A.M. Best Affirms Rating of HSBC Life -International- Limited.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) of HSBC Life (International) Limited (HSBC Life) (Bermuda). The rating outlook is stable.

The rating reflects HSBC Life's sustainable profitability in the Mandatory Provident Fund (MPF) business, dominant position in the Hong Kong life insurance market, outstanding distribution capabilities and diversified earnings source. The rating also considers the importance of HSBC Life to the HSBC Banking Group in the Hong Kong market and the potential business growth in the life insurance market in China.

HSBC Life, although recently transferred to HSBC Insurance (Asia) Limited, is ultimately owned by HSBC Bank, the largest banking group in Hong Kong. As a core subsidiary within the group, HSBC Life distributes products through the extensive branch network of its parent in Hong Kong. With the well-established bancassurance distribution strategy, HSBC Life has achieved robust growth of approximately 70% in individual life non-linked new business in fiscal year 2004 (compared with 221% in 2003). The embedded value of the company's individual life portfolio also rose significantly in fiscal year 2004, which is in line with its significant ordinary life premium growth.

HSBC Life has maintained its leading position in the retirement scheme business since the introduction of the MPF scheme by the Hong Kong government in fiscal year 2001. Currently, HSBC Life has approximately a third of the Hong Kong retirement savings market. Reduction in costs and increasing economies of scale have delivered MPF profit for 2004.

These positive factors are partially offset by the company's weak risk-adjusted capitalization and increased competition in the retirement savings business.

The Best's Capital Adequacy Ratio, which measures capitalization on a risk-adjusted basis, indicates that HSBC Life is marginally capitalized. The rapid expansion in ordinary life business has exerted pressure on the company's capitalization. Although HSBC Life's total capital and surplus increased to HKD 1,279 million (USD 164 million) in fiscal year 2004 from HKD 500.6 million (USD 64.2 million) in fiscal year 2003, its relative capitalization is weaker than its peers.

HSBC Life will continue to face challenges in the compulsory retirement savings business. Given the limited industry size, market consolidation is inevitable with more insurers focusing on the profitability of the MPF business, as well as achieving the economies of scale in the company's cost structure.

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

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.