .......................................................	547		-		110		-		1,512		2,169
Term assurance and other long-term contracts ...................................................................	142		1,617		868		-		567		3,194
Life (linked) ......................................................	2,774		3,713		532		-		4,905		11,924
Investment contracts with DPF63,64 ...................	21,898		-		8		-		-		21,906
Insurance liabilities to policyholders ..................	25,857		27,358		1,972		-		6,984		62,171
At 30 June 2011
Life (non-linked)	1,621		19,957		997		992		2,282		25,849
Insurance contracts with DPF63 ......................	364		18,875		316		-		-		19,555
Credit life .......................................................	482		-		51		34		2		569
Annuities .......................................................	473		-		72		749		1,699		2,993
Term assurance and other long-term contracts ...................................................................	302		1,082		558		209		581		2,732
Life (linked) ......................................................	2,563		3,460		525		-		5,184		11,732
Investment contracts with DPF63,64 ...................	24,652		-		16		-		-		24,668
Insurance liabilities to policyholders ..................	28,836		23,417		1,538		992		7,466		62,249
At 31 December 2011
Life (non-linked) ...............................................	1,163		21,460		1,227		982		2,094		26,926
Insurance contracts with DPF63 ......................	335		20,109		338		-		-		20,782
Credit life .......................................................	219		-		58		34		-		311
Annuities .......................................................	517		-		78		741		1,546		2,882
Term assurance and other long-term contracts ...................................................................	92		1,351		753		207		548		2,951
Life (linked) ......................................................	2,508		3,393		476		-		4,833		11,210
Investment contracts with DPF63,64 ...................	21,477		-		11		-		-		21,488
Insurance liabilities to policyholders ..................	25,148		24,853		1,714		982		6,927		59,624

For footnotes, see page 180.

Analysis of non-life insurance risk - net written insurance premiums^61,65

	Europe		Hong         Kong		Rest of         Asia-     Pacific		North   America		Latin   America		Total
	US$m		US$m		US$m		US$m		US$m		US$m
Half-year to 30 June 2012
Accident and health ...........................................	3		99		5		-		18		125
Motor ................................................................	-		8		12		-		134		154
Fire and other damage ........................................	-		17		7		23		13		60
Liability .............................................................	-		11		2		-		1		14
Credit (non-life) ................................................	-		-		-		18		1		19
Marine, aviation and transport ..........................	-		5		2		-		11		18
Other non-life insurance contracts .....................	1		18		1		2		27		49
Total net written insurance premiums ................	4		158		29		43		205		439
Net insurance claims incurred and movement in liabilities to policyholders ..............................	(2)		(69)		(15)		(13)		(95)		(194)
Half-year to 30 June 2011
Accident and health ...........................................	19		91		5		1		20		136
Motor ................................................................	-		8		15		-		160		183
Fire and other damage ........................................	9		14		5		12		13		53
Liability .............................................................	-		10		3		-		1		14
Credit (non-life) ................................................	7		-		-		27		1		35
Marine, aviation and transport ..........................	-		5		2		-		12		19
Other non-life insurance contracts .....................	6		18		-		4		46		74
Total net written insurance premiums ................	41		146		30		44		253		514
Net insurance claims incurred and movement in liabilities to policyholders ..............................	25		(67)		(14)		(7)		(115)		(178)

Analysis of non-life insurance risk - net written insurance premiums (continued)

	Europe		Hong          Kong		Rest of          Asia-      Pacific		North     America		Latin     America		Total
	US$m		US$m		US$m		US$m		US$m		US$m
Half-year to 31 December 2011
Accident and health ...........................................	4		95		3		(1)		19		120
Motor ................................................................	-		9		10		-		168		187
Fire and other damage ........................................	(4)		15		8		18		16		53
Liability .............................................................	1		6		2		-		-		9
Credit (non-life) ................................................	(1)		-		-		21		-		20
Marine, aviation and transport ..........................	-		5		1		-		13		19
Other non-life insurance contracts .....................	1		21		1		3		45		71
Total net written insurance premiums ................	1		151		25		41		261		479
Net insurance claims incurred and movement in liabilities to policyholders ..............................	31		(60)		(12)		(15)		(116)		(172)

For footnotes, see page 180.

