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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
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Commission file number 0-27394
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GE Global Insurance Holding Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-3435367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 Metcalf, Overland Park, Kansas 66201 (913) 676-5200
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Name of each
Title of each class exchange on which registered
------------------- ----------------------------
7% Notes Due February 15, 2026 New York Stock Exchange
6.45% Notes Due March 1, 2019 New York Stock Exchange
7.5% Notes Due June 15, 2010 New York Stock Exchange
7.75% Notes Due June 15, 2030 New York Stock Exchange
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
Title of each class
-------------------
Common Stock, par value $5,000 per share
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 23, 2001. None.
At March 23, 2001, 1,000 shares of common stock with a par value of $5,000 per
share were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business........................................................................1
Item 2. Properties.....................................................................12
Item 3. Legal Proceedings..............................................................12
Item 4. Submission of Matters to a Vote of Security Holders............................12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......13
Item 6. Selected Financial Data........................................................13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....................22
Item 8. Financial Statements and Supplementary Data....................................22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................................22
PART III
Item 10. Directors and Executive Officers of the Registrant.............................23
Item 11. Executive Compensation.........................................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management.................23
Item 13. Certain Relationships and Related Transactions.................................23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................23
PART I
Item 1. Business.
GE Global Insurance Holding Corporation ("GE Global Insurance" and, together
with its subsidiaries, "the Company"), through its direct and indirect
subsidiaries, is principally engaged in the reinsurance business in the United
States and throughout the world. All outstanding common stock of GE Global
Insurance is owned by General Electric Capital Services, Inc. ("GE Capital
Services"), which in turn is wholly-owned by General Electric Company ("GE
Company").
The principal executive offices of GE Global Insurance are located at 5200
Metcalf, Overland Park, Kansas 66201 (Telephone number (913) 676-5200).
Overview of the Reinsurance Industry
Reinsurance is a form of insurance in which a reinsurer indemnifies a primary
insurer against part or all of the liability assumed by the primary insurer
under one or more insurance policies. Reinsurance may provide a primary insurer
with several major benefits: a reduction in net liability of individual risks,
protection against catastrophic losses, reduction of financial leverage and
stabilization of operating results. Reinsurance may also provide a primary
insurer the ability to increase its underwriting capacity by allowing the
primary insurer to accept larger risks and to more rapidly expand its book of
business.
The global reinsurance industry continues to be impacted by industry
consolidation, excess market capacity and primary insurers seeking alternative
forms of risk transfer such as insurance captives, structured securities and
derivative products. Global reinsurers are offering ways to meet the demands of
this changing global market by expanding their markets, entering into new
reinsurance niches, offering new reinsurance products and spreading their risks
geographically. This changing reinsurance environment may affect the industry's
profitability which has historically been influenced by the insurance industry's
underwriting cycle, changes in interest rates and catastrophic events.
General
GE Global Insurance is one of the largest reinsurance groups in the world, with
subsidiaries providing risk management solutions for well over a century. The
Company writes substantially all types of property and casualty, healthcare and
life reinsurance and some lines of primary health, property and casualty and
excess workers' compensation insurance.
The Company conducts business and services its accounts through a network of
local offices located in cities throughout the world. As of December 31, 2000,
the Company had 19 offices in the North American region, 13 offices in the
European region, 11 offices in the Asia/Pacific region and 6 offices in the
Latin American region.
As one of the largest direct writers of reinsurance in the world, the Company
works directly with its clients which enhances the Company's ability to evaluate
its clients and their respective risks and allows the Company to be more
responsive to the individual needs of its customers. The Company utilizes its
network of local offices throughout the world to service the particular needs of
its reinsurance clients. This system enables the Company to provide a wider
range of services targeted at the needs of a particular market. To enhance its
responsiveness to customer needs in the property and casualty segment, the
Company operates in a decentralized environment with respect to underwriting
decisions and customer service.
The Company also competes in the reinsurance broker market throughout the world.
During 1998 and in early 1999, the Company significantly expanded its presence
in the reinsurance broker market by acquiring Kemper Reinsurance Company
(subsequently renamed GE Reinsurance Corporation - "GE Re") and Eagle Star
Reinsurance Company Limited ("Eagle Star Re") (See Note 3 to the consolidated
financial statements). The acquisitions of GE Re and Eagle Star Re significantly
enhance the Company's distribution channel in the worldwide reinsurance broker
market and further enables the Company to respond to the growing risk management
needs of a wider and more diverse group of customers. The acquisitions of GE Re
and Eagle Star Re position the Company as one of the largest reinsurance broker
writers in the world.
