S&P Upgrades Electric Insurance

S&P raised its counterparty credit rating and FSR on Beverly, Mass.-based Electric Insurance Co. (EIC) to “A” from “A-.” The outlook is stable.

S&P considers EIC’s statutory surplus of $222.1 million in 2000 to be extremely strong. EIC’s capital adequacy ratio, based on S&P’s property/casualty capital model, was 253.8 percent after adjustments for retrospectively rated commercial lines. Also strong were the company’s earnings based on its adjusted earnings adequacy ratio of 131.7 percent for 2000. Revenue for 2000 was $316 million compared with $286 million for 1999. ROR (pretax operating income divided by total revenue, excluding net capital gains) was 4.6 percent for 2000, up modestly from 4.5 percent in 1999. The combined ratio for 2000 was 105.5 percent compared with 105.3 percent in 1999, which is better than the industry’s combined ratio of 109.1 percent.

According to S&P, EIC is continuing to pursue its two-pronged operating strategy. Its personal lines business focuses primarily on serving General Electric Co. employees, former employees, referrals, and other consumers. In commercial lines, EIC continues to be the exclusive service provider of all GE commercial programs; it does so cost effectively by being proactive and by adhering to strict underwriting guidelines.

S&P further noted that EIC’s management team has experience in working together and sharing a culture fostered by GE. S&P believes that strong underwriting discipline in personal lines—coupled with superior claims-management services in commercial lines—makes EIC’s management team quite strong. EIC also continues to build on its E-commerce strategy, and has developed an impressive infrastructure, especially in light of its relatively small size, to support its direct distribution efforts. As it builds scale, S&P believes EIC is well positioned to achieve its goal of providing low-cost, high-quality services.

Net premium growth in personal lines is expected to be in the 5 percent to 10 percent range. The ROR for the entire book is expected to improve to 6 percent to 10 percent for the next few years. The combined ratio should stay at about 105 percent in the next 12-18 month period. Furthermore, the expense ratio in personal lines is expected to fall below the current level of 24 percent as EIC continues to benefit from its success in online business. Capital adequacy is expected to remain extremely strong because of EIC’s relatively low potential catastrophe exposure and the absence of any long-tailed latent exposures.