Our motor business was written predominantly in Argentina; this business was sold in May 2012. Our accident and health and fire and other damage to property contracts are written in all regions, but mainly in Hong Kong. Credit non-life insurance, which was historically originated in conjunction with the provision of loans, is concentrated in the US.

Balance sheet of insurance manufacturing subsidiaries by type of contract

A principal tool we use to manage our exposure to insurance risk, in particular for life insurance contracts, is asset and liability matching.

The table below shows the composition of assets and liabilities and demonstrates that there were sufficient assets to cover the liabilities to policyholders at 30 June 2012.

Balance sheet of insurance manufacturing subsidiaries by type of contract

	Insurance contracts												Investment contracts
	With       DPF		Unit- linked		Annu-     ities		Term assur- ance66										Unit- linked				Other				Other assets67				Total
									Non-life		With       DPF64
	US$m		US$m		US$m		US$m		US$m			US$m				US$m				US$m				US$m				US$m
At 30 June 2012
Financial assets ............	22,712		11,129		1,798		3,758		1,123			21,242				8,138				4,212				6,347				80,459
- trading assets .........	-		-		4		-		-			-				-				-				-				4
- financial assets designated at fair value .....................	1,989		10,905		376		571		212			5,895				7,432				1,472				2,623				31,475
- derivatives ............	20		1		-		-		-			216				5				91				5				338
- financial investments ..........	16,971		-		1,083		2,929		676			13,728				-				1,847				3,122				40,356
- other financial assets ....................	3,732		223		335		258		235			1,403				701				802				597				8,286
Reinsurance assets ........	13		826		464		166		102			-				-				-				73				1,644
PVIF68 .........................	-		-		-		-		-			-				-				-				4,426				4,426
Other assets and investment properties ..................................	422		8		19		175		145			664				30				28				2,924				4,415
Total assets .................	23,147		11,963		2,281		4,099		1,370			21,906				8,168				4,240				13,770				90,944
Liabilities under investment contracts:
- designated at fair value	-		-		-		-		-			-				8,057				3,679				-				11,736
- carried at amortised cost	-		-		-		-		-			-				-				430				-				430
Liabilities under insurance contracts ...	22,752		11,924		2,169		3,420		690			21,906				-				-				-				62,861
Deferred tax ................	17		-		14		10		1			-				-				-				1,011				1,053
Other liabilities ............	-		-		-		-		-			-				-				-				4,587				4,587
Total liabilities ............	22,769		11,924		2,183		3,430		691			21,906				8,057				4,109				5,598				80,667
Total equity .................	-		-		-		-		-			-				-				-				10,277				10,277
Total equity and liabilities69 ................	22,769		11,924		2,183		3,430		691			21,906				8,057				4,109				15,875				90,944

