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Rating Action:

Moody's downgrades HSBC Seguros de Vida (Argentina) to B1/Aa3.ar; outlook remains negative

Global Credit Research - 06 May 2013

Buenos Aires City, May 06, 2013 -- Moody's Latin America downgraded HSBC Seguros de Vida (Argentina) S.A.'s global local-currency (GLC) insurance financial strength (IFS) rating to B1 from Ba3 and its Argentina national scale IFS rating to Aa3.ar from Aa2.ar. The outlook of both ratings remains negative.

RATINGS RATIONALE

HSBC Seguros de Vida provides life insurance products in the Argentine local market where it holds a 4% market share. Together with HSBC Seguros de Retiro (Argentina), the company is an integral part of HSBC's operations in Argentina which also include a leading commercial bank. The strong integration among the two insurance companies, as well as with the bank, is evident from the number of senior management, board members, and retail and corporate customers they share.

Moody's said that the downgrade of HSBC Seguros de Vida reflects the deterioration in its stand-alone credit profile, primarily driven by weaker asset quality and capital adequacy. As a result of a regulatory change in the local Argentine insurance market, the company had to repatriate its higher-quality foreign assets to lower-quality domestic sovereign bonds and other local instruments that carry speculative-grade ratings. As a result, there has been a sharp decline in the company's asset quality, as seen by the ratio of high risk assets to shareholder's equity which rose significantly to a level of 391% as of December 31, 2012, after reaching a peak of 490% as of June 30, 2012. Although HSBC Seguros de Vida's good profitability and equity growth could reduce the company's exposure to high-risk assets if capital is retained at the company, the rating agency said it would take some time to lower the company's exposure back to the level it was at a few years ago (e.g. approximately 200% of equity).

Alejandro Pavlov, senior analyst at Moody's, added, "HSBC Seguros de Vida's economic capitalization declined significantly over the past year because of a very large shareholder dividend taken out of the company in 2012, as well as the deterioration in the company's asset quality." The company's adjusted shareholder's equity-to-total assets ratio declined to 14% as of December, 31 2012, after averaging 26% in the 2008-2011 period. In addition, the company's local regulatory solvency margin fell to 20% at December 31, 2012 from its previous average level of 180%.

With respect to HSBC Seguros de Vida's public IFS ratings, Moody's commented that the company's B1 rating receives two notches of uplift from its stand-alone credit profile because of the ownership and implied support from the HSBC Group given the strong integration with the bank and the insurer's strong contribution to the combined earnings of the bancassurance group in Argentina.

Moody's went on to say that HSBC Seguros de Vida's outlook is still negative because of the negative outlook on the Argentine sovereign bond rating and the majority of local bank deposit ratings, given the insurer's high balance sheet exposure to these assets.

Given the negative outlook, an upgrade of the company is not likely; however, the following factors could move the outlook back to stable: 1) Argentine sovereign rating outlook returns to stable from negative, 2) significantly improved capitalization to similar levels observed in the past (e.g. local equity-to-assets metric around 25% and solvency margin around 200%), 3) strong improvement in Argentina's operating environment, 4) a more balanced business composition, with at least three business lines representing 25%-30% of policyholders' reserves/premiums, and 5) additional explicit parental support from HSBC (e.g., a guarantee or keepwell agreement).

The following factors could lead to a further downgrade of the rating: 1) downgrade of Argentina´s government bond rating and/or deterioration in Argentine's operating environment, 2) significant decline in its market share below 2%, 3) weakening profitability, 4) weaker combined business/financial profile of the two HSBC insurers in Argentina, 5) sale of the company by HSBC Group and/or 6) reduced support from and integration with HSBC Group.

The principal methodology used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for copies of these methodologies.

Based in Buenos Aires, Argentina, HSBC Seguros de Vida (Argentina) reported a net profit of ARS47 million and gross premiums written of above ARS255 million for the first half of 2012/13 fiscal year ended on December 31, 2012. Total assets were almost ARS861 million and its shareholders' equity was ARS178 million as of December 31, 2012.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for México. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in October 2012 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alejandro Pavlov
Vice President - Senior Analyst
Financial Institutions Group
Moody's Latin America
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 5129 2600

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Latin America
Ing. Butty 240
16th Floor
Buenos Aires City C1001AFB
Argentina
JOURNALISTS: (800) 666 -3506
SUBSCRIBERS: (5411) 5129 2600

Moody's downgrades HSBC Seguros de Vida (Argentina) to B1/Aa3.ar; outlook remains negative
No Related Data.

 

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