A.M. Best has downgraded the Financial Strength Rating (FSR) to
B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings
(Long-Term ICR) to “bbb+” from “a-” of the Employers Reassurance
Corporation and Union Fidelity Life Insurance Company (both
domiciled in Overland Park, KS) (collectively referred to as the ERAC
Group). The outlook of the Long-Term ICR has been revised to negative
from stable, while the FSR outlook remains stable.
The ratings reflect ERAC Group’s balance sheet strength, which A.M. Best
categorizes as adequate, as well as its marginal operating performance,
limited business profile and appropriate enterprise risk management
The adequate balance sheet assessment is reflective of ERAC Group’s
continued fairly weak level of risk-adjusted capitalization, as well as
significant future long-term care reserve increases, offset by the
considerable implicit and explicit capital support provided under a
capital maintenance agreement with General Electric Company (GE).
ERAC Group’s marginal operating performance has been affected by
historical weak earnings trends, as its long-term care (LTC) business
continues to be unprofitable relative to original actuarial
expectations, although a positive cash flow is expected with LTC price
increases that should drive future earnings growth. The company’s
business profile is limited due to the continued run-off nature of the
business, along with the volatile nature that is associated with the
majority LTC business on its books, and the high interest-sensitive
reserves related to structured settlements. Overall ERM is appropriate,
and is integrated into the GE Capital Group framework. ERAC Group’s risk
policy, which receives oversight from its ultimate parent to mitigate
deviations, sets certain expectations such as defined limits on specific
The rating downgrades and outlook revisions to negative reflect A.M.
Best’s concerns that the financial strength and operating profile of
ERAC Group may deteriorate further over time due to the continued low
interest rate environment and poor performance in the company’s LTC
blocks. A.M. Best believes the potential for further capital declines
exists due to the continuing need to increase reserves for the
previously noted LTC line of business. Adverse movements in the
financial markets could impact ERAC Group’s capitalization, from the
decline in investment values. Published reports indicating that GE is
exploring options to shed the struggling insurance business, along with
recent credit downgrades of GE, add to A.M. Best’s concerns about ERAC
Group’s financial strength and operating profile going forward.
This press release relates to Credit Ratings that have been published
on A.M. Best’s website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view Understanding
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