	Insurance contracts										Investment contracts
	With       DPF		Unit-    linked		Annu-      ities		Term assur- ance66						Unit-    linked		Other		Other assets67		Total
									Non-life	With       DPF64
	US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m		US$m
At 30 June 2011
Financial assets ............	19,436		10,962		2,734		3,233		2,434		24,112		8,771		4,038		7,371		83,091
- trading assets .........	-		-		-		-		34		-		-		-		-		34
- financial assets designated at fair value......................	1,683		10,664		474		646		221		6,426		8,050		1,529		1,641		31,334
- derivatives .............	54		1		1		10		1		279		11		1		2		360
- financial investments ...........	14,650		-		1,929		2,061		1,169		16,178		-		1,789		4,274		42,050
- other financial assets .....................	3,049		297		330		516		1,009		1,229		710		719		1,454		9,313
Reinsurance assets ........	13		802		395		243		424		-		-		-		59		1,936
PVIF68 .........................	-		-		-		-		-		-		-		-		4,186		4,186
Other assets and investment properties ..................................	216		10		26		363		208		557		23		51		697		2,151
	-
Total assets .................	19,665		11,774		3,155		3,839		3,066		24,669		8,794		4,089		12,313		91,364
Liabilities under investment contracts:
- designated at fair value	-		-		-		-		-		-		8,762		3,429		-		12,191
- carried at amortised cost	-		-		-		-		-		-		-		485		-		485
Liabilities under insurance contracts ...	19,555		11,732		2,993		3,301		2,202		24,668		-		-		-		64,451
Deferred tax ................	13		-		22		6		6		-		-		1		970		1,018
Other liabilities ............	-		-		-		-		-		-		-		-		2,213		2,213
Total liabilities ............	19,568		11,732		3,015		3,307		2,208		24,668		8,762		3,915		3,183		80,358
Total equity .................	-		-		-		-		-		-		-		-		11,006		11,006
Total equity and liabilities69.................	19,568		11,732		3,015		3,307		2,208		24,668		8,762		3,915		14,189		91,364
At 31 December 2011
Financial assets.............	20,520		10,355		2,531		3,398		1,656		20,745		7,843		4,103		7,219		78,370
- trading assets ..........	-		-		3		-		24		-		-		-		-		27
- financial assets designated at fair value	1,730		10,101		426		594		206		5,491		7,191		1,515		1,616		28,870
- derivatives .............	23		1		-		-		-		231		7		89		7		358
- financial investments ............	15,523		1		1,778		2,540		791		13,732		-		1,913		4,008		40,286
- other financial assets ................................	3,244		252		324		264		635		1,291		645		586		1,588		8,829
Reinsurance assets ........	12		903		441		196		250		-		-		-		42		1,844
PVIF68 .........................	-		-		-		-		-		-		-		-		4,092		4,092
Other assets and investment properties ..................................	384		6		14		188		169		744		28		34		753		2,320
Total assets .................	20,916		11,264		2,986		3,782		2,075		21,489		7,871		4,137		12,106		86,626
Liabilities under investment contracts:
- designated at fair value .......................	-		-		-		-		-		-		7,813		3,586		-		11,399
- carried at amortised cost	-		-		-		-		-		-		-		435		-		435
Liabilities under insurance contracts ...	20,782		11,210		2,882		3,262		1,635		21,488		-		-		-		61,259
Deferred tax ................	15		-		21		6		1		-		-		-		931		974
Other liabilities ............	-		-		-		-		-		-		-		-		1,930		1,930
Total liabilities ............	20,797		11,210		2,903		3,268		1,636		21,488		7,813		4,021		2,861		75,997
Total equity .................	-		-		-		-		-		-		-		-		10,629		10,629
Total equity and liabilities69	20,797		11,210		2,903		3,268		1,636		21,488		7,813		4,021		13,490		86,626

For footnotes, see page 180.

Footnotes to Risk

Credit risk

  1 30 June 2011 comparative data have not been separately presented as the amounts are insignificant.

  2 The amount of the loan commitments reflects, where relevant, the expected level of take-up of pre-approved loan offers made by mailshots to personal customers. In addition to those amounts, there is a further maximum possible exposure to credit risk of US$27.9bn (30 June 2011: US$159.5bn; 31 December 2011: US$171bn), reflecting the full take-up of such irrevocable loan commitments. The take-up of such offers is generally at modest levels.

  3 First lien residential mortgages include Hong Kong Government Home Ownership Scheme loans of US$3.2bn at 30 June 2012 (30 June 2011: US$3.4bn; 31 December 2011: US$3.3bn).

  4 Other personal loans and advances include second lien mortgages and other property-related lending.

  5 Other commercial loans and advances include advances in respect of agriculture, transport, energy and utilities.

  6 Included within 'Total gross loans and advances to customers' ('TGLAC') is credit card lending of US$29.1bn (30 June 2011: US$59.1bn; 31 December 2011: US$29.5bn).

