OLDWICK, N.J.--(BUSINESS WIRE)--
A.M. Best Co. has downgraded the financial strength rating (FSR)
to B++ (Good) from A- (Excellent) and issuer credit ratings (ICR) to
“bbb+” from “a-” of Household Life Insurance Company (Household
Life) (Detroit, MI) and its wholly owned subsidiary, First Central
National Life Insurance Company of New York(First Central) (New
York, NY). Household Life and First Central, (together referred to as
Household Life Insurance Group), are the principal insurance operating
entities of HSBC Finance Corporation, which is an indirect wholly owned
subsidiary of HSBC Holdings, plc. (HSBC) (United Kingdom) [NYSE:
HBC]. Concurrently, A.M. Best has downgraded the FSR to B++ (Good) from
A- (Excellent) and the ICR to “bbb+” from “a-” for Household Life’s
property/casualty affiliate,HSBC Insurance Company of Delaware
(HSBC DE) (New Castle, DE). The outlook for all ratings is stable.
The rating actions for the Household Life Insurance Group primarily
reflect the recent announcement that it will cease manufacturing
insurance products in the United States and Canada. Specifically, the
company has decided to exit the manufacturing of all insurance products
through the sale of HSBC Finance Corporation’s interest in substantially
all of its insurance subsidiaries. Insurance products will continue to
be offered to HSBC customers through non-affiliate providers. The
decision to sell these entities was made at the conclusion of a
strategic review that had been ongoing since the second half of 2011, at
which time HSBC had decided that this business was no longer consistent
with its core strategy in the United States and Canada. The company had
previously decided to cease issuing new term life insurance products in
2011 as part of this review. The ratings also reflect an anticipated
substantial decline in capital and surplus due to an extraordinary
stockholder dividend and A.M. Best’s expectation that Household Life
Insurance Group will be managing to much lower risk-adjusted capital
ratios going forward relative to historical levels.
Household Life Insurance Group’s ratings primarily recognize its
adequate risk-adjusted capitalization and generally positive operating
performance over the past five years. While operating results had
benefitted from the release of reserves from its credit insurance block
of business, earnings declined significantly in 2011. A.M. Best expects
the organization’s earnings to remain positive, although substantially
lower than its pre-2011 run-rate, due primarily to lower anticipated
A.M. Best views the Household Life Insurance Group to be well positioned
at its current rating level. Potential negative rating actions could
occur if benefit cost increases result in operating losses, or if
significant additional stockholder dividends are taken from the group
resulting in a further decline in risk-adjusted capital below A.M.
The rating actions for HSBC DE acknowledge the same issues as previously
discussed for its life affiliates in addition to the decision to cancel
an assumed reinsurance contract from Assurant Inc. (headquartered
in New York, NY) on a cut off basis effective June 1, 2012. This
contract had been a major source of business for the company in recent
years. As HSBC DE is now effectively in run off, its previously very
high level of risk-adjusted capital is expected to decrease
substantially by year end due to shareholder dividends. The stable
outlook reflects A.M. Best’s view that, notwithstanding the lower
capital base, the company will maintain sufficient capital to support
its run-off operations at the current rating level.
Potential negative rating actions could occur on HSBC DE should its
sizable shareholder dividends continue to such an extent as to
materially impact its risk-based capital, as measured by Best’s Capital
Adequacy Ratio (BCAR).
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world’s oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS
A.M. Best Co.Michael Adams, 908-439-2200, ext. 5133Senior
Rosendale, 908-439-2200, ext. 5201Assistant Vice Presidentthomas.email@example.comRachelle
Morrow, 908-439-2200, ext. 5378Senior Manager, Public
Peavy, 908-439-2200, ext. 5644Assistant Vice President,
Source: A.M. Best Co.