A.M. Best Affirms Ratings of HSBC Life (International) Limited

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit rating of “aa-” of HSBC Life (International) Limited (HSBC Life) (Bermuda). The outlook for both ratings is stable.

The ratings of HSBC Life reflect its strong market position and brand name recognition in its core business lines, sustainable operating profitability, as well as the distribution benefits the company receives as a wholly owned subsidiary of Hong Kong and Shanghai Banking Corporation Limited (HSBC). The rating affirmation also acknowledges the financial strength and flexibility of HSBC Life’s ultimate parent, HSBC, one of the largest financial conglomerates in the world.

HSBC Life has maintained its market share in the local industry over the past five years. The company has a prominent regional position in the market segments for individual life insurance, with a 13.0% market share in 2007 as measured by direct in-force premiums (11.1% in 2006). Currently, the company is one of the largest insurers providing life insurance and retirement schemes, namely Mandatory Provident Fund (MPF), in Hong Kong.

As a core insurance subsidiary within the HSBC Group, HSBC Life distributes products through the broad branch network of HSBC Bank and personal financial services centers. With this well-established bancassurance distribution platform, HSBC Life’s ability to acquire new business has strengthened. Its new business premiums grew robustly during 2007, driven by the individual linked and pension products. While HSBC Life has sustained its foothold in the local market, it expands its product reach in Taiwan by utilizing its bancassurance model and capability.

HSBC Life’s operating results remains profitable. Net income increased by 90% to HKD 2.6 billion (USD 335.8 million) in 2007 from 2006, due mainly to strong investment returns. A.M. Best believes the company’s stable level of premium growth, favorable MPF fee income and strong investment results will continue to enhance its overall operating profitability.

These strengths are partly offset by the weaker risk-adjusted capitalization on a stand-alone basis and increasing competitive market conditions in MPF markets.

HSBC Life’s stand-alone risk adjusted capitalization, as measured by Best’s Capital Adequacy Ratio, has declined given its exposure to higher risk assets and underwriting risk, though the company’s absolute capital position has improved to HKD 4.3 billion (USD 555.3 million) in 2007 from HKD 3.1 billion (USD 400.8 million) in 2006. HSBC Life’s management revealed to A.M. Best that its capital position will be monitored on an ongoing basis. A.M. Best recognizes HSBC Group’s stated policy of ensuring adequate capitalization of its subsidiaries but remains cautious of HSBC Life’s business growth and respective impacts on its stand-alone risk-adjusted capitalization.

In addition, A.M. Best believes that HSBC Life may be challenged to build additional scale at the same profitability margins, given the increasingly competitive environment in the MPF business.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.