  7 During 2011 the Group adopted a more stringent treatment for the presentation of impaired loans for geographical regions with significant levels of forbearance. As a result loans and advances have been classified as impaired that under the previous disclosure convention would otherwise have been classified as neither past due nor impaired or past due but not impaired. The comparative balances for 30 June 2011 were restated to comply with the revised disclosure convention (see page 133 of the Annual Report and Accounts 2011 for further details).

  8 The impairment allowances on loans and advances to banks at 30 June 2012 relate to the geographical regions, Europe and Middle East and North Africa (30 June 2011 and 31 December 2011: Europe, Middle East and North Africa and North America).

  9 Our available-for-sale holdings in sovereign and agency debt of Italy and Spain include debt held to support insurance contracts which provide discretionary profit participation to policyholders. For such contracts, unrealised movements in liabilities are recognised in other comprehensive income, following the treatment of the unrealised movements on related available-for-sale assets. To the extent that the movements are matched, no movement in the available-for-sale reserve is recognised. For those available-for-sale debt instruments described above that are not held to support insurance contracts which provide discretionary profit participation to policyholders, the available-for-sale reserves at 30 June 2012 were insignificant.

10 In-country liabilities in Italy include liabilities issued under local law but booked outside the country.

11 The US includes residential mortgages of HSBC Bank USA and HSBC Finance. Other regions comprise Hong Kong, Rest of Asia-Pacific, Middle East and North Africa, and Latin America.

12 HSBC Finance lending is shown on a management basis and includes loans transferred to HSBC USA Inc. which are managed by HSBC Finance.

13 Negative equity arises when the value of the property used to secure a loan is below the balance outstanding on the loan, generally based on values at the balance sheet date.

14 Loan-to-value ratios are generally based on values at the balance sheet date.

15 Property acquired through foreclosure is initially recognised at the lower of the carrying amount of the loan or its fair value less estimated costs to sell ('Initial Foreclosed Property Carrying Amount'). The average loss on sale of foreclosed properties is calculated as the Initial Foreclosed Properties Carrying Amount less cash proceeds divided by the unpaid loan principal balance prior to write-down (excluding any accrued finance income) plus certain other ancillary disbursements that, by law, are reimbursable from the cash proceeds (e.g. real estate tax advances) and were incurred prior to our taking title to the property. This ratio represents the portion of our total loss on foreclosed properties that occurred after we took title to the property. The comparative data for 30 June 2011 are restated (previously divided by the Initial Foreclosed Property Carrying Amount).

16 The average total loss on foreclosed properties includes both the loss on sale of the foreclosed property as discussed in footnote 15 and the cumulative write-downs recognised on the loans up to the time we took title to the property. This calculation of the average total loss on foreclosed properties uses the unpaid loan principal balance prior to write-down (excluding any accrued finance income) plus certain other ancillary disbursements that, by law, are reimbursable from the cash proceeds (e.g. real estate tax advances) and were incurred prior to our taking title to the property.

17 Percentages are expressed as a function of the relevant gross loans and receivables balance.

18 Impairment allowances are not reported for financial instruments whereby the carrying amount is reduced directly for impairment and not through the use of an allowance account.

19 Impairment is not measured for assets held in trading portfolios or designated at fair value as assets in such portfolios are managed according to movements in fair value, and the fair value movement is taken directly to the income statement. Consequently, we report all such balances under 'Neither past due nor impaired'.

20 Loans and advances to customers include asset-backed securities that have been externally rated as strong (30 June 2012: US$3.5bn; 30 June 2011: US$4.1bn; 31 December 2011: US$3.5bn), good (30 June 2012: US$564m; 30 June 2011: US$748m; 31 December 2011: US$476m), satisfactory (30 June 2012: US$205m; 30 June 2011: US$227m; 31 December 2011: US$428m), sub-standard (30 June 2012: US$649m; 30 June 2011: US$480m; 31 December 2011: US$556m) and impaired (30 June 2012: US$227m; 30 June 2011: US$49m; 31 December 2011: US$229m).

