GE Insurance Affirmed

Fitch Ratings has affirmed the ‘A-‘ long-term issuer rating on GE Insurance Solutions Corp. and the ‘A-‘ ratings on GE Insurance’s senior unsecured notes. Fitch has also affirmed the ‘AA-‘ insurer financial strength rating on GE Insurance’s subsidiary, Employers Reinsurance Corporation (ERC). The outlook is stable.

Fitch’s rating actions follow GE Insurance’s ultimate parent company, General Electric Company’s, recent disclosure that it has increased loss reserves in its insurance operation by $472 million after tax in the fourth quarter 2004 and that in aggregate, it increased prior accident year reserves by $1.2 billion in 2004.

The $1.2 billion of aggregate development is within the range of potential reserve deficiencies that Fitch had considered in July 2004 when it downgraded GE Insurance’s and ERC’s ratings to their current levels. Based on its review of ERC’s group basis year-end 2003 Schedule P data and the company’s recent development history, Fitch estimated a 15 percent to 25 percent reserve deficiency at that time. Although Fitch views the adverse prior accident year reserve development as significant, it believes that the company’s capitalization continues to support its current ratings. Fitch notes that GE Insurance’s debt-to-capital ratio at Sept. 30, 2004, including the effect of the $472 million after-tax charge on a pro-forma basis, is 21 percent compared to 17 percent on a reported basis.

The ratings on GE Insurance and ERC continue to reflect Fitch’s concerns about ERC’s underwriting performance, which has generally lagged that of peers during periods of strong market conditions. ERC’s ability to materially improve its underwriting performance will be complicated by deteriorating cyclical pricing conditions in the reinsurance and commercial lines markets.

Fitch continues to believe that GE will likely further restructure or divest the companies at some point and thus its ratings on ERC and GE Global are largely stand-alone ratings with little financial support from GE.