Fitch Downgrades GE Global & Employers Re.Business EditorsCHICAGO--(BUSINESS WIRE)--Nov. 21, 2002 Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. 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 The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Corp. (ERC (database) ERC - An extended entity-relationship model. ), GE Global's main operating subsidiary An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , 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 Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. discipline over this time period. The charge is based on ERC's comprehensive actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin 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 re·cap·i·tal·ize tr.v. re·cap·i·tal·ized, re·cap·i·tal·iz·ing, re·cap·i·tal·iz·es To change the capital structure of (a corporation). re·cap 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 com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. 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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