A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and issuer credit ratings of "a-" of Employers Reassurance Corp. (ERAC) and Union Fidelity Life Insurance Company (UFLIC) (both domiciled in Overland Park, KS).

The outlook for all ratings is stable.

The ratings of ERAC and UFLIC (collectively referred to as the ERAC group) are based upon the consolidated financial results of the two companies and reflect their adequate risk-adjusted capitalization, improved operational efficiencies and the financial resources available from the ultimate parent, General Electric Company. The ERAC group primarily reinsures closed books of long duration business such as traditional life, long-term care, structured settlements and variable annuities.

Offsetting rating factors include the ERAC group's continued statutory operating losses due primarily to reserve strengthening associated with long-term care and structured settlement businesses and the possibility that meaningful statutory earnings may not emerge within the near to medium term. Any future losses will require ongoing capital support in this low interest rate environment. Over the last five years, the ERAC group has received $2.8 billion in capital contributions. Due to the earnings volatility and its impact on capital, the General Electric Company has committed to maintaining risk-based capitalization at a defined minimum level through a Capital Maintenance Agreement for the ERAC group and also has guaranteed payment of claims for ERAC. The business profile lacks earnings diversification, and the ERAC group's business lines are in run off.

A.M. Best believes that the ERAC group is well positioned at its current rating level. Factors that could result in negative rating actions include a significant decline in risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR) model or any diminished support from its parent.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding BCAR for Life/Health Insurers"; "Risk Management and the Rating Process for Insurance Companies"; and "A.M. Best's Liquidity Model for U.S. Life Insurers." Best's Credit Rating Methodology can be found at ambest.com/ratings/ methodology.

A.M. Best Company is an insurance rating and information source.

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