S&P Lowers GE Insurance Solutions Ratings; Off CreditWatch; CEO Comments

April 5, 2005

Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit and financial strength ratings on Employers Reinsurance Corp. and affiliated insurance/reinsurance entities (collectively referred to as GE Insurance Solutions) to “A” from “A+” and removed them from CreditWatch.

S&P also said that it has lowered its counterparty credit rating on GE Insurance Solutions Corp. to “BBB+” from “A-” and removed it from CreditWatch. The outlook on all these companies is stable.

Last week A.M. Best Co. affirmed the financial strength ratings of “A” (Excellent) of Employers Reinsurance Corporation (ERC) and GE Reinsurance Corporation, but it downgraded the issuer credit and senior debt ratings of GE Insurance Solutions to “bbb” from “bbb+” (See IJ Website April 1).

S&P described GE Insurance Solutions Corp. as “an intermediary holding company that is ultimately owned by General Electric Co.” S&P credit analyst Laline Carvalho indicated: “The downgrade reflects GE Insurance Solutions’ poor operating performance over the last five years, primarily as a result of substantial reserve strengthening during this period. In addition, although GE Insurance Solutions is pricing its current business to profitable levels, its medium-term operating performance remains exposed to potential further reserve development for prior years. As a result, GE Insurance Solutions’ operating results, in Standard & Poor’s opinion, are likely to under perform relative to industry peers over the next 2-3 years.”

GE Insurance Solutions Chairman, President and CEO Ron Pressman commented: “We are pleased that Standard & Poor’s acknowledges the tremendous strength of our investment portfolio, our AA-capital level, our strong market presence and GECC’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.”

He also noted that “GE Insurance Solutions has implemented a capital improvement plan that includes a $350 million increase in cash capital from GE Capital Services as well as a commitment from GE Insurance Solutions Corporation to provide additional tangible capital support by the end of the third quarter of 2005. The company will continue to pursue opportunities to reduce required capital via strong balance sheet management and selective dispositions.”

S&P’s analysis indicated that although GE Insurance Solutions’s many initiatives to improve risk controls and shed unprofitable business should yield positive results for the organization, the rating agency “believes restructuring actions might not be complete and could continue into 2005, thus potentially being a source of distraction to management.”

S&P also noted that “partially offsetting these concerns are GE Insurance Solutions’s strong global reinsurance franchise, very strong capital adequacy, and conservative investment portfolio. The ratings also reflect explicit support by General Electric Capital Corp., a subsidiary of GE, in the form of an explicit capital-maintenance agreement.

“Premium volume is expected to be flat or decline modestly in 2005, reflecting pruning of the book of business in recent years and softening market conditions. The 2005 and 2006 nonlife combined ratios are expected to remain weak at 102 to 104 percent, reflecting Standard & Poor’s belief that expected strong accident-year performance is likely to be partially offset by further reserve additions.

“Capital adequacy at the operating level is expected to remain very strong. GE Insurance Solutions’s market position is strong based on its position as the fourth-largest global reinsurance group in terms of consolidated net reinsurance premiums. The group also enjoys significant diversity of clients, products, and distribution sources.”

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