Standard & Poor’s affirmed its single-‘A’-plus counterparty credit and financial strength ratings on GE Reinsurance Corp. (GE Re). The outlook appears stable. The ratings affirmations are based on the company’s strategic importance to Employers Reinsurance Corp. (ERC), improving business position, very good level of capital adequacy, and excellent financial flexibility, offset by poor operating performance historically.
The major rating factors include: Strategic importance to GE Electrical Capital Services Inc.’s reinsurance group through development and expansion of an alternative reinsurance distribution channel. ERC’s wholly owned subsidiary, First Excess & Reinsurance Corp., was contributed to GE Re at year-end 1998 and the operations were merged in 1999.
· Improving business position. GE Re is the third-largest professional U.S. reinsurer dedicated to the broker market (based on 1999 net written premiums). GE Re has established broker market contacts with broad representation, which remained stable following the merger. There is limited dependency on ceding company relationships, a concentration which could add volatility to both the portfolio mix and product concentrations.
· Very good capital level. GE Re’s statutory surplus of $754.7 million as of year-end 1999 is considered very strong and is a significant strength in the financial strength rating. The capital adequacy ratio was 172.9% as of year-end 1999 as determined by Standard & Poor’s property/casualty capital model. The adequacy level has improved predominantly by the realization of $110 million in net capital gains.
· Financial flexibility. Deriving strength from its immediate parent, GE Global Insurance Holding Corp. (double-‘A’ senior debt rating), GE Re’s financial flexibility is very strong. GE Re has no debt outstanding currently and none is expected over the short term.
· Operating performance. Operating performance is poor in light of a combined four-year weighted average earnings ratio of 54.1%. Much of the underperformance is historical in nature, with an asbestos and environmental reserve strengthening of $400 million in 1996, property catastrophe losses in 1997, and an additional reserve strengthening of $200 million in 1998.
According to its outlook, Standard & Poor’s believes strong action taken in 1999 and 2000, such as addressing inadequate rates, exiting unprofitable nonstandard auto and accident and health accounts, improving catastrophe risk management by reducing and/or commuting selected property accounts, and an additional reserve strengthening will stabilize earnings performance in the long term.
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