General Electric has been hit with a GAAP after-tax charge of $6.2 billion, or $7.5 billion when adjusted to the new tax rate, tied to a legacy insurance portfolio.
In addition, the company’s finance unit will make statutory reserve contributions of $15 billion over seven years to fill a shortfall in reserves for the North American Life & Health portfolio.
John Flannery, Chairman and Chief Executive Officer (CEO) of GE, said; “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.”
He said the $15 billion in reserve payments would be made by GE Capital “which has sufficient liquidity to do so.”
He added that the firm’s been taking steps to downsize GE Capital, while still maintaining its key capabilities to support financing for GE Industrial products in order to help restore GE Capital ratios to appropriate levels.
“As we disclosed during the company’s second- and third-quarter earnings calls and further discussed during our November 13, 2017, investor presentation, earlier this year GE Capital initiated a comprehensive review of our insurance reserves with the assistance of leading outside experts.
“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,” he said.
The comprehensive review of the firm’s run-off legacy portfolio resulted in a $9.5 billion pretax charge, last year GE had warned of potential problems in its long-term care portfolio and now the firm continues to pay the price for a highly challenged insurance segment that its long-since attempted to move away from.
