ERC on CreditWatch

Standard & Poor’s Ratings Services placed its “AA+” counterparty credit and financial strength ratings on Employers Reinsurance Corp. and its wholly owned subsidiaries (collectively referred to as ERC) on CreditWatch with negative implications following parent General Electric Co.’s announcement that ERC’s third-quarter underwriting results have deteriorated further and that the prospects for the full year are disappointing.

S&P also placed its “AA-” senior debt rating on GE Global Insurance Holding Corp., the parent company of GE Capital Services’s reinsurance businesses, on CreditWatch negative because of ERC’s dominant position in the group that services the company’s debt.

In the last three years, ERC has strengthened reserves by more than $2.0 billion (excluding World Trade Center-related losses) for business written largely since 1996. An S&P analyst found ERC’s “degree and frequency of loss underestimation” to be troubling. In light of that underestimation, S&P questioned the adequacy of the company’s current loss reserves.

The stand-alone ratings on the ERC companies and ERC’s strategic role within GE are expected to be re-evaluated. The CreditWatch status of the ratings will likely be resolved prior to year-end 2002 after reviewing ERC’s loss reserve studies and plans for capital replenishment and having discussions with GE regarding its long-term commitment to ERC.