21 Included in this category are loans of US$2.5bn (30 June 2011: US$3.3bn; 31 December 2011: US$2.9bn) that have been re-aged once and were less than 60 days past due at the point of re-age. These loans are not classified as impaired following re-age due to the overall expectation that these customers will perform on the original contractual terms of their borrowing in the future.

22 Impaired loans and advances are those classified as CRR 9, CRR 10, EL 9 or EL 10, retail loans 90 days or more past due, unless individually they have been assessed as not impaired (see page 142, 'Past due but not impaired gross financial instruments') and renegotiated loans and advances meeting the criteria to be disclosed as impaired (see page 146).

23 Collectively assessed loans and advances comprise homogeneous groups of loans that are not considered individually significant, and loans subject to individual assessment where no impairment has been identified on an individual basis, but on which a collective impairment allowance has been calculated to reflect losses which have been incurred but not yet identified.

24 Collectively assessed loans and advances not impaired are those classified as CRR1 to CRR8 and EL1 to EL8 but excluding retail loans 90 days past due and renegotiated loans and advances meeting the criteria to be disclosed as impaired.

25 Included within 'Exchange and other movements' is US$1.6bn of impairment allowances reclassified to held for sale.

26 Net of repo transactions, settlement accounts and stock borrowings.

27 As a percentage of loans and advances to banks and loans and advances to customers, as applicable.

28 Carrying amount of the net principal exposure.

29 Total includes holdings of ABSs issued by The Federal Home Loan Mortgage Corporation ('Freddie Mac') and The Federal National Mortgage Association ('Fannie Mae').

30 'Directly held' includes assets held by Solitaire where we provide first loss protection and assets held directly by the Group.

31 Impairment charges allocated to capital note holders represent impairments where losses would be borne by external third-party investors in the structures.

32 The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption amounts through the residual life of the security.

33 A credit default swap ('CDS') gross protection is the gross principal of the underlying instrument that is protected by CDSs.

34 Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.

35 Net exposure after legal netting and any other relevant credit mitigation prior to deduction of the credit risk adjustment.

36 Cumulative fair value adjustment recorded against exposures to OTC derivative counterparties to reflect their creditworthiness.

37 Funded exposures represent the loan amount advanced to the customer, less any fair value write-downs, net of fees held on deposit.

38 Unfunded exposures represent the contractually committed loan facility amount not yet drawn down by the customer, less any fair value write-downs, net of fees held on deposit.

Liquidity and funding

39 The most favourable metrics are a smaller advances to core funding and a larger stressed one month coverage ratio.

40 The HSBC UK entity shown comprises three legal entities; HSBC Bank plc (including all overseas branches), Marks and Spencer Financial Services Limited and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of UK liquidity regulation as agreed with the UK FSA.

41 The Hongkong and Shanghai Banking Corporation represents the bank in Hong Kong including all overseas branches. Each branch is monitored and controlled for liquidity and funding risk purposes as a stand-alone operating entity.

42 The HSBC USA principal entity shown represents the HSBC USA Inc consolidated group; predominantly HSBC USA Inc and HSBC Bank USA, NA. The HSBC USA Inc consolidated group is managed as a single operating entity.

43 The total shown for other principal HSBC operating entities represents the combined position of all the other operating entities overseen directly by the Risk Management Meeting of the GMB.

44 Unused committed sources of secured funding for which eligible assets were held.

45 Estimated liquidity value represents the expected realisable value of assets prior to management assumed haircuts.

46 HSBC-managed asset exposures related to consolidated securities investment conduits, primarily Solitaire and Mazarin (see page 255). These vehicles issue debt secured by ABSs which are managed by HSBC. HSBC had a total contingent liquidity risk of US$20.0bn of which Solitaire represented US$9.7bn already funded on-balance sheet at 30 June 2012 (30 June 2011: US$8.9bn; 31 December 2011: US$9.3bn) leaving a net contingent exposure of US$10.3bn (30 June 2011: US$14.3bn; 31 December 2011: US$12.8bn). At 30 June 2012, US$5.6bn (30 June 2011: US$7.0bn; 31 December 2011: US$6.2bn) of the net contingent liability was on the commercial paper issued by Mazarin and entirely held by HSBC.

