A.M. Best Co. announced that it has downgraded the financial strength rating to “B++” (Very Good) from “A-” (Excellent) and the issuer credit rating to “bbb” from “a-” of General Electric’s Kansas-based reinsurance unit, Employers Reassurance Corporation (ERAC). The ratings have been removed from under review and assigned a stable outlook.
“These rating actions reflect ERAC’s continued declining capitalization from historically high levels, “said Best. It also indicated that it continues to view ERAC primarily on a stand-alone basis, which means that “ERAC does not derive implicit benefit from its ownership by Employers Reinsurance Corporation (ERC) (Missouri) or ERAC’s ultimate parent, General Electric Company.”
Best noted that “despite recent capital support from ERC, ERAC’s capital position has continued to decline primarily driven by operating losses, including a $144 million statutory net loss in 2004. The ratings also consider ERAC’s increasing volume of new long-term care business.”
Best said that while it “recognizes that a number of items contributing to the 2004 operating loss are non-recurring in nature,” it is maintaining a “conservative view of ERAC’s future operating performance. Uneven historical financial performance and the withdrawal from the life reinsurance marketplace over time will make ERAC’s earnings more dependent on long-term care, a business line that A.M. Best believes has unproven profit potential.”
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