HSBC Life International Limited, a Bermuda-based provider of life insurance products in the Hong Kong market, has been praised by ratings firm A.M. Best Co. for its strong earnings growth, and improved risk to capital ratio.

A.M. Best, in a press statement yesterday, said it was affirming the HSBC unit?s financial strength rating of ?A+? and assigned an issuer credit rating of ?aa-?. The outlook for both ratings is stable, or unlikely to change.

As well, A.M. Best said HSBC Life faced bright prospects because of its strong distribution network, and the sustainable profitability of its Mandatory Provident Fund (MPF) business, a Hong Kong retirement scheme. Fee income from this part of the business increased significantly last year, A.M. Best said.

HSBC Life is owned by multinational banking giant HSBC Plc, which is the largest banking group in Hong Kong. The life unit, which was formed as a Bermuda company in 1981, distributes its insurance and pension products through the bank?s Hong Kong branches.

?The bancassurance distribution channel has allowed HSBC Life to develop a sustainable edge over its competitors in acquiring new business and servicing existing customers,? A.M. Best said, in its statement.

And it expects the unit to continue to draw more customers from those already banking with HSBC. A.M. Best?s capital adequacy ratio, which measures capitalisation on a risk-adjusted basis, indicates that HSBC Life?s capitalisation has improved since 2004 due primarily to its retaining its net profits from that year. And slower growth in ordinary life business in 2005 eased pressure on the company?s capital. There are some potential challenges in store, however, for the life unit. A.M. Best said strong market competition in the life insurance industry will drive mergers and acquisitions.

While HSBC isn?t necessarily lining up to participate in life M&A activity, it may find itself under price competition pressures as consolidation increases. The end result could be lower profits.

The MPF business could also fluctuate as employees begin to notice divergence in the investment performance of different fund managers, A.M. Best said.