A.M. Best Affirms Ratings of HSBC Insurance Company of Delaware [Professional Services Close – Up]

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of HSBC Insurance Company of Delaware (HSBC Insurance Company) (New Castle, DE).

The outlook for both ratings is stable.

The ratings reflect HSBC Insurance Company's excellent level of risk-adjusted capitalization and historically strong underwriting and operating performance. These positive rating factors are partially offset by the company's premium reductions over the past five years driven by the termination of a 50 percent coinsurance agreement with an affiliate, Household Life Insurance Company. In addition, premiums also have been impacted by the decision of the company's parent, HSBC Finance Corp.</org> (HSBCFC), to no longer accept new business and close its consumer lending branch offices in the United States.

The lending business of HSBCFC was historically a significant source of business for HSBC Insurance Company. While the adjustment of the quota share agreement (from 20 percent to 50 percent) for Lender's Placed Homeowners' Insurance with Assurant Inc. generated significant premium growth in 2011, net written premiums in 2011 were down more than 60 percent from the 2007 level. The outlook reflects A.M. Best's expectation that HSBC Insurance Company will continue to generate solid operating earnings along with maintaining its strong risk-adjusted capitalization and solid liquidity position.

While the ratings for HSBC Insurance Company are stable, future positive rating actions may result from its continued strong underwriting and operating performance, which outperformed its peers for a period of time, in conjunction with stabilization of the company's product mix. However, negative rating actions could result if HSBC Insurance Company's underwriting and operating performance falls markedly short of A.M. Best's expectations or if there is a significant deterioration in the company's risk-adjusted capitalization.

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. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Catastrophe Analysis in A.M. Best's Ratings"; "The Treatment of Terrorism Risk in the Rating Evaluation"; "Understanding BCAR for Property/Casualty Insurers"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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