A.M. Best Affirms Ratings of HSBC Finance Corporation's North American Members; Revises Outlook to Negative

Business Wire, June 12, 2008

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of the three insurance companies (collectively known as HSBC Insurance) representing the primary North American operating entities of HSBC Finance Corporation, which is a strategic member of HSBC Holdings, plc. (HSBC) (United Kingdom). The three insurance companies are Household Life Insurance Company (Household Life) (Detroit, MI), its wholly owned subsidiary, First Central National Life Insurance Company of New York (First Central), and HSBC Insurance Company of Delaware (HSBC Insurance Company), a property/casualty affiliate. The outlook has been revised to negative from stable.

The rating actions on Household Life reflect its superior stand-alone risk-adjusted capitalization, which is enhanced by the financial strength and financial flexibility of its ultimate parent, HSBC, one of the largest banking and financial service organizations in the world. These rating actions also recognize the competitive market advantages and potential growth opportunities derived from Household Life's access to HSBC's vast customer base and business lines. Additionally, these rating actions acknowledge Household Life's profitable overall statutory operating results and its position among the leaders in the credit insurance marketplace. First Central is the New York marketing arm of Household Life and markets a similar product portfolio.

Partially offsetting these positive rating factors are Household Life's exposure to consumer lending based credit insurance markets, execution risks associated with its new business plans to diversify revenues and restore top-line growth, its continued dependency on the economically sensitive consumer finance industry along with competitive pressures from large life insurers and financial institutions. Moreover, HSBC Insurance maintains a sizable run-off block of structured settlement business in an affiliate of Household Life that has considerable reinvestment risk and exposes the group to a significant asset/liability mismatch. To diversify its business mix, Household Life has implemented strategies aimed at expanding its product portfolio, customer base and distribution channels through such initiatives as its online direct-term life insurance program, identifying cross selling opportunities within HSBC and exploring new distribution alternatives.

In addition to the rating factors outlined above, the negative outlook reflects the group's flattening top-line growth and that HSBC Insurance has yet to realize meaningful revenue or earnings from its new strategic initiatives.

The rating actions on HSBC Insurance Company acknowledge its superior risk-adjusted capitalization, high quality investment portfolio and solid underwriting and operating results on business it began to assume in 2005. The company continues to benefit from management's specialty niche underwriting expertise and the potential competitive market advantages derived from HSBC.

These factors are offset by HSBC Insurance Company's ancillary position within the HSBC organization as a property/casualty insurance writer and its reliance on credit related product offerings (a large portion generated by a life affiliate), which pose business concentration risks including the exposure to economic downturns and changes in regulatory environment.

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.