GE Global, Employers Re Downgraded

Fitch Ratings downgraded the long-term issuer and senior debt rating of GE Global Insurance Holding Corporation (GE Global) to “A” from “A+.” Fitch also downgraded the insurer financial strength (IFS) rating of Employers Reinsurance Corp. (ERC), GE Global’s main operating subsidiary, to “AA” from “AA+.” The outlook remains negative.

The rating action follows General Electric Co.’s (GE), ERC’s ultimate parent company, fourth quarter 2002 update announcing a $1.4 billion after-tax charge to increase prior year loss reserve at ERC. Fitch said the magnitude of the charge is outside of expectations and suggests a lack of underwriting discipline. The charges are believed to stem primarily from accident years 1997-2000 and are spread across many lines of business.

On the positive side, GE has said that it would contribute $1.8 billion after-tax to ERC which should effectively recapitalize ERC’s operations after the reserve charges, which follow two and a half years of previous charges related to adverse development in prior years loss reserves. Those developments occurred primarily in the 1997 to 2000 period and stem from inadequate pricing in the property and casualty insurance and reinsurance industry, and the tragic events of Sept. 11, 2001.

While it plans to monitor ERC’s results over the intermediate term, Fitch believes that a restructuring of ERC’s operations or a sale of the company may occur in the more immediate future. Fitch expects ERC to record improvements in underwriting profitability commensurate with the current pricing environment. These factors will be key considerations in Fitch’s rating actions going forward.