A.M. Best Affirms Ratings of GE Frankona Group and Its Operating Companies.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings of "a" of the operating companies of GE Frankona Group (Germany). The outlook on all ratings remains stable.

The ratings are based on the explicit financial support provided by Employers Reinsurance Corp. (ERC) in the form of claims guarantees to each of the GE Frankona subsidiaries. Other rating factors include the maintenance of the excellent risk-based capitalisation, excellent business profile and excellent earnings.

Excellent risk-based capitalisation -- GE Frankona's risk-adjusted consolidated capitalisation remains supportive of the rating despite prospective higher dividend payments (approximately EUR 111 million (USD 135 million) in 2005) to its parent company. The group also reduced its volume of business substantially in 2004 due to the adherence to stricter renewal standards.

Excellent business profile -- GE Frankona's business profile in Europe, where it is a leading short-tail non-life and life reinsurer, remains excellent despite a 31% decline in net premiums written to EUR 2.1 billion (USD 2.8 billion) in 2004. This is primarily a result of the non-renewal of inadequately priced business and the effects of the previous withdrawal from unprofitable lines such as large global casualty risks, catastrophe exposed industrial risks, pharmaceutical and German proportional motor business. GE Frankona also retained fewer premiums as the group purchased more reinsurance coverage to take advantage of attractive retrocession rates. For 2005, A.M. Best expects a further reduction of non-life net premium by approximately 8%, mainly due to pricing pressure in the aviation and property lines. The decline is likely to be compensated by a premium growth of approximately 20% in U.K. life reinsurance after all major accounts were renewed, pricing levels remained favorable and new business in critical illness exceeded expectations.

Excellent earnings -- A.M. Best anticipates GE Frankona's overall earnings to decrease by approximately 40% in 2005, following an excellent consolidated net income of USD 603 million in 2004, but to remain within a range expected for the current rating. The decline reflects strong rate decreases, especially in aviation and property, as well as anticipated higher claims frequency in 2005 leading to a combined ratio of 98% from 87.1% in 2004, which was driven by favourable underwriting conditions and low catastrophe claims. Life reinsurance earnings are excellent, and GE Frankona's net income is likely to increase by approximately 18% to USD 145 million, mainly due to rate increases in all lines of business, especially for critical illness cover, as well as new business written in the company's main market, the United Kingdom.

The financial strength ratings of A (Excellent) and the issuer credit ratings of "a" have been affirmed for the following companies of GE Frankona Group:

--GE Frankona Rueckversicherungs-AG

--GE Frankona Reinsurance A/S

--GE Frankona Reinsurance Limited

--GE Frankona Reassurance Limited

--GE ERC Strategic Reinsurance Limited

The rating of Luxembourg European Reinsurance S.A. has been withdrawn and revised to NR-3 (Rating Procedure Inapplicable) as the company is in run off.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

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 http://www.ambest.com.