A.M. Best Affirms Ratings of HSBC‘s U.S. Life Insurance Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “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 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).

In addition, A.M. Best has downgraded the FSR to A- (Excellent) from A (Excellent) and ICR to “a-” from “a” of HSBC Insurance Company of Delaware (HSBC Insurance Company) (New Castle, DE), a property/casualty subsidiary of HSBC. The outlook for all ratings is stable.

The ratings of Household Life reflect its superior risk-adjusted capitalization, profitable overall statutory operating results and initial success in marketing its recently established term life insurance product line. While Household Life has experienced an overall decline in premiums in recent periods—as the company lost its primary distribution channel for its core credit insurance products in the United States—ordinary life premiums have increased noticeably during this time. A.M. Best notes that the company is in the process of repositioning its business profile by focusing on growing sales within its ordinary life product line. A.M. Best believes that HSBC's vast global resources, financial strength and brand equity enhance the competitive advantages of Household Life and the other insurance affiliates of HSBC Insurance Company, although the current operations of Household Life are not viewed by A.M. Best to be financially material to the overall HSBC enterprise.

While operating gains have declined due to expenses associated with Household Life’s new term life initiative, as well as lower investment income, the company has benefited from the release of reserves and the absence of new business expense strain in its large block of credit life and accident and health insurance. A.M. Best believes earnings generated by the run-off block of credit insurance should be sufficient to offset expected statutory operating losses associated with the term life insurance initiative over the near term. Going forward, A.M. Best will be monitoring the company’s ability to successfully execute its current strategy of penetrating HSBC’s customer base and developing new distribution outlets for its life products. Future rating actions on Household Life also will be dependent upon the company’s ability to begin generating statutory operating gains in its ordinary life product line over the medium term.

The rating actions on HSBC Insurance Company acknowledge its strong risk-adjusted capitalization and solid underwriting and operating results. These rating factors are offset by HSBC’s recent decision to eliminate HSBC Insurance Company’s 50% co-insurance agreement with its affiliate, Household Life, which generated the majority of the company’s premium production. This decision expedites the run-off status of the company that was driven by HSBC’s 2009 announcement that it would cease issuing credit insurance in the United States, which included the subsequent closure of HSBC Insurance Company’s primary distribution source. A.M. Best anticipates that HSBC Insurance Company will continue to produce positive operating results as it runs off its traditionally profitable core credit businesses, while maintaining a level of risk-adjusted capital that supports its current ratings.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

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.

A.M. Best
Analysts
Michael Adams—L/H, 908-439-2200, ext. 5133
[email protected]
or
Charles Meyer—P/C, 908-439-2200, ext. 5374
[email protected]
or
Public Relations
Rachelle Morrow, 908-439-2200, ext. 5378
[email protected]
or
Jim Peavy, 908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.