1
The Company manages and diversifies its risk through the careful underwriting of
risks, active claims management and the purchase of retrocessional coverage.
Retrocessional coverage represents a form of secondary reinsurance where a
reinsurer seeks reinsurance coverage on a specified portion of assumed risks.
The Company maintains strict underwriting controls whereby individual
underwriters are assigned maximum levels of underwriting authority based on
specified lines of business. The assumption of risks greater than the specified
maximum amount requires approvals of designated individuals. Adherence to these
underwriting guidelines is monitored through pre-renewal account reviews,
periodic underwriting audits and computer edit controls. In addition to
transactional controls, the Company employs portfolio monitoring of key risks
for all products and controls new product introductions through the use of
required management reviews ("tollgates") to approve such new products and
related underwriting guidelines.
The Company's business strategy is to continue to increase revenues by
concentrating on select profitable customer segments and delivering
comprehensive risk transfer and risk management solutions. The Company does not
intend, however, to increase premium income at the expense of its underwriting
results.
On March 4, 1999, the Company completed the acquisition of Eagle Star Re, a
leading London Market non-life reinsurance company principally doing business
through intermediaries. This acquisition significantly enhanced the Company's
worldwide reinsurance broker distribution channel. The cash consideration of
approximately $346 million was provided through existing funds.
During 1998, the Company, either directly or through its affiliates, acquired
three major property and casualty insurance/reinsurance businesses which
strengthened its global presence in the healthcare product lines, the
broker-serviced markets and the Fortune 1000 commercial property markets.
In the fourth quarter of 1998, the Company completed the acquisitions of Medical
Protective Corporation ("Medical Protective") and GE Re. Medical Protective is
the oldest medical professional liability insurer of physicians and dentists in
the United States. The cash consideration of approximately $628 million was
initially financed by GE Capital Corporation via an interim loan agreement and
subsequently refinanced in 2000 through additional long-term borrowings. GE Re
is a property and casualty reinsurance company principally doing business
through intermediaries. The cash consideration of approximately $468 million was
financed initially in 1998 by utilizing existing credit facilities and
subsequently refinanced in 1999 through additional long-term borrowings.
On January 6, 1998, the Company purchased the assets and assumed the renewal
rights of Industrial Risk Insurers ("IRI"), a leader in providing highly
protected risk property insurance, for a cash consideration of approximately
$235 million. IRI writes business utilizing the licensing authority of its
members and the business underwritten is subsequently allocated to members in
proportion to membership participation.
Also in recent years, the Company has expanded its global business through the
extension of its local office network. The Company opened offices in Seoul,
Winterthur, San Juan and Sao Paulo in 2000, Rio de Janeiro and Warsaw in 1999
and Kuala Lumpar and Shanghai in 1998.
Unless otherwise indicated, all financial data has been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP").
2
Lines of Business
The Company's two business segments are (1) property and casualty
insurance/reinsurance and (2) life reinsurance. The Company's principal product
lines under the property and casualty segment are traditional property and
casualty reinsurance, healthcare reinsurance and specialty insurance (generally
primary property and casualty insurance) and its principal product lines under
the life reinsurance segment are traditional life reinsurance and financial
reinsurance. The Company also provides primary insurance products to hospitals,
health maintenance organizations and medical professionals as part of its
healthcare product line and to niche customers as part of its specialty
insurance product line.
Unless otherwise indicated, the Company's domestic results include business
written in the United States (including business written in the United States
where the reinsured is outside the United States) and Canada, and the
international results include all other business written by the Company. The
geographic breakdown, based on net premiums written, of the Company's principal
product lines is summarized as follows:
Year ended December 31,
-------------------------------------------------------------------------
(In millions) 2000 1999 1998
--------------------- --------------------- ---------------------
Inter- Inter- Inter-
Domestic national Domestic national Domestic national
--------------------- --------------------- ---------------------
Property and Casualty Segment
Property and Casualty......... $2,103 $2,677 $2,102 $2,470 $1,487 $2,306
Healthcare.................... 1,294 76 851 43 514 83
Specialty..................... 404 - 417 - 498 -
Life Segment..................... 832 805 615 649 422 674
------ ------ ------ ------ ------ ------
Total......................... $4,633 $3,558 $3,985 $3,162 $2,921 $3,063
====== ====== ====== ====== ====== ======
The following is a summary description of the Company's domestic and
international business based on principal product lines:
Property and Casualty Insurance/Reinsurance Segment
Property and Casualty Reinsurance. The Company's largest product line,
traditional property and casualty reinsurance, accounted for approximately 58%
of the Company's worldwide net premiums written in 2000. The Company's premium
volume in the property and casualty segment is derived principally from treaty
agreements, which enable the Company to maintain lower operating costs because
fewer personnel are required to administer treaty business than facultative
business. Most of the Company's casualty business is written on an excess of
loss basis because it better enables the Company to control its exposure on
business that has a relatively longer claim settlement pattern (i.e., the
"tail").
