by Structured Settlement Watchdog®
What's Going on With General Electric?
General Electric Co is working with investment bankers to find ways to shed its insurance business, which has caused it to book hefty charges while sparking shareholder lawsuits and an investigation by U.S. regulators, people familiar with the matter said on Tuesday May 22, 2018, according to CNBC. The move comes after GE announced in January it would take a $6.2 billion after-tax charge and set aside a further $15 billion in reserves to help cover liabilities in insurance operations held by its GE Capital unit, mainly concerning long-term care (LTC) policies. Many providers of LTC insurance, including GE, underestimated the cost of servicing policies, meaning premiums have been unable to cover the spiraling costs of healthcare and longer life expectancy. While GE's insurance operations has stopped generating new business, existing contracts managed to maturity in a process known as run-off have become a major financial burden for the U.S industrial conglomerate. GE is hoping investment firms which specialize in acquiring run-off insurance businesses could buy some of the assets, the sources said. While GE is focused on shedding its troubled LTC business, it is open to divesting other insurance assets, including structured settlements and other life and disability products, the sources added.
The sources, who CNBC reported asked not to be identified because the matter is confidential, cautioned that no deal is certain given the liabilities that GE faces in its insurance business. A GE spokeswoman declined to comment.
GE spun out much of its insurance business in 2004 into Genworth Financial, itself currently attempting a sale to China Oceanwide Holdings Group Co for $2.7 billion. That deal has been held up by the Committee on Foreign Investment in the United States, a U.S. national security panel.
GE said in January a review of its remaining insurance portfolio showed 300,000 policies needed $15 billion more in reserves to cover potential payouts, or about $50,000 per policy, on top of the charge it took as part of its fourth-quarter earnings. It subsequently disclosed the U.S. Securities and Exchange Commission (SEC) had begun probing how it handled its insurance obligations. Insurance liabilities stood at $38 billion at the end of 2017, according to GE's annual report.
General Electric and Structured Settlements
General Electric entered the structured settlement business just after Executive Life and ELNY were taken over by regulators. In 1993, GE Capital purchased Great Northern Insured Annuity Corporation (GNA) and its New York subsidiary from Weyerhauser, for $525 million and United Pacific Life for $550 million from Reliance Holding. In a contemporaneous GE press release sourced from UPI, dated April 5, 1992, George Wendt, then GE President and CEO said "The combination of UPL and GNA will mean that we will have an organization with unparalleled marketing capabilities and more than $12 billion in assets. The acquisitions were rebranded GE Capital Assurance Company and GE Capital Life Assurance Company of New York. In 1994, GE Capital acquired AMEX Life Assurance a leader in long term care. In a contemporaneous 1995 New York Times report, Oppenheimer analyst Eric N. Berg opined, "GE Capital stands out among the hundreds of life insurers vying for attention and trying to sell retirement and savings products to the aging baby boom generation.The companies that will do best are those that have financial strength, that are technologically adept and have a broad-based distribution strategy." GE Capital, Mr. Berg said, is well positioned on all counts".
GE Capital Corporation Guarantee and Keep Well Agreement
United Pacific Life was a minor structured settlement player and outside bank insurance platforms, GNA was a relatively unknown insurer diving into the deep end of a structured settlement pool to compete with then 130-140 year old giants such as New York Life Insurance Company and Metropolitan Life Insurance Company. GE Capital took care of that with the GE rebranding. General Electric, in the 1990s was the only company that had remained on the Dow Jones Industrial Average since 1896 and at the time was known for its memorable tag line "We Bring Good Things to Life". Motivated by the need to provide consumer confidence and to capitalize on the GE Brand, GE Capital issued structured settlements with both a Keep Well Agreement and a Guarantee from GE Capital Corporation to back up its qualified assignment company GE Capital Assignment Corporation (GECAC).
The GE Capital Corporate guarantee expressly states that "the obligations of the guarantor will not be affected, impaired or discharged, in whole or in part, by any circumstances which might otherwise constitute a legal or equitable discharge or release of a guarantor. The guarantor waives notice of acceptance of this guarantee and any and all notices of the creation, renewal, extension or accrual of any of the obligations of GECAC guaranteed hereby and eaives notice of or proof of reliance by any claimant". The guarantee also expressly states that "the obligations under the guarantee are in addition to, and not in substitution for, the obligations of the guarantor to GECAC under that certain Keep Well Agreement".
The GE Capital obligation appears to be transparent, in stark contrast to what was learned about Aviva with respect to Aviva's Capital Maintenance Agreement, after Aviva divested itself of its United States operations in 2013. The latter led to a class action lawsuit against Aviva and Athene Holdings, which acquired Aviva USA and the end result of that suit, a negotiated settlement, was favorable to annuitants. Nevertheless the Aviva experience is a valuable lesson to insurance regulators, who would have to examine and approve any sale or divestiture of GE insurance obligations, including structured settlement obligations, and were clearly napping on the Aviva/Athene deal. Fortunately the situation was resolved favorably and there was no insolvency.
When GE spun off its GE Financial Assurance( GEFA) division, now Genworth, it used the slogan "Built on GE Heritage" in the transition. While GE has done many good things, part of that heritage is an unbelievably racist General Electric advertisement featuring an African American child eating fried chicken. I suspect that among those that GE Capital has structured settlement obligations to include disabled descendants of the the folks that GE targeted in that ad. Don't F*ck with the Disabled GE! Do the right thing and keep your promises as you have been doing.