An epoxy terminated prepolymer formed as a reaction product of a cycloaliphatic epoxide resin and an amine terminated polymeric polyol, and a catalyst that promotes the reaction of the cycloaliphatic epoxide resin and the aminated polyol. The epoxy terminated prepolymer and an anhydride hardener react to form an epoxy elastomer composition having a microphase separated morphology of hard particles, formed with the anhydride hardener reacted with the epoxy terminated prepolymer, dispersed in a soft continuous phase formed from polymeric polyol in the epoxy terminated prepolymer.