Analysts at Moody’s Investors Service give that assessment in a new analysis of the big GE reserve shortfall.
Kansas regulators have asked GE to add $15 billion in reserves to GE’s two Kansas-based reinsurance units over seven years. The charge for those contributions amounts to $9.5 billion before taxes, under General Accepted Accounting Principles (GAAP) rules.
The Moody’s analysts describe the charge as “surprisingly large.” They suggest that regulators and investors may respond by asking insurers to provide more information about all blocks of LTCI business.
GE’s blocks may look worse than typical blocks, however, because GE has assumed responsibility for the blocks from the insurers that originally wrote the coverage, and because GE has operated the reinsurance business as a runoff business, the analysts write.
A runoff business is a business that continues to serve existing customers but no longer tries to make new sales.
GE’s reinsurance units have been administering about 310,000 stand-alone LTCI policies. The units account for about 4% of the total U.S. LTCI market, according to the Moody’s analysts.
Insurers that have kept their own LTCI blocks on their own books may know more about how the policies were written, and what the insureds are like, than a company that has bought a block of LTCI business from the primary writer, according to the analysts.
A company that is actively in a market may also know a lot more about current conditions than a company that is trying to operate in a market in runoff mode, the analysts write.