The U.S. Securities and Exchange Commission is officially taking an interest in the accounting for General Electric Co.’s long-term care insurance (LTCI) reinsurance operations.
The SEC sent GE a Wells notice about the company’s insurance accounting practices Sept. 30, GE said Tuesday, in a current report notice filed with the SEC.
- A copy of the GE Wells notice is available here.
- An article about Fitch analysts see LTCI issuers is available here.
Christopher Pereira, GE’s chief corporate counsel, says in the current report notice that the SEC had already been looking into GE’s revenue-recognition practices at units other than the run-off insurance operations at GE’s GE Capital unit.
After GE gave investors an update on the run-off insurance operations, in January 2018, ”the SEC staff expanded the scope of its investigation to encompass the reserve increase and the process leading to the reserve increase,” Pereira writes in the notice.
The SEC later began looking into goodwill accounting at GE’s power business, Pereira says.
“We are providing documents and other information requested by the SEC staff, and we are cooperating with the ongoing investigation,” Pereira says.
The SEC staff said in the new Wells notice that ”it is considering recommending to the SEC that it bring a civil injunctive action against GE for possible violations of the securities laws,” Pereira says. “GE has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital’s run-off insurance operations, as well as GE’s disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the other matters under investigation.”
Pereira notes that a Wells notice is not a formal allegation and is not a finding of wrongdoing.
“It allows GE the opportunity to provide its perspective and to address the issues raised by the SEC staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding,” Pereira says.
“GE disagrees with the SEC staff with respect to this recommendation and will provide a response through the Wells notice process,” Pereira says. “If the SEC were to authorize an action against GE, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other relief within the commission’s authority. The results of the Wells notice and any enforcement action are unknown at this time.”
GE is the Boston-based company started out as the home of the light bulb. It later became a major manufacturer of engines, medical equipment and other high-tech products, and it built large financial services operations.
GE put some of the financial services operations into Genworth Financial. GE converted Genworth into a separate company in 2004, by selling Genworth stock to the public.