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  #11  
Old 01-24-2018, 11:20 AM
Steve Grondin Steve Grondin is offline
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SEC gets involved

Revealed during conference call.
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  #12  
Old 01-24-2018, 06:50 PM
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http://www.thinkadvisor.com/2018/01/...paign=01232018

Quote:
GE's LTCI Block Might Be Different: Rating Agency
More policyholders could face rate increase
Spoiler:
The overall state of the U.S. long-term care insurance (LTCI) industry could be healthier than the blocks of LTCI business reinsured by General Electric Co.'s reinsurance units.

Analysts at Moody's Investors Service give that assessment in a new analysis of the big GE reserve shortfall.

(Related: 5 Notes on GE's $15B in LTCI Reserve Contributions)

Kansas regulators have asked GE to add $15 billion in reserves to GE's two Kansas-based reinsurance units over seven years. The charge for those contributions amounts to $9.5 billion before taxes, under General Accepted Accounting Principles (GAAP) rules.

RELATED

GE Rout Deepens as Latest Stumble Reignites Investor Dread
Investors discover that long-term care risk IS something to think about.

The Moody's analysts describe the charge as "surprisingly large." They suggest that regulators and investors may respond by asking insurers to provide more information about all blocks of LTCI business.

GE's blocks may look worse than typical blocks, however, because GE has assumed responsibility for the blocks from the insurers that originally wrote the coverage, and because GE has operated the reinsurance business as a runoff business, the analysts write.

A runoff business is a business that continues to serve existing customers but no longer tries to make new sales.

GE's reinsurance units have been administering about 310,000 stand-alone LTCI policies. The units account for about 4% of the total U.S. LTCI market, according to the Moody's analysts.

Insurers that have kept their own LTCI blocks on their own books may know more about how the policies were written, and what the insureds are like, than a company that has bought a block of LTCI business from the primary writer, according to the analysts.

A company that is actively in a market may also know a lot more about current conditions than a company that is trying to operate in a market in runoff mode, the analysts write.

"Insurers with deteriorating experience have been aggressively pursuing rate increases," the analysts write. "Although some of the cedants to GE have received rate increases, it is possible that GE's block has not received as much in rate increases as have the LTC blocks of several other insurers."

Still another challenge GE face is that much of the business it reinsures was issued years ago, in New York state, with low prices and generous policy features.

In New York state, "it is traditionally more challenging to get rate increases approved," the analysts write.

In one chart, the analysts compare the ratio of actual-to-expected LTCI claims at five carriers. In another, the analysts compare the issuers' ratios of claims to premiums.

At three of the companies, the ratio of actual to expected claims has bounced between 80% and 120%. At MassMutual, for example, the actual-to-expected ratio has hovered around 100%. At that company, the ratio of claims to premiums is just 23%.

At two other insurers, the actual-to-expected ratio has always been over 140%, according to the analysts' data.

A copy of the Moody's analysis is available behind a paywall here.
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  #13  
Old 01-25-2018, 04:25 PM
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http://www.thinkadvisor.com/2018/01/...paign=01252018

Quote:
GE Woes Deepen as SEC Investigation Throws Wrench in Turnaround

Dividends from GE Capital to the parent company have been suspended

Spoiler:
General Electric Co. is under investigation by U.S. regulators after taking a larger-than-expected charge in its finance division, dealing a new black eye to a company once enshrined as an icon of American business.

The Securities and Exchange Commission (SEC) is looking at the accounting practices related to a review of a GE insurance business as well as “revenue recognition and controls for long-term service agreements” in the power-equipment unit, Chief Financial Officer Jamie Miller said Wednesday.

The company is cooperating fully with the inquiry, which is in the early stages, she said. Miller told analysts and investors on a conference call that she isn’t “overly concerned” about the issues under scrutiny.

The probe compounds the mess GE is sorting through after a year of management turmoil, cash-flow concerns and falling demand in key businesses such as power and locomotives. GE was the biggest loser on the Dow Jones Industrial Average last year, with a 45% tumble. Chief Executive Officer John Flannery, who took the reins in August, last week disclosed the $6.2 billion fourth-quarter charge, which is tied to old insurance policies for long-term care.

RELATED

GE Rout Deepens as Latest Stumble Reignites Investor Dread
Investors discover that long-term care risk IS something to think about.

(Related: GE's LTCI Block Might Be Different: Rating Agency)

“We can’t be certain that prior management purposely misled investors, but we certainly believe there were ethical lapses that deserve attention,” Scott Davis, an analyst at Melius Research, said in a note regarding the SEC investigation. “The positive is that new management can use this as another catalyst to drive cultural change.”

The SEC declined to comment.

The shares fell 3% to $16.38 at 11:34 a.m. in New York, erasing a premarket gain of more than 5 percent. The company had advanced after it reaffirmed its 2018 profit forecast and Flannery said GE is in talks for more than 20 asset dispositions.

In disclosing the charge last week, GE said the company’s finance unit would pay $15 billion over seven years to fill a shortfall in reserves. A review of the insurance portfolio had been under way since the middle of last year.

The Boston-based company hasn’t done any new business in the long-term care insurance market since 2006. Still, 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 — a problem exacerbated by low interest rates.

GE said last week that dividends from GE Capital to the parent company would remain suspended for the “foreseeable future” after the payment was halted during the portfolio review.

