News | March 23, 2001

A.M. Best Affirms Rating of Employers Reinsurance Corporation

Source: GE Employers Reinsurance Corporation (ERC), Insurance Company Segment

A.M. Best Co. has affirmed the A++ (Superior) group financial strength rating of Employers Reinsurance Corporation, Overland Park, KS, and its affiliated domestic and international non-life and life insurance companies, cumulatively comprising the GE Global Insurance Group.

The rating reflects the group's leading global market position and superior financial strength, derived in part from its ultimate ownership by the General Electric Company. The rating also considers the group's prospective earnings capability, well-diversified business platform and dominant position in the worldwide life and non-life reinsurance markets. GE Global benefits from its extensive market capabilities and strong balance sheet, which is supported by disciplined underwriting, conservative reserving and prudent risk management strategies. The strength of the group's balance sheet is further augmented by the significant financial flexibility of its ultimate parent. Favorable levels of capitalization at the holding company and operating companies provide ample support for its business risks.

The group ranks among the top four reinsurance organizations worldwide and is currently the second largest provider of life reinsurance in the US. With operations on six continents, GE Global provides product capabilities, capacity and an extensive corporate network that can service large multinational risks. These strengths are supported by its direct and broker marketing capabilities, specialized underwriting expertise, well-established international franchise and strong market penetration with regional companies. The diversity of the group's operations is also augmented by its specialty businesses, which focus on niche property and casualty classes written on a primary basis throughout the US. Lastly, the group benefits from its relatively low exposure to mass tort, reduced exposure to catastrophe losses and its prudent retrocession program, designed to afford earnings stability.

Partially offsetting these positive rating factors are the group's recent decline in operating performance and potential exposure to adverse reserve development stemming from its significant book of excess casualty business. Over the past two years, the group has experienced erosion in its pre-tax operating returns relative to its historical track record. This recent decline resulted from weak underwriting performance in its core property/casualty reinsurance and certain specialty insurance businesses. While this recent trend can be attributed to a protracted period of inadequate pricing in property/casualty business segments, it was compounded by increased catastrophe losses in 1999, primarily in Europe, and, to a lesser extent, adverse development on recent accident year reserves in 2000. While weak operating fundamentals in its property/casualty businesses has been tempered by a growing profit contribution from its life reinsurance operations, overall the group's operating performance has fallen below historically superior levels. Further, despite the harvesting of realized capital gains, returns on equity have also been trending lower.

These concerns are somewhat mitigated by emerging market improvements in the property/casualty sector. In addition, a new senior management team has quickly and aggressively implemented focused initiatives aimed at improving the profitability in core business segments, while adhering to conservative reserving, risk management and investment practices. As a result, A.M. Best anticipates a moderate improvement in the group's overall underwriting profitability for 2001, but believes that the group has exceptional capability to take full advantage of the emerging improvements in the property/casualty marketplace, thereby restoring favorable performance trends over the mid-term.

The A++ financial strength rating applies to the US and international affiliates that comprise the core operations of GE Global Insurance Holding Corporation (GE Global), Overland Park, Kansas. A.M. Best considers these companies to be core subsidiaries for the group, as they are integral to its overall strategy and critical to its ongoing success and viability. In addition, the following companies, which generate a large majority of its total business, are material contributors to GE Global's market profile, operating performance and financial strength and are generally well established within their individual market segments.

M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.

GE Employers Reinsurance Corporation (ERC), Insurance Company Segment, 5200 Metcalf, Overland Park, KS 66202. Tel: 913-676-5200; Fax: 913-676-5221.

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