The Company's property business is written on both an excess of loss and a
proportional basis. Generally, the Company is the lead reinsurer for any
domestic program in which it participates, enabling it to negotiate the terms of
the reinsurance. The Company also acts as the lead reinsurer on a portion of its
international business.
The Company's international property and casualty business services worldwide
markets, including most European countries and countries in the Middle East, Far
East and Latin America. For the year ended December 31, 2000, approximately 58%
of the Company's international net premiums written from property and casualty
reinsurance was derived from property reinsurance, approximately 21% from
casualty reinsurance and approximately 21% from aviation and marine reinsurance.
Based on 2000 net premiums written, approximately 43% of the Company's
international property and casualty business was written on a direct basis, with
the remainder written through brokers.
3
In recent years, insurance companies have directed more business to the
better-capitalized, more highly-rated reinsurers, which has led to a
consolidation in the reinsurance industry. In competing with a smaller number of
global reinsurers, the Company has found that a number of its global customers
are increasingly demanding that reinsurers provide a broader range of coverages.
In response to this trend, the Company has expanded the property and casualty
risks it reinsures beyond its more traditional property and casualty reinsurance
business to include risks such as errors and omissions, directors and officers
and non-standard auto liability. In addition to the expansion of lines of
business, property and casualty reinsurance has aligned its marketing efforts
with its core expertise in areas such as aviation, national accounts and global
accounts. Management believes that the Company is well positioned to compete on
a global basis in these markets.
The property and casualty reinsurance industry has experienced a significant
increase in catastrophic exposure and loss during the last decade. Increased
population density, particularly in regions susceptible to tropical storms or
earthquakes, and the higher incidence and greater severity of catastrophes, has
increased the losses incurred in many recent catastrophes. As a result of these
developments, the Company has taken steps to limit its exposure by carefully
monitoring and allocating its property and casualty exposure to specific
geographic zones, both domestically and internationally.
Healthcare. As part of the Company's property and casualty business segment, the
Company provides insurance and reinsurance for the healthcare industry and
targets employers, public entities, manufacturers and others for certain product
lines. Coverages include primary insurance and reinsurance for medical
professional liability and insurance protecting primary insurers (including
self-insurers) in the healthcare market (i.e., excess workers' compensation,
stop loss insurance, HMO reinsurance and provider excess coverages).
The healthcare industry continues to change and evolve due to voluntary
healthcare reform, managed healthcare initiatives, deteriorating profits driven
by the competitive marketplace and the uncertainty related to the extent of
government regulation. In addition, companies that historically specialized in
one line of business and one geographic area have expanded their lines of
business and are now writing multiple lines of business in a broader territory.
The Company, to serve the growing needs of their clients, has developed new and
innovative healthcare products and has expanded coverages to include property
and other lines of business.
The Company believes that it is well positioned to compete in the healthcare
market because of its wide range of experience in providing healthcare liability
coverage and excess protection for self-insured employers, leveraging its
acquisition of Medical Protective and utilizing multiple products and
services to provide healthcare solutions.
Specialty Insurance. An additional component of the Company's domestic property
and casualty business is its specialty insurance product line, which generally
consists of primary commercial property and casualty policies written on an
admitted and non-admitted basis in niche markets. The Company's specialty
business concentrates on providing commercial insurance products for target
markets, usually professional associations and homogeneous groups. Specialty
products include professional liability programs and niche programs in the
general property and casualty area. This coverage provides insurance for errors
and omissions (E&O) arising out of the professional activities of the insureds
and commercial property and casualty coverages for niche programs.
Professional classes underwritten include lawyers, property and casualty
insurance agents and brokers, life and health insurance agents and brokers,
accountants and a few miscellaneous classes. The majority of this business
provides coverage to lawyers and property and casualty and life insurance agents
and brokers.
Competition for the classes of business underwritten within the Company's
specialty insurance product line has recently increased as more companies have
redirected their resources to the specialty niche business. In order to compete
for this business, the Company has provided value-added services, including
enhanced underwriting and automated processing services, to its wholesalers and
managing general agents producing such business.