47 Other conduit exposures relate to third-party sponsored conduits (see page 257).

48 The undrawn balance for the five largest committed liquidity facilities provided to customers other than facilities to conduits.

49 The undrawn balance for the total of all committed liquidity facilities provided to the largest market sector, other than facilities to conduits.

Market risk

50 The structural foreign exchange risk is monitored using sensitivity analysis (see page 171). The reporting of commodity risk is consolidated with foreign exchange risk. There is no commodity risk in the non-trading portfolios.

51 The interest rate risk on the fixed-rate securities issued by HSBC Holdings is not included in the Group VAR. The management of this risk is described on page 173.

52 The effect of any month-end adjustments not attributable to a specific daily market move is spread evenly over the days in the month in question.

53 Revenues within the daily distribution graph include all revenues booked in Global Markets (gross of brokerage fees), Balance Sheet Management, and the trading element of revenues booked in the GPB and RBWM businesses.

54 The standard deviation measures the variation of daily revenues about the mean value of those revenues.

55 Trading intent portfolios include positions arising from market-making and position taking.

56 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in unsystematic market risk that occurs when combining a number of different risk types, for example, interest rate, equity and foreign exchange, together in one portfolio. It is measured as the difference between the sum of the VAR by individual risk type and the combined total VAR. A negative number represents the benefit of portfolio diversification. As the maximum and minimum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification benefit for these measures.

57 The total VAR is non-additive across risk types due to diversification effects.

58 Investments in private equity are primarily made through managed funds that are subject to limits on the amount of investment. Potential new commitments are subject to risk appraisal to ensure that industry and geographical concentrations remain within acceptable levels for the portfolio as a whole. Regular reviews are performed to substantiate the valuation of the investments within the portfolio.

59 Investments held to facilitate ongoing business include holdings in government-sponsored enterprises and local stock exchanges.

60 Instead of assuming that all interest rates move together, we group our interest rate exposures into currency blocs whose rates are considered likely to move together.

Risk management of insurance operations

61 HSBC has no insurance manufacturing subsidiaries in the Middle East and North Africa.

62 The decline in life insurance liabilities in North America reflects the classification of the majority of this business as held for sale at 30 June 2012. At 30 June 2012, the held-for-sale North American life insurance liabilities by contract type comprised credit life contracts (US$21m), annuities (US$731m) and term assurance and other long-term contracts (US$203m).

63 Insurance contracts and investment contracts with discretionary participation features ('DPF') can give policyholders the contractual right to receive, as a supplement to their guaranteed benefits, additional benefits that may be a significant portion of the total contractual benefits, but whose amount and timing are determined by HSBC. These additional benefits are contractually based on the performance of a specified pool of contracts or assets, or the profit of the company issuing the contracts.

64 Although investment contracts with DPF are financial instruments, HSBC continues to account for them as insurance contracts as permitted by IFRS 4.

65 Net written insurance premiums represent gross written premiums less gross written premiums ceded to reinsurers.

66 Term assurance includes credit life insurance.

67 The Other assets column shows shareholder assets as well as assets and liabilities classified as held for sale. The majority of the assets for insurance businesses classified as held for sale are reported as 'Other assets and investment properties' and totalled US$2.4bn at 30 June 2012 (31 December 2011: US$0.1bn; 30 June 2011: nil). Assets classified as held for sale consist primarily of debt securities.  All liabilities for insurance businesses classified as held for sale are reported in 'Other liabilities' and totalled US$1.6bn at 30 June 2012 (31 December 2011: US$0.1bn; 30 June 2011: nil). The majority of these liabilities were life and non-life policyholder liabilities.

68 Present value of in-force long-term insurance contracts and investment contracts with DPF.

69 Does not include associated insurance companies, Ping An, SABB Takaful Company or Bao Viet Holdings, or joint venture insurance companies, Hana Life and Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited.

 

END

 

 

IR PPMFTMBTMBFT