At the same time, Standard & Poor's lowered its financial strength and counterparty credit ratings on Employers Reassurance Corp. and ERC Life Reinsurance Corp. to 'A+' from 'AA-' and placed the ratings on CreditWatch with negative implications following reconsideration of their core status due to expected prospective changes in ERC's product diversification strategy. The resolution of the CreditWatch will occur in the fourth quarter, following Standard & Poor's stand-alone assessment of each entity's financial strength.
Concurrently, Standard & Poor's lowered its senior debt rating at GE Global Insurance Holding Corp. to 'A-' from 'A'. The outlook is negative.
"The downgrade reflects Standard & Poor's reevaluation of reinsurance industry risk, and Standard & Poor's concerns for ERC's potential for future deterioration in operating performance due to the possibility of large losses and material adverse loss development in certain business lines," said credit analyst Grace Osborne. Additional concerns were weighted toward ERC's strong (but declining) market position, strong (albeit weakened) capital adequacy, and expectations for a noticeable decline in the group's noncorrelated product mix.
Standard & Poor's believes that some uncertainty remains as to whether loss reserving, particularly for the 1997-2001 accident years, is adequate. Additionally, ERC is considered nonstrategic to GE due to the nature of the insurance/reinsurance sector that requires stronger levels of dedicated capital and assumes a range of earnings volatility. The one-notch ratings benefit for implicit GE support will be reevaluated if ERC's earnings continue to be negatively affected by loss-reserve development or one-time operational charges.
Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com under Credit Ratings in the left navigation bar, select Credit Ratings Actions. Contact: Grace Osborne, New York (1) 212-438-7227; Jayan U Dhru, New York (1) 212 438-7276