Fitch Downgrades GE Global & Employers Re.
CHICAGO--(BUSINESS WIRE)--Nov. 21, 2002
Fitch Ratings has downgraded the long-term issuer and senior debt rating of GE Global Insurance Holding Corporation (GE Global) to 'A' from 'A+'. Fitch has also downgraded the insurer financial strength (IFS) rating of Employers Reinsurance Corp. (ERC), GE Global's main operating subsidiary, to 'AA' from 'AA+'. The Rating Outlook remains Negative.
Today's rating action follows General Electric Co.'s (GE), ERC's ultimate parent company, fourth quarter 2002 update announcing reserve charges at ERC. GE announced that ERC would take a $1.4 billion after-tax charge to increase prior year loss reserves. The magnitude of the charges is outside of Fitch's expectations for the previous rating levels and suggests a lack of underwriting discipline over this time period.
The charge is based on ERC's comprehensive actuarial and business review of its loss reserves which are conducted annually in the fourth quarter. This review examines trends in claims and estimates of future losses. The charges are believed to stem primarily from accident years 1997-2000 and are spread across many lines of business.
Positively, GE has said that it would contribute $1.8 billion after-tax to ERC which should effectively recapitalize ERC's operations after the reserve charges.
These planned charges follow two and a half years of previous charges related to adverse development in prior years loss reserves, primarily in the 1997 to 2000 period stemming from inadequate pricing in the property and casualty insurance and reinsurance industry, and the tragic events of Sept. 11, 2001.
Fitch will monitor ERC's results over the intermediate term to look for signs that prior accident year losses have stabilized. Fitch also believes that a restructuring of ERC's operations or a sale of the company may occur in the more immediate future.
Further, Fitch expects ERC to record improvements in underwriting profitability commensurate with the current pricing environment. These factors will be key considerations in Fitch's rating actions going forward.
NOTE: The noted ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on public information.
Entity/Issue/Type Action Rating/Outlook GE Global Insurance Holding Corporation --Long-term issuer Downgraded 'A'/Negative; --Senior debt Downgraded 'A'/Negative. Employers Reinsurance Corp. --Insurer financial strength Downgraded 'AA'/Negative.
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|Date:||Nov 21, 2002|
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