The affirmation of Employers Re's rating reflects its excellent risk-adjusted capitalization, improving operating performance and its dominant market presence and distribution capabilities. With two years of improving underwriting results bolstered by asset sales and other capital management improvements, as well as significant third-party aggregate stop loss protection, Employers Re has maintained capital in line with an A (Excellent) rating and has exhibited prospective long-term earnings capability stemming from its well diversified business platform. In addition, over the past two years the company has executed underwriting actions, implemented tighter underwriting controls and has maintained its prominence in the worldwide reinsurance markets through its international distribution capabilities.
Nevertheless, Employers Re remains exposed to legacy issues related to its asbestos and environmental exposure, as well as the potential for continued deterioration of liabilities associated with the 1997 to 2001 accident years.
Furthermore, limited flexibility exhibited by the direct parent, GE Global Insurance Holdings Corporation (GE Global) (Overland Park, KS) has placed pressure on the risk-adjusted capitalization of the individual affiliates as they continue to rebuild their capital bases from weak underwriting performance associated with the 1997-2001 accident years. Thus, their ratings could be negatively affected over the next 12 months if net carried loss reserves prove to be inadequate or if underwriting or operating leverage becomes elevated.
The downgrade of Medical Protective's rating primarily reflects a weakened risk-adjusted capitalization, precipitated by continued strong net premium growth and further reserve strengthening in 2003, primarily from 1999-2000 accident years. Notwithstanding, the rating reflects Medical Protective's leading market presence, distribution capabilities and aggressive claims philosophy, historically strong pre-tax earnings supported by a stable and substantial level of invested asset base and improved accident year results highlighted by positive operating cash flows. To strengthen its risk-adjusted capitalization, the company has entered into a 25% quota share agreement in 2004 to manage growth. Furthermore, Medical Protective's capitalization is supported by an aggregate stop-loss protection from its affiliate, Employers Reinsurance Corporation, through accident year 2003, which will serve to manage any unforeseen deterioration in the 2001 through 2003 accident years. A.M. Best expects that Medical Protective will build capital organically as it maintains fundamental profitability through underwriting discipline and stable investment returns.
The financial strength rating of A (Excellent) has been affirmed with a stable outlook for Employers Re Corp Group, which is comprised of the following affiliates:
-- Employers Reinsurance Corporation
-- GE Reinsurance Corporation
-- First Specialty Insurance Corporation
The financial strength rating of A (Excellent) has been affirmed with a stable outlook for Westport Insurance Corporation.
Th