Bank's insurance business seen as a non-core asset.

HSBC is believed to be selling its underwriting business, HSBC Insurance (UK), formerly called Corinthian Insurance, as the credit crunch tightens its grip on the British financial services sector.

In a dramatic week on both sides of the Atlantic after the US Congress rejected a $700bn (£394m) bail-out of Wall Street banks, stocks plummeted once again and two more banks – Fortis and Bradford & Bingley – had to be rescued by governments.

HSBC, which last week axed 1,100 jobs worldwide, is thought to be selling off its insurance business, the 24th largest in the UK, because it is a non-core asset that reported a loss last year.

Several senior industry sources told Insurance Times a sale was going ahead, although the move was denied by an HSBC spokesman.

As an underwriting business, HSBC would have to hold a certain amount of capital to meet solvency requirements, which has become more difficult in the current economic climate.

A leading analyst said: “It does not trade with HSBC, it does not trade with HSBC clients, it’s just a stand-alone business. In the current environment, why would they hold on to it?”

The analyst added that a private equity firm would be a likely buyer.

HSBC Insurance specialises in motor and household insurance. Its net written premium for motor business in 2007 was £180m. Originally a Lloyd’s syndicate called Corinthian Policies, it was acquired by HSBC in 1996.

HSBC also owns a broker, HSBC Insurance Brokers, which is thought to be unaffected.

Philip Gregory, chief executive of the broker business, told Insurance Times last August that he had ambitious expansion plans.

He planned to strengthen connections between commercial broking and sales teams and eliminate back-office inefficiencies while securing an extra 22,500 commercial policies a year, he said.