General Electric takes $6.2bn reinsurance charge

General Electric (GE) is taking an after-tax GAAP charge of $6.2 billion for the fourth quarter of 2017 on its legacy insurance portfolio.

“Earlier this year GE Capital initiated a comprehensive review of our insurance reserves with the assistance of leading outside experts,” said John Flannery, CEO of GE, in a Jan. 16 press release. “This was a rigorous process involving complex factors and estimates relating primarily to long-term care policies written by primary insurance companies and reinsured by NALH (North American Life & Health).”

Flannery added: “We have been taking ongoing actions to make GE Capital smaller and more focused while maintaining its key capabilities to support financing for GE Industrial products. These actions will also help restore GE Capital ratios to appropriate levels. At a time when we are moving forward as a company, a charge of this magnitude from a legacy insurance portfolio in run-off for more than a decade is deeply disappointing.”

Boston-based GE hasn’t done any new business in the long-term care market since 2006, according to Bloomberg News. Nevertheless, it was saddled with obligations on contracts written years ago. The liabilities can swell when claims costs are higher than expected or when investment income fails to meet projections. This problem can be exacerbated by low interest rates.