ERC Ratings Lowered

S&P’s lowered its counterparty credit and financial strength ratings on Employers Reinsurance Corp. and its wholly owned subsidiaries (collectively, ERC) to “AA-” from “AA+” because of the serious deterioration in ERC’s operating performance. Also lowered were S&P’s counterparty credit and senior debt ratings on GE Global Insurance Holding Corp., the parent company of GE Capital Services’s reinsurance businesses, to “A” from “AA-” because of ERC’s dominant position in the group that services the company’s debt.

General Electric Co. is expected to contribute $1.8 billion in capital, at which time the ratings will be removed from CreditWatch. They were placed on CreditWatch with negative implications on Sept. 30, 2002, following GE’s announcement that ERC’s third-quarter underwriting results deteriorated further and that the prospects for the full year were disappointing.

S&P’s said the “downgrades reflect the serious deterioration in ERC’s operating performance,” noting the management team has taken steps to improve pricing adequacy and operating performance. However, S&P’s believes that it is too early to judge their effectiveness fully.

ERC benefits from an established, diversified insurance/reinsurance platform, especially in light of recently improved market conditions, and a restored, very strong capital base. S&P’s believes, however, that ERC is non-strategic to GE because of the nature of the insurance/reinsurance sector, which requires strong levels of dedicated capital and assumes a range of earnings volatility. As such, there is uncertainty about whether the management team, given its strong ties to GE, will remain in place and execute its long-term corporate strategy.

Topics Reinsurance