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Carolina Dybeck Happe. (Photo: General Electric)

Life Health > Long-Term Care Planning

GE to End $2.5B Long-Term Care Insurance Reinsurance Arrangement

By Allison Bell

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What You Need to Know

  • GE put much of its life, annuity and long-term care insurance business in the hands of a separate company, Genworth Financial, in 2004, but kept Employers Re.
  • The end of the reinsurance arrangement means that the company will face less worry about whether it can collect on reinsurance claims.
  • GE will also have $2.5 billion in extra cash to reinvest.

General Electric has agreed to end a long-term care insurance reinsurance relationship backed by $2.5 billion in assets.

The Boston-based company said Tuesday that it hopes to get the assets back by the end of the year.

Carolina Dybeck Happe, GE’s chief financial officer, talked about the end of the reinsurance arrangement during a conference call the company held to go over results for the third quarter with securities analysts.

What It Means

For GE, the end of the reinsurance arrangement means that the company will face less worry about whether it can collect on reinsurance claims.

“This reduces counterparty risk,” Happe said.

GE will also have $2.5 billion in extra cash to reinvest.

For clients with long-term care insurance coverage backed by GE Employers Re, the recapture deal could mean better service.

One goal of the transaction is to establish “administration service standards intended to enhance claim administration and innovation efforts,” the company said in a quarterly report filed with the SEC.

Employers Re built up the obligations by “reinsuring,” or providing insurance for, long-term care insurance businesses written by other insurers.

GE noted that the recapture will have no effect on its long-term care insurance benefits obligations, because it has had, and continues to have, an obligation to make good on the reinsurance promises it made to the direct writers.

The Background

GE is a manufacturer and financial services company that was co-founded in 1892 by Thomas Edison, Charles Coffin and J.P. Morgan.

It built up large insurance operations over the years. It put much of its life, annuity and long-term care insurance business in the hands of a separate company, Genworth Financial, in 2004, but it kept Employers Re.

GE gave the public a look at the Employers Re long-term care insurance business in 2019 when it posted an insurance teach-in presentation.

The company reported then that Employers Re and an Employers Re subsidiary, Union Fidelity Life Insurance Co., had $30 billion in policy benefit reserves and claim reserves, or about $77,000 in reserves per person, backing long-term care insurance coverage for 342,000 people.

The American Association for Long-Term Care Insurance estimates that 7.5 million U.S. residents had long-term care insurance in 2020. GE may provide long-term care insurance coverage for about 4.5% of those people.

The company ended the first quarter of this year with $2.5 billion in claim reserves for insured events from prior years.

GE posted the 2019 teach-in presentation partly because of investor questions about a 2018 Kansas insurance regulator requirement that the company add $15 billion to long-term care insurance reserves. Since the Kansas department set that requirement, GE has added $11.4 billion in capital to the insurance business, and it expects to add an additional $3.6 billion by the end of 2024, the company said.

The Reinsurance Recapture

GE did not give many details about the move to terminate the reinsurance deal, but it said in its annual statement for 2021 that it had classified $2.7 billion in reinsurance recoverables as assets.

The company recorded an allowance for possible credit losses in connection with another $1.65 billion in reinsurance.

The company is increasing its allowance for credit losses on reinsurance recoverables by $400 million in connection with the new reinsurance recapture.

GE could recoup some of the losses recorded over time, as the investment securities in the recaptured portfolio mature, the company said.

The GE insurance business had a net loss of about $250 million in the third quarter, but it would have earned about $80 million without the charge related to the reinsurance capture, Happe said.

GE did not name the reinsurer involved with the recapture.

A 2020 financial statement for Employers Reassurance Corp., GE’s main long-term care insurance providers, shows that LifeCare Assurance Co. provides $2.7 billion of the $2.8 billion in accident and health reinsurance that Employers Re has been using.

Carolina Dybeck Happe. (Photo: General Electric)

Allison Bell

Think_Allison

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