These rating actions reflect ERAC's continued declining capitalization from historically high levels. Moreover, A.M. Best continues to view ERAC primarily on a stand-along basis, and thus, ERAC does not derive implicit benefit from its ownership by Employers Reinsurance Corp. (ERC) (Missouri) or ERAC's ultimate parent, General Electric Co.
Despite recent capital support from ERC, ERAC's capital position has continued to decline primarily driven by operating losses, including a $144 million statutory net loss in 2004. The ratings also consider ERAC's increasing volume of new long-term care business.
While A.M. Best recognizes that a number of items contributing to the 2004 operating loss are non-recurring in nature, A.M. Best maintains a conservative view of ERAC's future operating performance. Uneven historical financial performance and the withdrawal from the life reinsurance marketplace over time will make ERAC's earnings more dependent on long-term care, a business line that A.M. Best believes has unproven profit potential.
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