4
Life Reinsurance Segment
Life Reinsurance. The Company is engaged in the reinsurance of various life
insurance products, including term, whole and universal life, annuities, group
life, group and individual long-term health and disability products and provides
financial reinsurance to life insurers. Based on net premiums written, life
reinsurance accounted for approximately 20% of the Company's worldwide business
in 2000.
With respect to life reinsurance, the Company writes mostly on a direct basis
with primary insurers. The Company's life reinsurance business consists
principally of treaty business and is written generally on a pro-rata basis. The
Company's domestic life reinsurance business is written in every state in the
United States. The Company's international life reinsurance business services
worldwide markets. For the year ended December 31, 2000, approximately 63% of
the Company's international life reinsurance net premiums written were for
traditional life reinsurance, with the balance for health and disability
reinsurance.
The Company believes that increases in life expectancy, decreases in public
funding for social programs in Europe and deregulation of the life reinsurance
markets in Europe and Japan present increased opportunities for the Company's
life reinsurance business line.
Financial Reinsurance. The two principal categories of financial reinsurance are
financial reinsurance and financial risk reinsurance. Financial reinsurance does
not transfer significant underwriting risk to the reinsurer and is designed
primarily to enhance the current statutory surplus of the ceding company while
reducing future statutory earnings as amounts are repaid to the reinsurer. This
financial transaction is effectively collateralized by anticipated future income
streams from selected insurance policies. Financial reinsurance typically has a
duration of three to five years. Financial risk reinsurance represents a long
term traditional risk sharing arrangement where reinsurance is provided on
existing portfolios of in-force business. The Company's focus recently has been
on expanding the financial risk reinsurance line.
Property and Casualty Reserves for Unpaid Claims and Claim Expenses
The Company's insurance/reinsurance subsidiaries maintain reserves to cover
their estimated ultimate liability for unpaid claims and claim expenses with
respect to reported and unreported claims incurred as of the end of each
accounting period (net of estimated related salvage and subrogation claims).
These reserves are estimates that involve actuarial and statistical projections
of the expected cost of the ultimate settlement and administration of unpaid
claims based on facts and circumstances then known, estimates of future trends
in claims severity and other variable factors such as inflation and new concepts
of liability. The inherent uncertainties of estimating claim reserves are
exacerbated for reinsurers by the significant periods of time that often elapse
between the occurrence of an insured claim, the reporting of the claim to the
primary insurer and, ultimately, to the reinsurer, and the primary insurer's
payment of that claim and subsequent indemnification by the reinsurer (i.e., the
"tail"). As a consequence, actual claims and claim expenses paid may deviate,
perhaps substantially, from estimates reflected in the insurance companies'
reserves in their financial statements. Adjustments to previously reported
reserves for net claims and claim expenses are considered changes in estimates
for accounting purposes and are reflected in the financial statements in the
period in which the adjustment occurs.
5
When a claim is reported to a ceding company, the ceding company's claims
personnel establish a "case reserve" for the estimated amount of the ultimate
payment. The estimate reflects the informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
such personnel regarding the nature and value of the specific type of claim. The
Company, in turn, typically establishes a case reserve when it receives notice
of a claim from the ceding company. Such reserves are based on an independent
evaluation by the Company's claims departments, taking into consideration
coverage, liability, severity of injury or damage, jurisdiction, an assessment
of the ceding company's ability to evaluate and handle the claim and the amount
of reserves recommended by the ceding company. Case reserves are adjusted
periodically by the claims departments based on subsequent developments and
audits of ceding companies.
In accordance with GAAP, the Company also maintains reserves for claims incurred
but not reported ("IBNR"). Such reserves are established to provide for future
case reserves and loss payments on incurred claims that have not yet been
reported to an insurer or reinsurer. In calculating IBNR reserves, the Company
uses generally accepted actuarial reserving techniques that take into account
quantitative loss experience data, together with, where appropriate, qualitative
factors. IBNR reserves are based on claim experience and are grouped both by
class of business and by accident year. IBNR reserves are also adjusted to take
into account certain additional factors, such as changes in the volume of
business written, reinsurance contract terms and conditions, the mix of
business, claims processing and inflation, that can be expected to affect the
Company's liability for claims over time.
The potential for adverse development of the Company's reserves for its
international business, as compared to that of its domestic business, is reduced
because the international operations have a relatively low proportion of longer
tail exposures.
