Fitch labels General Electric insurance “risky”, sending share prices tumbling

General Electric Insurance - long term care

A new report called the long term care insurance backer the riskiest one in that sector.

A new Fitch Rating report referred to General Electric insurance as one of the riskiest backers of long term care coverage. It pointed to the company’s substantial claims exposure and comparatively small cash reserves for paying those claims.

As a result of the new designation, G.E. saw its shares take a nose dive at the start of the week.

The Fitch Ratings report is issued annually. The credit ratings agency underscored concerns outlined by financial investigator Harry Markopolos last week. Markopolos estimated that General Electric insurance’s cash reserve for long term care policies is short by $29 billion.

That said, G.E. defended its own insurance accounting following the release of the report. In response to the Markopolos report claims, it wrote: “Our current reserves are well-supported for our long-term care portfolio characteristics.” It offered additional details regarding the way in which it formed central assumptions used in deciding the size of its reserves. Still, the company’s shares fell by over 3% at $8.40 following the statement.

The reports have sparked a debate regarding the General Electric insurance reserves.

The Fitch Rating and Markopolos reports have placed the spotlight back onto an existing debate regarding whether or not G.E. has adequately set aside its long-term care insurance reserves. While the firm claims to be appropriately stocked, the reports indicate that several billions are needed to boost the existing reserves.

G.E. is already carrying a $105 billion debt load and is struggling with a low inflow of cash. CEO Larry Culp has already been selling the company’s businesses in order to pay down that sizeable debt. According to analysts, any money the company directs into its reserves could restrict the amount its CEO would have available to reduce the company’s debt.

At the start of the week, Goldman Sachs said its analysts measured General Electric insurance reserves as being likely enough for what it requires. “We continue to view GE’s block as having high reserves on a relative basis to General Electric Insurance - long term carepeers,” said that firm. Back in March, Reuters also determined that G.E. was holding reserves comparable to those of other long term care insurance companies.

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