General Electric Co is actually working with investment bankers to find ways to shed its insurance business, which has caused the item to book hefty charges while sparking shareholder lawsuits as well as also an investigation by U.S. regulators, people familiar with the matter said on Tuesday.
The move comes after GE announced in January the item might take a $6.2 billion after-tax charge as well as also 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 as well as also longer life expectancy.
While GE’s insurance operations has stopped generating fresh 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 actually hoping investment firms which specialize in acquiring run-off insurance businesses could buy some of the assets, the sources said. While GE is actually focused on shedding its troubled LTC business, the item is actually open to divesting some other insurance assets, including structured settlements as well as also some other life as well as also disability products, the sources added.
The sources, who asked not to be identified because the matter is actually confidential, cautioned of which no deal is actually certain given the liabilities of which 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. of which deal has been held up by the Committee on Foreign Investment from 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 the item took as part of its fourth-quarter earnings. the item subsequently disclosed the U.S. Securities as well as also Exchange Commission (SEC) had begun probing how the item handled its insurance obligations.
Insurance liabilities stood at $38 billion at the end of 2017, according to GE’s annual report.
GE has also been sued by shareholders accusing the item of concealing mounting insurance liabilities as well as also the SEC probe, arguing This particular cost investors tens of billions of dollars.
Struggling to maintain profitability as well as also facing calls to be broken up, GE has proposed major cost-cutting as well as also selling or spinning off parts of its business including power, aviation as well as also healthcare as a way to bolster its value.
As part of its drive to shed assets, GE announced an $11.1 billion deal on Monday to merge its transportation business with U.S. rail equipment the Wabtec Corp, with GE as well as also its shareholders owning just over half of the combined business.