Reserve Development. The development of the Company's net balance sheet property
and casualty liabilities for unpaid claims and claim expenses for accident years
1990 through 2000 is summarized in the following table.
Net Liability. The first row of data shows the estimated net liability for
unpaid claims and claim expenses at December 31 for each year from 1990 to 2000.
The liability includes both case and IBNR reserves as of each year-end date, net
of anticipated recoveries from other reinsurers. The rows immediately following
the first row of data show cumulative paid data at December 31, as of one year,
two years, ..., 10 years of subsequent payments.
Net Liability Re-estimated. The middle rows of data show the re-estimated amount
for previously reported net liability based on experience as of the end of each
subsequent calendar year's results. This estimate is changed as more information
becomes known about the underlying claims for individual years. The cumulative
redundancy (deficiency) shown in the table is the aggregate net change in
estimates over the period of years subsequent to the calendar year reflected at
the top of the respective columns. The amount in the line titled "Redundancy
(Deficiency) at December 31, 2000," represents for each calendar year (the "Base
Year") the aggregate change in (i) the Company's original estimate of net
liability for unpaid claims and claim expenses for all years prior to and
including the Base Year compared to (ii) the Company's re-estimate as of
December 31, 2000, of net liability for unpaid claims and claim expenses for all
years prior to and including the Base Year. A redundancy means that the original
estimate was greater than the re-estimate and a deficiency means that the
original estimate was less than the re-estimate.
6
Changes in Historical Reserves for Unpaid Claims and Claim Expenses
For the Last Ten Years - GAAP Basis as of December 31, 2000
Year ended December 31,
--------------------------------------------------------------------------------------------------------
(In millions) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
--------------------------------------------------------------------------------------------------------
Net liability for unpaid
claims and claim
expenses $3,579 $3,596 $3,991 $4,525 $5,071 $9,351 $9,458 $9,114 $12,495 $13,210 $12,202
Cumulative paid as of:
One year later......... 747 665 802 949 1,115 1,964 1,949 2,176 2,867 4,811 ---
Two years later........ 1,119 1,103 1,274 1,602 1,804 3,130 3,189 3,241 5,803 --- ---
Three years later...... 1,524 1,499 1,739 2,054 2,341 3,933 3,881 4,863 --- --- ---
Four years later....... 1,772 1,784 2,036 2,424 2,708 4,464 5,294 --- --- --- ---
Five years later....... 1,989 2,008 2,293 2,690 2,988 5,686 --- --- --- --- ---
Six years later........ 2,173 2,208 2,485 2,952 3,318 --- --- --- --- --- ---
Seven years later...... 2,348 2,362 2,688 3,181 --- --- --- --- --- --- ---
Eight years later...... 2,482 2,531 2,841 --- --- --- --- --- --- --- ---
Nine years later....... 2,630 2,653 --- --- --- --- --- --- --- --- ---
Ten years later........ 2,738 --- --- --- --- --- --- --- --- --- ---
Net liability
re-estimated as of:
One year later......... $3,616 $3,625 $3,919 $4,612 $5,173 $9,192 $9,229 $9,179 $12,410 $13,749 ---
Two years later........ 3,583 3,587 4,066 4,656 5,313 8,959 9,127 8,655 12,115 --- ---
Three years later...... 3,564 3,701 4,095 4,793 5,256 8,907 8,549 8,453 --- --- ---
Four years later....... 3,654 3,687 4,238 4,747 5,155 8,392 8,252 --- --- --- ---
Five years later....... 3,635 3,818 4,154 4,668 4,902 8,029 --- --- --- --- ---
Six years later........ 3,758 3,771 4,075 4,487 4,804 --- --- --- --- --- ---
Seven years later...... 3,734 3,711 3,942 4,402 --- --- --- --- --- --- ---
Eight years later...... 3,674 3,592 3,906 --- --- --- --- --- --- --- ---
Nine years later....... 3,565 3,591 --- --- --- --- --- --- --- --- ---
Ten years later........ 3,593 --- --- --- --- --- --- --- --- --- ---
Redundancy (Deficiency)
at December 31, 2000 (14) 5 85 123 267 1,322 1,206 661 380 (539) ---
Effect of foreign
exchange (1) (42) (45) (30) (2) (31) (636) (635) (370) (730) (668) ---
------ ------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Redundancy (Deficiency)
at December 31, 2000,
excluding foreign
exchange $ (56) $ (40) $ 55 $ 121 $ 236 $ 686 $ 571 $ 291 $ (350) $(1,207) $ ---
====== ====== ====== ====== ====== ====== ====== ====== ======= ======= =======
(In millions) 1992 1993 1994 1995 1996 1997 1998 1999 2000
-------------------------------------------------------------------------------------
