# 4. Financial risk management (continued)

# 4.3 Liquidity risk (continued)

# (C) Analysis of undiscounted cash flows by contractual maturities (continued)

# (b) Derivative cash flows

The tables below summarise the cash flows of the Group by remaining contractual maturity as at 31 December for derivative financial liabilities that will be settled on a net basis, together with all derivative financial instruments that will be settled on a gross basis regardless of whether the contract is in an asset or liability position. The amounts disclosed in the tables are the contractual undiscounted cash flows, except for certain derivatives which are disclosed at fair value.

The Group’s derivative financial instruments that will be settled on a net basis mainly include interest rate swaps whereas derivative financial instruments that will be settled on a gross basis mainly include currency forwards and currency swaps.

<table><tr><td rowspan="3"></td><td colspan="6">2018</td></tr><tr><td>Up to 
1 month</td><td>1 to 3 
months</td><td>3 to 12 
months</td><td>1 to 5 
years</td><td>Over
5 years</td><td>Total</td></tr><tr><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td></tr><tr><td>Derivative financial liabilities 
settled on a net basis</td><td>(8,983)</td><td>(884)</td><td>(2,338)</td><td>(5,061)</td><td>(1,002)</td><td>(18,268)</td></tr><tr><td>Derivative financial instruments 
settled on a gross basis</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total inflow</td><td>792,296</td><td>383,269</td><td>643,870</td><td>133,033</td><td>4,683</td><td>1,957,151</td></tr><tr><td>Total outflow</td><td>(793,145)</td><td>(382,112)</td><td>(641,036)</td><td>(133,384)</td><td>(4,660)</td><td>(1,954,337)</td></tr></table>

<table><tr><td rowspan="3"></td><td colspan="6">2017</td></tr><tr><td>Up to 
1 month</td><td>1 to 3 
months</td><td>3 to 12 
months</td><td>1 to 5 
years</td><td>Over
5 years</td><td>Total</td></tr><tr><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td><td>HK$’m</td></tr><tr><td>Derivative financial liabilities 
settled on a net basis</td><td>(7,463)</td><td>(720)</td><td>(1,127)</td><td>(3,580)</td><td>(856)</td><td>(13,746)</td></tr><tr><td>Derivative financial instruments 
settled on a gross basis</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Total inflow</td><td>635,704</td><td>462,071</td><td>492,297</td><td>125,606</td><td>5,181</td><td>1,720,859</td></tr><tr><td>Total outflow</td><td>(636,212)</td><td>(462,229)</td><td>(491,628)</td><td>(125,756)</td><td>(5,192)</td><td>(1,721,017)</td></tr></table>

# 4. Financial risk management (continued)

# 4.3 Liquidity risk (continued)

# (C) Analysis of undiscounted cash flows by contractual maturities (continued)

# (c) Off-balance sheet items

# Loan commitments

The contractual amounts of the Group’s off-balance sheet financial instruments as at 31 December 2018 that the Group commits to extend credit to customers and other facilities amounted to HK\$545,794 million (2017: HK\$569,658 million). Those loan commitments can be drawn within one year.

# Financial guarantee contracts

Financial guarantees and other financial facilities of the Group as at 31 December 2018 amounting to HK\$62,094 million (2017: HK\$66,800 million) are maturing no later than one year.

# 4.4 Insurance risk

The Group is in the business of insuring against the risk of mortality, morbidity, disability, critical illness, accidents and related risks. The Group manages these risks through the application of its underwriting strategy and reinsurance arrangements.

The underwriting strategy is intended to set premium pricing at an appropriate level that corresponds with the underlying exposure of the risks underwritten and the Group’s underwriting procedures include the screening processes, such as the review of health condition and family medical history to ensure alignment with the underwriting strategy.

Within the insurance process, concentrations of risk may arise where a particular event or a series of events could impact heavily on the Group’s liabilities. Such concentrations may arise from a single insurance contract or through a small number of related contracts, and relate to circumstances where significant liabilities could arise.

For the in-force insurance contracts, most of the underlying insurance liabilities are related to endowment, universal life, annuity, whole life and unit-linked insurance products. For most of the insurance policies issued, the Group has a retention limit on any single life insured. The Group cedes the excess of the insured benefit over the limit to reinsurer under an excess of loss reinsurance arrangement. For some of the insurance liabilities, the Group has entered into reinsurance arrangements that reinsure most of the insurance risk.

Uncertainty in the estimation of future benefit payments and premium receipts for long-term insurance contracts arises from the unpredictability of long-term changes in overall levels of mortality, morbidity and persistency. In this regard, the Group has conducted relevant experience studies. The results of such studies are considered in determining the assumptions of insurance liability which include an appropriate level of prudential margins.