GE Capital still has billions of dollars of old long-term care insurance (LTCI) reinsurance obligations on its books, left over from the days when it and Genworth Financial Inc. were part of General Electric Company.
GE startled the company’s investors today by announcing that GE Capital will have to add $15 billion to its reserves over seven years, mainly to cope with a trend of adverse claims behavior in its LTCI book of business.
GE Capital managers put their LTCI reinsurance block of business through the same kind of review of actuarial assumptions that managers of other large blocks of LTCI business have conducted in recent years.
(Related: Carrier seeks LTCI rate increases)
The managers have decided that they will have to make what amount to $3 billion in contributions under states’ statutory accounting rules this quarter, and $2 billion in additional contributions each year from 2019 through 2014.
Under the Generally Accepted Accounting Principles (GAAP) rules that publicly traded companies in the United States use, that amounts to a pre-tax charge of $9.5 billion.
Other issuers of interest-sensitive insurance products have also announced large reserve adjustments in recent years, but, over the years, GE has referred to its LTCI reinsurance operations only in passing, in connection with brief references to the “runoff insurance operations” at its North American Life and Health unit. The company acknowledged in November that it was putting the unit through an actuarial review, but investors may not have understood how big a charge for runoff insurance business could be.
John Flannery, GE’s chairman, emphasized in a statement that the company has the cash to make the required contributions without hurting its ratings.
The actions will help GE make the GE Capital unit smaller and more focused, Flannery said in the statement.
“These actions will also help restore GE Capital ratios to appropriate levels,” he said.
Here are five more things to know about the reserve contributions, drawn from documents GE, GE Capital and Genworth have filed with regulatory agencies.
1. GE Capital has three insurance company subsidiaries.
GE Capital is, through intermediate companies, the parent of Employers Reassurance Corp., according to a letter the company sent to the Federal Reserve System board in February 2015.
Employers Re is the parent of Union Fidelity Insurance Company, and Union Fidelity is the parent of Heritage Casualty Insurance Company.