Best Announces Rating Actions on Subsidiaries of GE Insurance Solutions; CEO Comments

A.M. Best Co. announced that it has affirmed various financial strength ratings of the P/C subsidiaries of GE Insurance Solutions Corp., including the financial strength ratings of ‘A’ (Excellent) of Employers Reinsurance Corporation (ERC) and Illinois-based GE Reinsurance Corporation (GE Re), together known as Employers Re Corp Group. Best also affirmed the issuer credit ratings of “a” of ERC and GE Re.

However, Best said it has “downgraded the issuer credit and senior debt ratings of GE Insurance Solutions to ‘bbb’ from ‘bbb+'”. In a separate bulletin Best also announced that has downgraded its ratings on Employers Reassurance Corporation (See following article).

All the ratings have been removed from under review with negative implications and assigned a stable outlook.

“These rating actions follow management’s implementation of various steps taken to restore and maintain ERC’s and GE Re’s risk-adjusted capitalization at prudent levels relative to their ratings and risk profile,” said Best. “The need for such actions was precipitated by General Electric Company’s previously announced after-tax charge taken by GE Insurance Solutions of $472 million in the fourth quarter of 2004 stemming from adverse reserve development, aggregating $750 million after-tax for the full year 2004.

“Accordingly, management of GE Insurance Solutions provided A.M. Best with a capital restoration plan at that time, which included explicit support from General Electric Capital Corporation (GECC). Major components of that plan include a recently concluded increase in cash capital of $350 million from GE Capital Services; a commitment from GE Insurance Solutions to provide additional tangible capital by the end of the third quarter of 2005; the exchange of $1.2 billion of ERC preferred stock for new ERC common stock, thereby improving financial flexibility and the quality of capital; and other potential activities designed to further improve its surplus position, risk-adjusted capitalization and business profile.”

Commenting on the rating actions and on the capitalization measures, Ron Pressman, chairman, president and CEO of GE Insurance Solutions indicated: “We are pleased that A.M. Best has acknowledged in our discussions the tremendous strength of our investment portfolio, our strong capital level, our market presence and GE’s substantial support. We have and will continue to constructively address issues raised by the rating agencies while meeting our commitment to provide our clients with long-term security and deep, practical risk expertise.”

Best said it has assigned a stable outlook due to “the explicit support in the form of strongly worded capital maintenance agreements for ERC and GE Re provided by GECC, which ensure that risk-adjusted capitalization of these two companies will be maintained on a continuing basis at a superior level. Accordingly, the property/casualty subsidiaries and affiliates, which utilize ERC as a reinsurer or shared business platform, will also benefit from the capital maintenance agreements.”

The rating agency added that the “downgrading of the debt and issuer credit ratings of GE Insurance Solutions reflects the lack of explicit support from GE to GE Insurance Solutions’ creditors despite, its more conservative financial leverage position.”