Fitch Downgrades Employers Re to 'AA-', GE Global to 'A-'; Outlook Stable

Business Wire, July 23, 2004

CHICAGO -- Fitch Ratings has downgraded its insurer financial strength rating on Employers Reinsurance Corporation (ERC) to 'AA-' from 'AA' and its long-term and related senior debt ratings on ERC's parent company, GE Global Insurance Holding, Corporation (GE Global) to 'A-' from 'A'. The Rating Outlook is Stable.

Fitch's rating actions reflects concerns about ERC's reserve adequacy, including reserves for asbestos-related claims, coupled with the company's underwriting performance that while improved over recent years, continues to lag that of peers and the overall reinsurance industry.

The ratings continue to reflect ERC's and its affiliates' strong competitive positions and GE Global's moderate financial leverage and reasonable earnings-based interest coverage.

Fitch believes that ERC and GE Global's ultimate parent company, General Electric (GE) will likely further restructure or divest the companies at some point and thus its ratings on ERC and GE Global are largely stand-alone ratings that do not reflect significant implied financial support from GE.

Using its internal loss reserve model and ERC's year-end 2003 combined Schedule P data, Fitch projects a material deficiency in ERC's loss reserves. ERC's recent history of recording significant adverse reserve development impacted Fitch's view of the company's current reserve adequacy as the 1999-2001 accident years, which have been a major source of recent adverse development for ERC and the industry, continue to appear deficient in Fitch's analysis.

GE Global's U.S. domiciled subsidiaries' net survival ratios for asbestos related claims also appear to be less robust than peers. Fitch calculates the companies' year-end 2003 net asbestos survival ratio at 7.9 times (x), which is below the industry average survival ratio of approximately 12x and below Fitch's targeted benchmark adequacy survival ratio of 17x.

Although projecting loss reserve adequacy from Schedule P data and survival ratios is inherently difficult, Fitch believes that a reasonable range of ERC's potential deficiencies are large enough relative to the company's current capital base to contribute to today's rating actions.

While ERC's recent reported underwriting performance has significantly improved it continues to lag that of the overall industry and remains inconsistent with the previous rating category. Fitch believes that pricing is softening in many sectors of the reinsurance market and that while going forward, ERC may be able to close the gap between the company's and the overall industry's underwriting performance, it will be increasingly difficult for the company to improve its absolute underwriting performance.

ERC's first quarter 2004 and full year 2003 combined ratios were 103.6% and 105.1% respectively compared to the Reinsurance Association of America U.S. domestic industry-wide combined ratios of 94.0% and 96.4% respectively.

Fitch views GE Global's use of financial leverage as moderate and its projected earnings-based interest coverage as adequate. Fitch calculates GE Global's debt-to-capital ratio at approximately 15% and the company's operating earnings-based interest coverage through the first quarter 2004 at approximately 6.8x.

Note: These ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on publicly available information.

Entity/Issue/Type Action Rating/Outlook

Employers Reinsurance Corporation

-- Insurer financial strength Downgraded 'AA-'/Stable.

GE Global Holding, Corp.

-- Long-term issuer rating Downgraded 'A-'/Stable;

-- 7.00% sr unsec notes due 2026 Downgraded 'A-'/Stable;

-- 6.45% sr unsec notes due 2019 Downgraded 'A-'/Stable;

-- 7.5% sr unsec notes due 2010 Downgraded 'A-'/Stable;

-- 7.75% sr unsec notes due 2030 Downgraded 'A-'/Stable.