Balance at December 31 - gross............... $4,815 $5,312 $6,020 $11,145 $10,869 $10,936 $15,342 $17,435 $16,932
Less reinsurance recoverables................ (824) (787) (949) (1,794) (1,411) (1,822) (2,847) (4,225) (4,730)
------ ------ ------ ------ ------- ------- ------- ------- -------
Balance at December 31 - net................. 3,991 4,525 5,071 9,351 9,458 9,114 12,495 13,210 12,202
------ ------ ------ ------ ------- ------- ------- ------- -------
Latest re-estimated liability - gross........ 5,031 5,486 5,911 9,540 9,713 10,232 15,394 19,239 ---
Less re-estimated reinsurance recoverables... (1,125) (1,084) (1,107) (1,511) (1,461) (1,779) (3,279) (5,490) ---
------ ------ ------ ------ ------- ------- ------- ------- -------
Latest re-estimated liability - net.......... 3,906 4,402 4,804 8,029 8,252 8,453 12,115 13,749 ---
------ ------ ------ ------ ------- ------- ------- ------- -------
Gross redundancy (deficiency)................ (216) (174) 109 1,605 1,156 704 (52) (1,804) ---
Effect of foreign exchange (1)............... (39) (9) (41) (785) (788) (472) (1,089) (1,127) ---
------ ------ ------ ------ ------- ------- ------- ------- -------
Gross redundancy (deficiency), excluding
foreign exchange.......................... $ (255) $ (183) $ 68 $ 820 $ 368 $ 232 $(1,141) $(2,931) $ ---
====== ====== ====== ====== ======= ======= ======= ======= =======
(1) The results of the Company's international operations translated from
functional currencies into U.S. dollars are included with the Company's
U.S. underwriting operations in this table. The foreign currency
translation impact on the cumulative redundancy (deficiency) arises from
the difference between reserve developments translated at the exchange
rates at the end of the year in which the liabilities were originally
estimated and the exchange rates at the end of the year in which the
liabilities were re-estimated.
Note: For a description of the purpose of the above table and the various table
sections, please refer to the immediately preceding section entitled "Reserve
Development."
7
A number of major trends that occurred within the insurance industry, the
economy in general and several Company-specific factors have had a significant
effect on the Company's liabilities for unpaid claims and claim expenses during
the period covered by the preceding table.
Claims and claim expense reserve development in the mid 1980's reflected the
inadequate premium rates which resulted from intense competition in the market
during that period. In the late 1980's, the reinsurance market generally reacted
to the rate deficiencies and the resulting claims and claim expense reserve
development by increasing rates and strengthening claims and claim expense
reserves. This is reflected, with respect to the Company, in the significant
improvements in the overall reserve adequacy in the early 1990's. The increase
in reserve redundancies indicated for 1995 through 1997 is attributable to the
favorable claim environment that existed during that period.
The indicated deficiency in the 1998 reserve position is attributable to higher
than normal claim and claim expense development across a number of lines of
business, including property coverages (which was most highly impacted by much
higher than expected industry-wide losses with respect to Hurricane Georges),
long-term disability and communications/media liability.
The significant indicated deficiency that has developed with respect to the 1999
recorded reserves is primarily attributable to the combination of the effects of
continued insufficient pricing within the overall property and casualty
insurance/reinsurance industry and the insurance industry's undervaluing the
initial loss estimates for certain European windstorms occurring late in
December 1999. Based on the continued escalation in reported losses relative to
associated premiums, it became more apparent during 2000 that the level of
general price erosion that occurred in the primary property and casualty
insurance industry in recent years was significantly greater than had been
previously contemplated. In response to this new information, it became
necessary for the Company to increase claim reserves to reflect the higher
ultimate loss projections resulting from this increasing trend of claim
development on these more recent underwriting years.
To a lesser degree, development of asbestos and environmental claims has
affected the Company's results. Higher than anticipated levels of inflation in
certain lines of reinsurance businesses has also had an adverse effect on
liabilities for claims and claim expenses, particularly in excess of loss
reinsurance.
