A.M. Best Downgrades Employers Reassurance Corporation

OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 24, 2003--A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) of Employers Reassurance Corporation (ERAC) (Overland Park, KS). The rating outlook is stable.  
 
The rating reflects ERAC's superior stand-alone risk-adjusted capitalization and favorable liquidity position. Offsetting factors include weak historical financial performance and withdrawal from the life reinsurance marketplace. ERAC plans to continue offering certain health reinsurance business, principally long-term care, but may also include accident, disability and behavioral health products. However, while providing higher margins than life reinsurance, health business is subject to greater earnings volatility and A.M. Best thus maintains a negative view on a number of health insurance products including long-term care. Additionally, A.M. Best is uncertain as to the future commitment from its ultimate parent, General Electric Company (GE).  
 
A.M. Best's view regarding parental commitment is further supported by the recent sale of 95% of ERC Life Reinsurance Corporation (Overland Park, KS) to Scottish Re Group Limited (Grand Cayman). Accordingly, the rating reflects ERAC's stand-alone characteristics without implicit benefit derived from its affiliation with GE.  
 
Although ERAC will no longer offer lower margined life reinsurance, the company will continue to offer accident and health reinsurance coverages to its U.S. clients. Given ERAC's modest historical returns and announced exit from its core life reinsurance business line, A.M. Best no longer considers the company as strategically important to GE.  
 
Despite ERAC's recent uneven statutory results, it maintains a superior risk-adjusted capital position, which is enhanced by its high quality investment portfolio and favorable liquidity posture. Additionally, although significant operating losses were reported in 1999 and again in 2002, capitalization has been supported by ERAC's overall profitable operations in the last five years. A.M. Best expects financial results to improve, as earnings from the runoff of its large life reinsurance book of business emerge.  
 
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.  
 
Contacts  
 
A.M. Best Co. 
 
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Jim Peavy, 908-439-2200, ext. 5644 
 
james.peavy@ambest.com  
 
or 
 
Rachelle Striegel, 908-439-2200, ext. 5378 
 
rachelle.striegel@ambest.com  
 
or 
 
Analyst: 
 
William Pargeans, 908-439-2200, ext. 5359 
 
william.pargeans@ambest.com