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

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--Feb. 24, 2003

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

The rating reflects HSBC Life's leadership position in Hong Kong's long-term insurance business, strong distribution capabilities, robust growth in new business and sustained increase in embedded value. The rating also benefits from HSBC Life's important role within the HSBC Banking Group, whose ongoing commitment is critical to the company's ability to support further growth in its business.

HSBC Life has maintained its position as the leader in the retirement savings and Mandatory Provident Fund (MPF) business, with an approximately 40% market share. The retirement savings business constituted almost 88% of total premiums in 2001.

By distributing its products through HSBC's extensive network of bank branches and personal financial services centers, the company has developed an advantage over its competitors. This is of particular importance to the pension business, since about 86% of the working population is already under some form of retirement protection as of December 2001.

Total new business premiums increased by over 140% in 2001, reflecting robust growth in both the pension business and the individual life business. For the individual life business, new sales of non-linked and investment-linked plans increased by 310% and 52%, respectively. In line with the strong premium growth, the embedded value of the individual life business has increased significantly over the year.

Through a recent purchase of 10% of China's Ping An Insurance, HSBC Holdings plc has indirectly acquired a 3% share of China's life insurance market. Under the new arrangement, HSBC Life would provide technical assistance to the Chinese insurer, solidifying its position within the group's new corporate direction.

Offsetting factors include the deterioration in the company's risk-adjusted capital, declining investment yields and medium-term pressure on capital from the MPF business.

HSBC Life's capital and surplus decreased by over 30% in 2001, compared to nearly a 6% increase in 2000. The deterioration is mainly attributable to the first-year commission expenses of the MPF business, which amounted to HKD 380 million (USD 49 million). The investment returns on the ordinary life products and the shareholders' fund have also declined due to depressed equity prices and low interest rates.

The MPF business has yet to generate profits since its inception in late 2000 due to front-end loaded costs. The MPF business will continue to exert pressure on earnings as well as the company's ability to generate internal surplus growth. The current economic climate in Hong Kong will further accelerate this process. A.M Best will continue to closely monitor the company.

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 www.ambest.com.