‘Rough Seas’

Fourth-quarter adjusted profit fell to 27 cents a share, GE reported, slightly below the 28-cent average of analysts’ estimates compiled by Bloomberg. Revenue was up slightly in GE Aviation, and profit rose 2.1% as the business boosted production rates on a new jet engine. Sales increased 5.9% in GE Healthcare.

The company said strength in its jet-engine and health care businesses is shoring up confidence in the forecast of $1 to $1.07 a share in adjusted 2018 earnings.

The earnings report signaled that GE is stabilizing, though the SEC probe is likely to obscure the positive developments, said Nicholas Heymann an analyst at William Blair.

“It’s rough seas, and the rough seas aren’t going to calm until the regulatory concerns subside,” he said. “But this ship isn’t breaking apart on a reef.”
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  #14  
Old 01-26-2018, 04:28 PM
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Quote:
GE's Surprise $15 Billion Shortfall Was 14 Years in the Making
The new CEO took over in August
Spoiler:
The trouble at General Electric Co. began decades ago when a hole started to form inside its sprawling financial unit.

The hole became a $15 billion shortfall in insurance reserves, disclosed last week. It’s prompted a Securities and Exchange Commission investigation, called into question the oversight of GE leadership, pushed down the share price, and shocked investors who were asking Wednesday how this icon of American capitalism could allow the situation to deteriorate to this point.

“It sure seems that previous management had a rosy view,” said Scott Davis, an analyst with Melius Research in New York. “There seemed to be no effort on their part to get ahead of the liability. I find it very hard to believe that mysteriously overnight GE found problems they didn’t know existed.”

(Related: GE's LTCI Block Might Be Different: Rating Agency)

RELATED

GE Woes Deepen as SEC Investigation Throws Wrench in Turnaround
The review includes concerns about the power equipment unit as well as the reinsurance unit.

A representative for Jeffrey Immelt, who was GE’s chief executive officer from 2001 to 2017, declined to comment.

In 2004, GE spun out an insurance unit, Genworth Financial Inc., through a stock offering. The move was important to the parent company. It helped eliminate one of the biggest drags on GE’s earnings.

IPO Snag

At the time, advisers told GE the share sale could run into obstacles. Some Genworth businesses were too weak for investors’ tastes. GE would need to backstop them.

GE agreed to reinsure some of Genworth’s long-term-care insurance.

The company, then run by Immelt, raised $3.53 billion in its first Genworth share sale. The insurer’s stock rose 67% by the time GE sold the last of its stake for $2.8 billion in 2006.

Long-term-care insurance is a business that’s gotten tougher over the years. Policyholders are living longer. Medical costs have risen. Some insurance companies have quit selling the product altogether. Genworth has taken writedowns to shore up the business with cash reserves. GE is certainly not the first company to get its assumptions wrong, and the insurance policies date as far back as the 1980s. No new contracts were written after 2006.

But GE didn’t change its assumptions in a big way — a decision that baffled industry veterans.

RELATED

GE Woes Deepen as SEC Investigation Throws Wrench in Turnaround
The review includes concerns about the power equipment unit as well as the reinsurance unit.

Calculation Error

Genworth announced a revamp of its actuarial assumptions in 2014 after a calculation error, leading to a $1.2 billion loss for the year. It was a warning sign to the industry that long-term-care insurance policies were more toxic than initially thought. It also captured the attention of people familiar with the GE reinsurance contracts. They asked, why Genworth was revising its assumptions while executives at the financial conglomerate mostly left theirs alone.

Boston-based GE added at least $1 billion to its reserves over five years to mitigate some operating losses, according to a July report by ratings firm A.M. Best. Over a decade, the company contributed about $4 billion, said a person familiar with the situation.

Some employees were aware that long-term-care insurance was in bad shape. And even as it sold the bulk of its finance business, executives resisted selling reinsurance assets, even when bankers encouraged them.

Doing so would have forced GE to book a huge charge to reflect a drop in value, according to people with familiar with the situation who asked for anonymity because they weren’t authorized to speak. That was an indication that the business was worth less than what GE reported to investors, the people said.

Suspend Dividends

GE disclosed last year that it was reviewing the long-term-care business and would suspend dividends paid to the parent company. In November, while the process was still underway, Chief Financial Officer Jamie Miller said the company would likely take a charge of more than $3 billion.

When GE disclosed final results last week, Wall Street was shocked by the magnitude of the financial hit — a $6.2 billion charge against earnings and $15 billion to be put into reserves over seven years. On a Jan. 16 conference call with management, one analyst asked whether GE still had faith in its auditor, KPMG, while Jeff Sprague of Vertical Research Partners mused, “It’s hard to imagine a $15 billion problem materialized in the course of the year.”

Ryan Zanin, GE Capital’s chief risk officer, blamed increasing claims from aging policyholders in the past two years.

GE CEO John Flannery said in a statement last week that a charge of this size was “deeply disappointing” at a time when the company was trying to move forward. Flannery has been CEO only since August.

GE declined to comment beyond its previous public comments.

—With assistance from Noah Buhayar.


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  #15  
Old 01-26-2018, 06:20 PM
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Cool P&C vs Life/Health

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Originally Posted by echo View Post
Are you saying you think the Kansas Insurance Department treats Health and P&C (and life) insurance companies differently? If so, why do you think that?

I don't know, but I would imagine they would treat all insurance companies the same and would make paying liabilities a priority, regardless of the line of business.
Rules for reserves, capital, and surplus are very different for P&C vs Health & Life. Some carriers have shifted their LTC to P&C affiliates to reduce regulatory risks as well as the requirements. That seems unfair, but so is life.
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