Electric Insurance Co. Ratings Affirmed

April 27, 2004

Standard & Poor’s has affirmed its ‘A’ counterparty credit and financial strength ratings on Electric Insurance Co. (EIC). The outlook is stable.

The ratings are based on EIC’s strong strategic alliance with General Electric Co. (GE), niche business strategy, extremely strong capital, strong operating performance, and a strong management team. Outlook

EIC will continue to benefit from being an important strategic partner of GE by providing personal lines coverage to GE employees, and being a unique service provider to GE’s commercial insurance programs.

In addition, Standard & Poor’s expects the following over the next two to three year period: net premium growth in personal lines is expected to be a modest 5%-7%, due to continued rate increases and its careful risk selection process; combined ratio is expected to improve to 102%-103%, as the company successfully implements its in-house risk assessment tool to broad classes of insureds; and EIC’s capital adequacy is expected to be extremely strong due to its relatively low potential catastrophe exposure and the absence of any long-tailed latent exposures. In addition, no significant change in capital management is expected.

Major rating factors

* Strategic importance to GE. EIC remains strategically important to GE. This is due to GE’s continuing commitment to EIC as its principal commercial lines insurer (65.3% of EIC’s total insurance book measured by its net written premium as of year-end 2003). Standard & Poor’s expects this level of commitment from GE to continue in the foreseeable future. If there is a dramatic shift in this arrangement, however, the current ratings on EIC could face downward pressure.

* Niche business strategy. EIC continues its two-pronged business strategy for commercial lines and personal lines businesses, respectively. In commercial lines, EIC continues to be the exclusive service provider of GE for most of its commercial insurance needs. The company achieves this level of commitment from GE with a combination of its proactive stance on claims management, early intervention in serious claims, and minimizing insurance costs using litigation experts. This unique niche drives value-added services to GE, and has reduced GE’s overall commercial insurance costs significantly in the past few years. In personal lines, EIC’s strategy is to target preferred risk classes of insureds through its in-house risk assessment tool, which was introduced a year-ago. Although early indications suggest some improvements in personal lines’ operating results, Standard & Poor’s believes it is too early to make a determination about the overall effectiveness of this new risk assessment tool.

* Extremely strong capital adequacy. EIC’s risk-based capital adequacy ratio (CAR) as measured by Standard & Poor’s property/casualty capital adequacy model was 196.3% as of year-end 2003 after adjustments for retrospectively rated commercial lines, compared with 221% at year-end 2002. This drop in the CAR was due to a change in Standard & Poor’s approach in computing EIC’s capital adequacy in 2003 rather than an absolute change in capital. EIC’s statutory surplus increased by 9.5% to $268.2 million in 2003 from $244.5 million in 2002. The primary driver behind this surplus growth was the net retained earnings in 2003.

* Strong operating performance. EIC’s statutory net income was $13.2 million in 2003, compared with $16.5 million in 2002. EIC’s statutory combined ratio was 104.6% in 2003, reflecting a marginal improvement from 104.8% in 2002. EIC’s overall ROR (pretax operating income divided by total revenue, excluding net capital gains) was a modest 2.6% in 2003, compared with 2.8% in 2002. This modest ROR is representative more of the volatility associated with EIC’s retrospective nature of the commercial book of business rather than overall profitability.

* Strong management strategy. EIC has a lean management team that has a solid track record of working together and shares a culture fostered by GE. Standard & Poor’s believes EIC’s strong underwriting discipline in personal lines, in addition to its careful claims-management services in commercial lines, make EIC’s management team quite strong.Ratings ListElectric Insurance Co. Counterparty credit rating A/Stable/ – Financial strength rating A/Stable

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