8
The Company's reconciliation of its beginning and ending property and casualty
reserves for unpaid claims and claim expenses on a GAAP basis is summarized as
follows:
Year ended December 31,
----------------------------------
(In millions) 2000 1999 1998
----------------------------------
Balance at January 1 - gross.................... $17,435 $15,342 $10,936
Less reinsurance recoverables................... (4,225) (2,847) (1,822)
------- ------- -------
Balance at January 1 - net...................... 13,210 12,495 9,114
------- ------- -------
Claims and expenses incurred:
Current year................................. 4,401 4,162 3,286
Prior years.................................. 934 233 (126)
------- ------- -------
5,335 4,395 3,160
------- ------- -------
Claims and expenses paid:
Current year................................. (1,290) (1,228) (1,074)
Prior years.................................. (4,811) (2,867) (2,176)
------- ------- -------
(6,101) (4,095) (3,250)
------- ------- -------
Claim reserves related to acquired companies.... 279 793 3,470
Claim reserves related to disposed companies.... - (202) -
Foreign exchange and other...................... (521) (176) 1
------- ------- -------
Balance at December 31 - net.................... 12,202 13,210 12,495
Add reinsurance recoverables.................... 4,730 4,225 2,847
------- ------- -------
Balance at December 31 - gross.................. $16,932 $17,435 $15,342
======= ======= =======
The liabilities for claims and claim expenses in the preceding table include
long-term disability claims that are discounted at a 6% rate for all years
presented. As a result of discounting the Company's long-term disability claims,
total liabilities for claims and claim expenses have been reduced by an
estimated 1% and 2% at December 31, 2000 and 1999, respectively. The accretion
of discount is included in current operating results as part of the development
of prior year liabilities. Discounts amoritized as a percentage of claims, claim
expenses and policy benefits were less than 1% for the years ended December 31,
2000, 1999 and 1998.
The Company's reconciliation of its property and casualty reserves for unpaid
claims and claim expenses between statutory basis and GAAP basis is summarized
as follows:
December 31,
---------------------------------
(In millions) 2000 1999 1998
---------------------------------
Statutory basis reserves for U.S. companies - net.... $ 6,213 $ 7,204 $ 7,679
Adjustments to GAAP basis (1)........................ 500 636 667
------- ------- -------
GAAP basis reserves for U.S. companies - net......... 6,713 7,840 8,346
GAAP basis reserves for non-U.S. companies - net..... 5,489 5,370 4,149
------- ------- -------
Total GAAP basis reserves - net...................... 12,202 13,210 12,495
Add reinsurance recoverables......................... 4,730 4,225 2,847
------- ------- -------
GAAP basis reserves - gross.......................... $16,932 $17,435 $15,342
======= ======= =======
(1) Statutory basis reserve offsets and reserves reclassified to contract
deposit assets or liabilities based on risk transfer provisions of SFAS
No. 113.
9
Asbestos and Environmental Exposure. Included in the Company's liability for
claims and claim expenses are liabilities for asbestos and environmental
exposures. These claims and claim expenses are primarily related to policies
written prior to 1986 as the policies written since 1986 have tended to
explicitly exclude asbestos and environmental risks from coverage and most of
the asbestos and environmental exposures arise from risks located in the United
States.
The three-year development of claims and claim expense reserves associated with
the Company's asbestos and environmental claims, including case and IBNR
reserves, is summarized as follows:
Year ended December 31,
-------------------------------
(In millions) 2000 1999 1998
-------------------------------
Balance at January 1 - gross.................... $800 $995 $462
Less reinsurance recoverables................... (195) (206) (193)
---- ---- ----
Balance at January 1 - net...................... 605 789 269
Claims and expenses incurred.................... 99 (7) 35
Claims and expenses paid........................ (58) (210) (39)
Claim reserves related to acquired companies.... - 33 524
---- ---- ----
Balance at December 31 - net.................... 646 605 789
Add reinsurance recoverables.................... 183 195 206
---- ---- ----
Balance at December 31 - gross.................. $829 $800 $995
==== ==== ====
The amounts in the preceding table are management's best estimate, based on
currently available information, of claims and claim expense payments and
recoveries for asbestos and environmental exposures that are expected to develop
in future years.
The Company monitors evolving case law and its effect on asbestos-related
illness and toxic waste cleanup claims. Changing domestic and foreign government
regulations and legislation, including continuing congressional consideration of
federal Superfund legislation, newly reported claims, new contract
interpretations and other factors could significantly affect future claim
development. While the Company has recorded its best estimate of its liabilities
for asbestos-related illness and toxic waste cleanup claims based on currently
available information, it is possible that additional liabilities may arise in
the future. It is not possible to estimate with any certainty the amount of
additional net claims and claim expenses, or the range of net claims and claim
expenses, if any, that is reasonably possible; therefore, there can be no
assurance that future liabilities will not materially affect the Company's
results of operations, financial position or cash flows.
