A.M. Best Co. has downgraded the financial strength rating to A minus (excellent) from A (excellent) of Employers Reassurance Corporation adding that the rating outlook is stable. Best said the rating reflects Employers Re's superior stand-alone risk-adjusted capitalisation and favourable liquidity position. But it said that offsetting factors included weak historical financial performance and withdrawal from the life reinsurance marketplace. Employers Re said it plans to continue offering certain health reinsurance business, principally long-term care, but may also include accident, disability and behavioural health products.

But Best said that while providing higher margins than life reinsurance, health business is subject to greater earnings volatility and the agency "thus maintains a negative view on a number of health insurance products including long-term care".

Also Best said it was uncertain as to the future commitment from its ultimate parent, General Electric Company.

Best's said its view regarding parental commitment was further supported by the recent sale of 95 percent of Employers Re Life Reinsurance Corporation (Overland Park, KS) to Scottish Re Group Ltd, which is based in Bermuda.

So Best said the rating reflects Employers Re's "stand-alone characteristics" without implicit benefit derived from its affiliation with GE. Although Employers Re will no longer offer lower margined life reinsurance, the company will continue to offer accident and health reinsurance coverages to its US clients, added Best.

"Given Employers Re's modest historical returns and announced exit from its core life reinsurance business line, A.M. Best no longer considers the company as strategically important to GE," it said in a report published on Christmas Eve.

"Despite Employers Re's recent uneven statutory results, it maintains a superior risk-adjusted capital position, which is enhanced by its high quality investment portfolio and favourable liquidity posture.

"Additionally, although significant operating losses were reported in 1999 and again in 2002, capitalisation has been supported by Employers Re's overall profitable operations in the last five years. A.M. Best expects financial results to improve, as earnings from the runoff of its large life reinsurance book of business emerge."