A.M. Best Lowers Ratings for GE Global and Affiliates

October 14, 2002

A.M. Best Co. has lowered the financial strength ratings to A+ (Superior) from A++ (Superior) of Employers Reinsurance Corporation, and its affiliated domestic and international non-life and life reinsurance companies, cumulatively comprising the GE Global Insurance Group (GE Global).

Concurrently, the rating on the existing senior debt securities was lowered from “aa-” to “a” on the securities issued by the group’s direct parent, GE Global Insurance Holding Corp. The rating outlook for all assigned ratings remains negative.

The rating actions follow General Electric Company’s Oct. 11, announcement concerning its indirect wholly-owned subsidiary, GE Global, incurring a loss in the third quarter 2002 and with expected results for year-end 2002 revised downward from breakeven to a net loss 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.

During the past five years, GE Global has experienced a decline in pre-tax and total operating returns resulting in reduced capitalization. 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 noted 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. 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.

Concurrent with the rating actions, A.M. Best has affirmed the financial strength ratings of A (Excellent) of First Specialty Insurance Corporation and Westport Insurance Corporation (both of Jefferson City, MO). The outlooks on the ratings are negative.

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