S&P Puts ERAC on CreditWatch

June 7, 2006

Standard & Poor’s Ratings Services has placed its “A” financial strength rating on Employers Reassurance Corp. (ERAC), a subsidiary of GE Insurance Solutions (GEIS) on CreditWatch with developing implications.

“The CreditWatch reflects the expectation that current explicit support arrangements provided to ERAC by its direct parent Employers Reinsurance Corp. (ERC) and indirectly by its ultimate parent General Electric Co. (GE) via its subsidiary GE Capital Corp, are expected to be terminated in anticipation” of the sale of GEIS to Swiss Re this month, explained S&P credit analyst Laline Carvalho.

S&P said: “Although GEIS is expected to be acquired by Swiss Re, ERAC will not be part of this acquisition and is expected to remain a subsidiary of GE. Currently ERAC benefits from policyholders’ claims payment guarantee from ERC (which is being acquired by Swiss Re along with GEIS). In addition, ERAC also benefits from a capital maintenance arrangement provided by GE Capital to GEIS and related subsidiaries, which requires GE Capital to maintain GEIS’s operating capital adequacy at very strong levels on a consolidated basis.”

“At this stage,” S&P said it “expects both of these arrangements to be terminated at the closing of the Swiss Re transaction and to be substituted by different support arrangements to be provided directly by GE or one of its main operating subsidiaries.”

S&P also indicated that as a “result of these changes in explicit support,” it will be meeting with GE in the next few weeks to discuss the nature of the new support arrangements, and it “expects to resolve the CreditWatch in the next four weeks, after it has completed the analysis of these arrangements.” Depending on the outcome of the analysis, S&P said it “will affirm, lower, or raise the rating on ERAC.”

Topics Swiss Re

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