Ct Healthmarket via BizWire
06-26-2003, 12:20 PM
OLDWICK, N.J.--(BUSINESS WIRE)--June 26, 2003--A.M. Best Co. has
downgraded the financial strength ratings to A (Excellent) from A+
(Superior) of Employers Reinsurance Corporation (ERC) (Overland Park,
KS) and its affiliated domestic and international non-life and life
reinsurance companies. Concurrently, A.M. Best has downgraded the debt
ratings to "a-" from "a" for senior debt securities issued by the
group's direct parent, GE Global Insurance Holdings Corporation (GE
Global). The outlook on all of the above ratings is stable.
The rating actions reflect increased uncertainty as to GE's
longer-term commitment to the reinsurance business in general; as a
result, A.M. Best has revised its opinion relating to the treatment of
ERC as a strategically important business to General Electric Company
(NYSE: GE). Accordingly, the ratings assigned no longer consider any
benefit derived from ERC's affiliation with GE.
The rating actions also reflect an erosion of the risk-adjusted
capitalization of ERC and some of its affiliates and weak consolidated
earnings performance in recent years, principally from more than $5
billion of prior period reserve strengthening. Further, there is
continued uncertainty regarding the strategic positioning of ERC's
life reinsurance subsidiaries within the organization.
Over the past five years, ERC has experienced significant
underwriting losses necessitating capital support from GE. However,
despite over $2.4 billion in capital infusions from GE over the past
two years and significant utilization of third-party aggregate
stop-loss reinsurance protection, the group's overall risk-adjusted
capitalization has deteriorated to a level that is no longer
supportive of a Superior rating. The prolonged soft pricing conditions
in both the domestic and international reinsurance markets--which
prevailed until 2001--combined with increased frequency of catastrophe
losses have culminated in over $5 billion of reserve strengthening
over the past three years and a significant elevation of the group's
operating leverage driven by material increases in the ratios of gross
and net loss reserves to policyholders' surplus.
Nonetheless, the A (Excellent) rating reflects ERC's excellent
stand-alone risk adjusted capitalization, its leading position in the
worldwide reinsurance market and its prospective long-term earnings
capability stemming from its well-diversified business platform. In
addition, over the past two years the group has executed underwriting
actions and implemented tighter underwriting controls. Initial
indications are that these actions, together with the favorable
property/casualty underwriting environment, are driving the group's
improved underwriting performance for the most recent accident years.
As of December 2002, GE Global's financial leverage--debt as a
percent of total adjusted capital--was 19.2% and more than adequately
supports its current debt rating. While statutory dividend capacity
and coverage of fixed charges have been weak in recent years, the
expectation is that these debt service coverages will improve in the
medium term as the insurance subsidiaries begin to re-generate surplus
from earnings. A.M. Best expects the company to manage its financial
leverage below the 25% level.
In addition, A.M. Best has taken the following rating actions on
affiliates and direct subsidiaries of ERC, which are under direct
management control of ERC: the financial strength rating of Medical
Protective Company (Fort Wayne, IN), historically included in the
group rating of ERC and which is now rated on a stand-alone basis, has
been downgraded to A (Excellent) from A+ (Superior) with a negative
rating outlook, reflecting the company's strong premium growth in a
market segment (medical professional liability) that A.M. Best views
as challenging. The ratings of A (Excellent) of First Specialty
Insurance Corporation and Westport Insurance Corporation (both of
Overland Park, KS) have been affirmed with a stable rating outlook.
For a complete listing of the financial strength and debt ratings
of Employers Reinsurance Corporation, please visit
http://www.ambest.com/press/062605employersre.pdf.
A.M. Best Co., established in 1899, is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit A.M. Best's Web site at www.ambest.com.
downgraded the financial strength ratings to A (Excellent) from A+
(Superior) of Employers Reinsurance Corporation (ERC) (Overland Park,
KS) and its affiliated domestic and international non-life and life
reinsurance companies. Concurrently, A.M. Best has downgraded the debt
ratings to "a-" from "a" for senior debt securities issued by the
group's direct parent, GE Global Insurance Holdings Corporation (GE
Global). The outlook on all of the above ratings is stable.
The rating actions reflect increased uncertainty as to GE's
longer-term commitment to the reinsurance business in general; as a
result, A.M. Best has revised its opinion relating to the treatment of
ERC as a strategically important business to General Electric Company
(NYSE: GE). Accordingly, the ratings assigned no longer consider any
benefit derived from ERC's affiliation with GE.
The rating actions also reflect an erosion of the risk-adjusted
capitalization of ERC and some of its affiliates and weak consolidated
earnings performance in recent years, principally from more than $5
billion of prior period reserve strengthening. Further, there is
continued uncertainty regarding the strategic positioning of ERC's
life reinsurance subsidiaries within the organization.
Over the past five years, ERC has experienced significant
underwriting losses necessitating capital support from GE. However,
despite over $2.4 billion in capital infusions from GE over the past
two years and significant utilization of third-party aggregate
stop-loss reinsurance protection, the group's overall risk-adjusted
capitalization has deteriorated to a level that is no longer
supportive of a Superior rating. The prolonged soft pricing conditions
in both the domestic and international reinsurance markets--which
prevailed until 2001--combined with increased frequency of catastrophe
losses have culminated in over $5 billion of reserve strengthening
over the past three years and a significant elevation of the group's
operating leverage driven by material increases in the ratios of gross
and net loss reserves to policyholders' surplus.
Nonetheless, the A (Excellent) rating reflects ERC's excellent
stand-alone risk adjusted capitalization, its leading position in the
worldwide reinsurance market and its prospective long-term earnings
capability stemming from its well-diversified business platform. In
addition, over the past two years the group has executed underwriting
actions and implemented tighter underwriting controls. Initial
indications are that these actions, together with the favorable
property/casualty underwriting environment, are driving the group's
improved underwriting performance for the most recent accident years.
As of December 2002, GE Global's financial leverage--debt as a
percent of total adjusted capital--was 19.2% and more than adequately
supports its current debt rating. While statutory dividend capacity
and coverage of fixed charges have been weak in recent years, the
expectation is that these debt service coverages will improve in the
medium term as the insurance subsidiaries begin to re-generate surplus
from earnings. A.M. Best expects the company to manage its financial
leverage below the 25% level.
In addition, A.M. Best has taken the following rating actions on
affiliates and direct subsidiaries of ERC, which are under direct
management control of ERC: the financial strength rating of Medical
Protective Company (Fort Wayne, IN), historically included in the
group rating of ERC and which is now rated on a stand-alone basis, has
been downgraded to A (Excellent) from A+ (Superior) with a negative
rating outlook, reflecting the company's strong premium growth in a
market segment (medical professional liability) that A.M. Best views
as challenging. The ratings of A (Excellent) of First Specialty
Insurance Corporation and Westport Insurance Corporation (both of
Overland Park, KS) have been affirmed with a stable rating outlook.
For a complete listing of the financial strength and debt ratings
of Employers Reinsurance Corporation, please visit
http://www.ambest.com/press/062605employersre.pdf.
A.M. Best Co., established in 1899, is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit A.M. Best's Web site at www.ambest.com.
