At the same time, S&P affirmed the "A-plus" rating on GE Reinsurance Corp., also with a negative outlook.

The downgrade reflects S&P's "reevaluation of reinsurance industry risk, operating performance due to the possibility of large losses and material adverse loss development in certain business lines," said credit analyst Grace Osborne.

"Additional concerns were weighted toward ERC's strong (but declining) market position, strong (albeit weakened) capital adequacy, and expectations for a noticeable decline in the group's non-correlated product mix," S&P said in a release.

S&P said there is still some uncertainty "whether loss reserving, particularly for the 1997-2001 accident years, is adequate."

In the ratings action, S&P also lowered its financial strength and counterparty credit ratings on Employers Reassurance Corp. and ERC Life Reinsurance Corp. to "A-plus" from "double-A-minus." These ratings were placed on CreditWatch with negative implications "following reconsideration of their core status due to expected prospective changes in ERC's product diversification strategy," S&P said.

The Overland Park, Kan.-based ERC quickly responded to the ratings action. "S&P's rating says more about our past than our future," said Ron Pressman, chairman, president and chief executive officer of ERC. "We have faced the challenges of the past and made tremendous progress. ERC has never been stronger financially or strategically than it is today, and our future is bright."

Mr. Pressman highlighted improvements in the company's performance, which include the following:

? Underwriting performance. "ERC's underwriting performance has been completely repositioned since 2000 under a new leadership team," he said. "The current-year written combined ratio for the company's property and casualty businesses is below 95?"

? Net income. "ERC earned more than $250 million in the first half of 2003, reversing a net loss of $132 million in the first six months of 2002," Mr. Pressman said in the ERC statement.

? Reserves. "ERC's reserves from prior periods have been strengthened by more than $5 billion since mid-year 2000 to recognize the industry-wide soft underwriting of the late-1990s."

? Surplus. "ERC's statutory surplus totals $5.5 billion, providing customers excellent long-term security," Mr. Pressman said.

Meanwhile, S&P also lowered its counterparty credit rating on the Bermuda-based PartnerRe Ltd. to "A" from "A-plus." The ratings agency also lowered its financial strength and counterparty credit ratings on Partner Reinsurance Co. Ltd. and the other core companies of PRE to "double-A-minus" from "double-A." The outlook on all PRE entities is revised to stable from negative, S&P said.

The rating actions reflect S&P's "re-evaluation of reinsurance industry risk and PartnerRe's position within that industry following the relatively lower capital adequacy for PartnerRe relative to its business growth," said credit analyst Karole Dill Barkley.

"Nevertheless, the ratings remain underpinned by PartnerRe Group's very strong operating performance, very strong management team and very strong financial flexibility (defined as the ability of the company to raise capital to meet its requirements)," S&P said.