A.M. Best Lowers Ratings on GE Global Insurance and Affiliates

A.M. Best Co. announced that it has lowered the financial strength ratings to A+ (Superior) from A++ (Superior) of Employers Reinsurance Corporation (ERC) and its affiliated domestic and international non-life and life reinsurance companies, cumulatively comprising the GE Global Insurance Group (GE Global). It also lowered the group’s senior debt securities from “aa-” to “a,” and indicated that its outlook on all the ratings “remains negative.”

Best said its actions were directly related to last Friday’s announcement by the parent company, General Electric, that GE Global would suffer a net loss in the third quarter of between $350 million-$450 million.

“Overall, GE Global’s operating performance continues to perform below expectations for Superior rated companies due to weak operating fundamentals in its property/casualty businesses, which have been slightly tempered by a growing profit contribution from its life reinsurance operations,” said the bulletin.

“During the past five years, GE Global has experienced a decline in pre-tax and total operating returns resulting in reduced capitalization,” it continued. “Despite capital infusions from its parent, GE Capital, inadequate pricing in its property/casualty books between 1998-2000 emerged as adverse loss reserve development in 2001 and continued into third quarter 2002, cumulatively totaling in excess of $1.2 billion. A.M. Best notes GE Global has made significant progress towards improving underwriting performance but believes it may continue to face challenges in re-balancing its significant book of excess casualty business and restoring underwriting performance to consistently stronger levels.”

Best also stated that “The rating also is reflective of A.M. Best’s concerns regarding GE’s long-term commitment to GE Global due to its bias against earnings volatility inherent in GE Global’s non-life businesses, as well as the moderate degree of financial leverage at GE Global.”

On the upside Best confirmed the group’s “dominant position in the worldwide life and non-life reinsurance markets,” noting that it currently ranks as the world’s fourth largest reinsurer, and the second largest life reinsurer in the U.S.

“With operations in six continents, GE Global provides product capabilities, capacity and an extensive corporate network that services 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 of regional companies,” said the bulletin.