Best Affirms HSBC Insurance/Asia Ratings; Outlook Listed as Stable

May 27, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Hong Kong-based HSBC Insurance (Asia) Limited with a stable outlook.

“The rating reflects HSBC Insurance’s prudent capitalization, strong distribution capabilities, superior operating performance and well-structured reserving and reinsurance arrangements,” said Best. “The rating also considers the operational synergies for HSBC Insurance as a core subsidiary of the Hong Kong & Shanghai Banking Corporation, the largest licensed bank in Hong Kong.

“HSBC Insurance has a very strong capital position. The Best’s Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, demonstrates an adequate solvency margin. HSBC Insurance benefits from bancassurance, as well as the extensive distribution network of the HSBC group.”

Best also noted: “Both underwriting and investment activities have contributed favorably to the bottom line results of the company. In fiscal year 2004, the loss ratio continued its downward trend to the lowest level since 1998, dropping to 28.6 percent (compared with 34 percent in the previous year). The average annual combined ratio for the past five years was 77.3 percent.

“Solid underwriting performance and stable investment income resulted in a net income after tax growth of 16.4 percent in 2004. Net income was HKD 193 million (USD 24.7 million) in fiscal year 2004, compared to HKD 166.3 million (USD 21.3 million) in fiscal year 2003.”

However Best said “heavy dividend repatriation and the transformation of ownership of its moderately capitalized subsidiary, HSBC Life (International) Ltd.” constituted partially offsetting factors. “HSBC Insurance’s high dividend payout policy has limited the growth of capital and surplus,” best continued. “In 2004, approximately 90 percent of net income was paid out as dividend. A.M. Best is also concerned that the modest capitalization level of HSBC Life (International) Ltd. may result in financial strain of HSBC Insurance (Asia) Limited.”

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