Fitch: Swiss Re on Watch for GE Buy

November 18, 2005

Fitch Ratings, the international rating agency, has placed Swiss Reinsurance Company on Rating Watch Negative and GE Insurance Solutions Corp. on Rating Watch Positive (see list of ratings below).

The rating action follows today’s announcement that Swiss Re is planning to acquire GE Insurance from General Electric Company for a consideration of $6.8 billion. Terms of the transaction also call for Swiss Re to assume $1.7 billion of GE Insurance’s outstanding debt.

Fitch’s decision to place Swiss Re’s ratings on Rating Watch Negative reflects the agency’s concerns surrounding the execution risk relating to the integration of this significant acquisition together with GE Insurance Solution’s poor record of adverse reserve development and weak earnings. Partially offsetting these concerns are potential synergies that the combined group may develop, an improvement in Swiss Re’s overall diversification and scale as well as additional pretax reserves of approximately $3.4 billion being provided by GE Insurance Solutions.

Fitch’s decision to place GE Insurance and its primary subsidiary, Employers Reinsurance Corporation (ERC), on Rating Watch Positive reflects potential benefits derived from the companies becoming a core part of a financially strong organization with a significant and committed presence in the global reinsurance markets.

Fitch’s current ratings on GE Insurance incorporate a material deficiency, but the agency notes that the company’s anticipated $3.4 billion pretax addition to reserves exceeds this deficiency estimate. Although Fitch views the positive benefits of this transaction to GE Insurance’s ratings as large enough to offset its concerns about the excess of this deficiency, there would likely be negative pressure on GE Insurance’s ratings if this transaction failed to close.

To resolve the Rating Watches, Fitch will review the entities’ prospective capitalization, profitability, and reserve adequacy relative to the current rating levels. Fitch anticipates resolving its Rating Watches concurrent with the transaction’s close, which is anticipated to take place in the first half of 2006.

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