GE is a solid as the Rock of Gibraltar, according to some investors. The multi-faceted company has $20 billion in cash and a $40 billion credit line. But that kind of financial clout doesn’t matter much in today’s volatile insurance marketplace. The reason it doesn’t matter because GE Capital has more than 300,000 long-term care policies that they must honor. And here’s the rub. GE can’t raise rates to offset policy claims because GE is not the primary insurer. Genworth Financial, a GE alumnus, handles policy premiums.
According to a Bloomberg article, GE plans to put aside $15 billion over the next seven years to cover those long-term care policies. The company will contribute $3.5 billion of that total this year. If the Feds continue to raise interest rates, the increase could help reduce GE’s liability. Guggenheim Partners and the Blackstone Group said they were interested in managing GE’s insurance assets, but GE declined to comment about that development.
But based on the ever-growing healthcare costs, some analysts think GE could be in for a financial meltdown. In 2018, GE’s cash balance dropped by $17 billion. Plus, the company has an $18 billion debt coming due in 2020, according to Bloomberg. Some analysts think GE will have to tap their credit line in order to stay away from a bankruptcy filing.
The insurance business is not one of GE’s cash cow companies. In fact, insurance companies have their work cut out now that the more people live longer and need more long-term care. The company doesn’t know how much money they’ll need to cover the policies. That’s the tangled web GE has to face.
In 2018, GE’s stock market value dropped by more than $90 billion. Investors don’t want a repeat of that performance in 2019. Larry Culp has his hands full trying to untie that long-term care albatross from his CEO neck.
Culp recently talked to Warren Buffett about selling other GE assets. Culp also said Apollo Global Management, a private equity firm, expressed interest in acquiring GE’s insurance assets. But Culp wasn’t ready to share details about his Buffett or Apollo Global conversations.
GE Capital almost sank the General Electric conglomerate boat ten years ago. So investors know this long-term care issue needs serious attention. But trying to find a buyer for GE’s insurance business may be harder than getting Donald Trump to admit that climate change isn’t a hoax.