As a result of losses and uncertainty in the industry, General Electric is considering a plan to spin off its property/casualty business, according to the Wall Street Journal.
The plan may include an initial public offering for a 20 percent stake in the company’s Employers Reinsurance Corp. A GE Capital spokesman declined comment, but the possible plan to complete the spin off is in its very early stages and is just under exploration at this time. The sale has the potential to generate billions of dollars.
The move would follow an announcement recently by Citigroup, which made public its plans to split off its Travelers Property Casualty Unit.
Employers Re has brought income into GE over the years since its acquisition nearly two decades ago, but the terrorist attacks of Sept. 11 have had a major impact throughout the industry.
Employer’s Reinsurance parent, GE Global Insurance Holdings, which comprised approximately 7.5 percent of GE’s entire revenue for 2001, recorded a loss of $47 million. The bulk of losses from 2001 were a result of the nearly $575 million ($386 million following tax) in insurance losses stemming from the attacks of Sept. 11. GE Global Insurance earned $413 million in 2000, down from $625 million in 1999. The property treaty reinsurance portion of GE covers a wide range of products, from quota share and surplus facilities to excess of loss and various types of catastrophe agreements.
The Journal report went on to say that a potential split would allow GE to move from a shaky business with an uncertain future. In GE’s annual report, the company pointed out that a number of problems exist in the insurance business, including the ongoing decline of underwriting results, along with the continued impact of low premiums in the P&C insurance/reinsurance industry.
In response to the GE announcement, Fitch Ratings announced March 15 that if GE was to ultimately spin off Employer’s Reinsurance Corp. unit (Employers Re) it is possible that Fitch would downgrade its Insurer Financial Strength Rating of Employers Re to below the current ‘AAA’ level. However, Fitch does not expect the rating to fall below the ‘AA’ ratings range.
Fitch reported that it is not taking any formal actions now with respects to its rating of Employers Re, since reports of a possible spin off are as yet unconfirmed. If confirmed, Fitch would likely initially place the rating on Rating Watch Negative, and only take an action pending the actual spin off and further analysis.
Standard & Poor’s also commented that it intends to have discussions with GE and its affiliates concerning their strategic plans.
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