GEs Planned Life Insurance Spinoff: As Much About The Industry As GE
General Electric Companys plan to spin off its life insurance business in an initial public offering speaks as much to the environment in the life insurance industry as it does to GEs strategy going forward, insurance analysts say.
Last week, GE announced an initial public offering of a new company comprised of its life and mortgage insurance operations.
Life insurance companies that will be part of the new company include General Electric Capital Assurance Company, GE Life and Annuity Assurance Company, General Electric Capital Life Assurance Company of New York, First Colony Life Insurance Company, Federal Home Life Insurance Company, and American Mayflower Life Insurance Company of New York.
The new company is named Genworth Financial Inc. GE, based in Fairfield, Conn., expects to complete the IPO in the first half of 2004.
A company spokesman said the company is now in a quiet period and consequently, declined comment on specifics of the proposed transaction.
But, in its announcement the company did offer an initial blueprint of its plan.
GE said it plans to sell approximately 30% of the equity of the new company in the IPO and expects to reduce its ownership position over the next three years as Genworth transitions to a fully independent company. GE intends to use the proceeds to invest in growth initiatives and reduce “parent-support debt” at GE Capital.
GE previously announced its intent to reduce the level of its insurance-related assets from about 40% to about 15% of its total financial services assets. The businesses GE will contribute to the new company, it says, represent about 20% of GEs financial services assets and about half of the assets of GEs insurance segment at Sept. 30, 2003. As of that date, the businesses had a book value of approximately $10 billion, net of assets to be retained by GE.
Jeffrey Immelt, GE chairman and CEO, described the strategy of the company in an investor update on Nov. 19.
Among the strategic imperatives cited was to sustain a strong business model through consistent cash generation and maintaining a “AAA” rating.
A second imperative was to accelerate organic growth through technical excellence, service and customer relationships and a global focus.
And, the third imperative cited was to strengthen the portfolio of companies by improving technology, the financial core and building strong growth platforms.