Global rating agency A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a+” (Excellent) of Electric Insurance Company (EIC) (Beverly, MA). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect EIC’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management. The ratings also take into consideration the value-added commercial insurance services provided to General Electric Company (GE) and EIC’s strategic importance to GE.
EIC’s balance sheet strength assessment is underpinned by risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). The company maintains good liquidity, with investments composed almost entirely of bonds and cash funds. The company provides commercial lines coverage to GE, and personal lines coverage to GE’s current and former employees, as well as the general public.
Partially offsetting these positive rating factors are the limitations on EIC’s commercial lines business with GE as its sole policyholder. However, most commercial lines are priced retrospectively contributing to reduced risk and steady earnings. While retrospective pricing features in commercial policies can limit the earnings potential of an insurance company, it also can protect a company from excessive loss by allowing it to charge back losses through premium adjustments. Although EIC’s largest line of business is workers’ compensation, it has limited exposure to terrorism. Due to the divestiture activity of GE, EIC’s premium and reserve levels have continued to decline. In 2020, premium and reserve amounts were down 32% and 18%, respectively, from 2016 levels. As EIC’s exposure has declined, the company has returned significant amounts of capital in the form of stockholder dividends to its parent. AM Best has closely monitored the dividends to parent and declining surplus levels, and has not seen a material weakening to the company’s BCAR scores as a result of this activity.
In May 2021, EIC sold its Ireland-domiciled subsidiary, Electric Insurance Ireland Designated Activity Company (EIIDAC), which provided employers’ liability and general liability coverage to GE in Europe. GE’s European coverage has now been placed into GE’s international casualty program through third-party commercial insurance.
Future positive rating action could be taken if EIC’s profitability and capital appreciation continue to remain strong. However, the ratings may come under negative pressure if there is a material weakening in risk-adjusted capital or a reduction in EIC’s strategic importance to GE or its overall business profile. A deterioration in GE’s credit profile could also impact the company’s ratings negatively.
