General Electric insurance called "risky" by Fitch; stocks fall again by Reuters

By Alwyn Scott

NEW YORK (Reuters) – General Electric Fitch Ratings said Tuesday in a report that GE's shares have fallen. It is one of the riskiest investors in long-term care insurance.

The Fitch report, published annually by the rating agency, echoes concerns voiced last week by financial investigator Harry Markopolos, who estimated that GE had under-booked $ 29 billion for its contracts. long-term care.

GE strengthened its defense of its insurance accounting Monday.

On Tuesday, the US conglomerate reiterated comments it made Monday at https://www.ge.com/reports/follow-up-from-last-weeks-note in response to the Markopolos report. "Our current reserves are well supported for the characteristics of our long-term care portfolio," said GE. He gave details of how he established the key assumptions used to determine the level of his reserves.

GE shares fell more than 3% to $ 8.40.

Markopolos and Fitch reports reopen debate over whether GE has set aside enough money to cover its long-term care commitments or will need to mobilize several billion more dollars, which could potentially distort plan to strengthen its fragile finances.

Chief Executive Officer Larry Culp sells companies to pay off his debt. Analysts said any money diverted to reserves could restrict Culp's ability to reduce GE's debt.

Goldman Sachs (NYSE 🙂 said Monday that its analysis had shown that GE's reserves were probably sufficient. "We continue to believe that the GE block has high reserves compared to its peers," wrote Goldman. In March, Reuters also found that GE's reserves matched those of comparable insurers.

But others said long-term policies differed significantly in terms of profits and costs for insurers. In general, long-term care coverage, which covers assisted living expenses and retirement home stays, has proven to be much more expensive than insurers assumed when they sold policies several times over. decades and has tipped some insurers into a situation of financial loss or even bankruptcy.

According to Fitch, his analysis revealed that GE and many other insurers have still not set aside enough money to cover the long-term losses expected from long-term care contracts, which present an unusual risk due to volatility. costs and vulnerability of interest rate fluctuations. Even insurers who have taken a more conservative stance and set aside more money than GE have not avoided losses, said Fitch.

HIGH EXHIBITION

But GE also has a "very high" long-term care exposure for more than 250,000 retirees and other beneficiaries of the benefits of such policies, said Anthony Beato, a Fitch Ratings analyst, told Reuters.

GE ranks second on the list of the 16 riskiest long-term care insurers, just behind Genworth Financial Inc. (N :), a company created by GE in 2004. Other insurers cited as having below-average reserves and a very high exposure are: Unum Group (N 🙂 and Senior Health Insurance Co of Pennsylvania, said Fitch.

In a statement, Genworth said it was satisfied that its reserve determination process is appropriate and that it does not at all agree with Fitch's view that its assumptions about future premium increases are overly optimistic.

Unum did not comment on the contents of the Fitch report. Senior Health has not responded to requests for comments.

According to Beato, GE scored high because its policies are generally older when long-term care costs are poorly understood. A large portion of GE's policies also provide for lifetime benefits and some provide for inflation protection benefits.

"When you compose it all together, (GE's portfolio) seems much riskier than what the rest of the industry maintains," Beato said.

The GE insurance group also has only about US $ 1 billion in capital, said Beato. Although GE, as a parent company, has already invested money in reserve building, Fitch did not consider this in its ranking because it wanted a comparison of reported statutory capital levels. in the entire sector, said Beato.

"If GE were to increase its reserves further, equity continues to be overshadowed by this very big risk," said Beato, GE's operational insurance subsidiary.

Last week, Leslie Seidman, chairman of GE 's audit committee, said that the Markopolos analysis was not accurate. "I'm not sure (he) really understands accounting in this area," she said in an interview with CNBC.

GE did not make those comments about Fitch's report Tuesday, but said he was sticking to his own accounts.