Other Mass Tort Exposures. In addition to asbestos and environmental exposures,
the Company also may have exposures to other mass torts involving primarily
product liability issues such as tobacco products, gun manufacturers and
silicone breast implants. The Company has, in the past, generally avoided the
products liability reinsurance business, and, based on currently available
information, future liabilities resulting from these matters are not expected to
be material to the Company's results of operations, financial position or cash
flows.
Life and Health Reserves for Future Policy Benefits and Accumulated Contract
Values
Future policy benefits for traditional life and health reinsurance contracts
represent the present value of such benefits based on mortality and other
assumptions which were appropriate at the time the policies were issued or, in
the event the policies were acquired by the Company from another insurer, at the
date of acquisition. Interest rate assumptions used in calculating the present
value generally ranged from 3.00% to 8.50% per annum at December 31, 2000.
Payments received from sales of universal life and investment contracts are
recognized by providing liabilities equal to the accumulated contract values of
the policyholders' contracts. Interest rates credited to such universal life and
investment contracts are generally guaranteed for a specified time period with
renewal rates determined by the Company. Such crediting interest rates ranged
from 3.00% to 9.00% per annum in 2000.
10
Regulatory Matters
GE Global Insurance and its domestic subsidiaries are subject to regulation
under the insurance statutes, including insurance holding company statutes, of
various states, including Missouri, Kansas, Illinois and Indiana, the
domiciliary states of GE Global Insurance's principal domestic insurance company
subsidiaries. The international subsidiaries of Employers Reinsurance
Corporation (the "GE Frankona Re Group") are subject to regulation under
insurance statutes of various foreign countries.
General. The regulation and supervision to which GE Global Insurance's
subsidiaries are subject relate primarily to licensing requirements of
reinsurers, the standards of solvency that must be met and maintained, the
amount of dividends that may be paid by such subsidiaries, the nature of and
limitations on investments, restrictions on the size of risks that may be
insured or reinsured, deposits of securities for the benefit of ceding
companies, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of financial statements required to be filed
with regulatory authorities and reserves for unearned premiums, losses and other
purposes. In general, such regulation is for the protection of the ceding
companies and, ultimately, their policyholders, rather than security holders of
the regulated reinsurer. GE Global Insurance believes it is, and that its
subsidiaries are, in material compliance with all applicable laws and
regulations pertaining to their business and operations.
U.S. Insurance Regulation. U.S. domestic property and casualty and life
insurers, including reinsurers, are subject to regulation by their states of
domicile and by those states in which they are licensed. The rates and policy
terms of primary insurance policies generally are closely regulated by state
insurance departments. While reinsurance is not regulated as closely as primary
insurance, some states do impose control over certain terms and conditions of
reinsurance agreements by virtue of their authority to grant or deny credit for
ceded reinsurance by its domiciled primary insurers. In addition, as a practical
matter, the rates permitted to be charged by primary insurers can have an effect
on the rates that are charged by reinsurers.
The National Association of Insurance Commissioners ("NAIC") has recently
adopted model statutory accounting practices to take effect in 2001. Statutory
accounting practices determine, among other things, the statutory surplus of an
insurance company and, therefore, the amount of funds that can be paid as
dividends to the Company by its insurance subsidiaries. However, efforts are
continuing by insurance regulators, public accounting firms and the insurance
industry to develop interpretations of the NAIC model. While the company is
still in the process of assessing the ultimate impact the new accounting
practices will have, analysis performed to date indicates that adoption of these
new practices will likely result in an increase to consolidated statutory
surplus, principally due to the admission for statutory accounting purposes of
certain deferred tax assets that were previously required to be non-admitted.
Risk-Based Capital. The NAIC has adopted minimum risk-based capital requirements
to evaluate the adequacy of statutory capital and surplus in relation to an
insurance company's risks. Regulatory compliance with risk-based capital
requirements is defined by a ratio of a company's regulatory total adjusted
capital to its authorized control level risk-based capital, as defined by the
NAIC. At December 31, 2000, each of GE Global Insurance's domestic insurance
company subsidiaries exceeded the minimum risk-based capital requirements.
Insurance Holding Company Regulations. The insurance holding company laws and
regulations vary from state to state, but generally require an insurance holding
company to register with its domiciliary state insurance regulatory agency and
file certain reports that include current information concerning the capital
structure, ownership, management, financial condition and general business
operations of the insurance holding company and its subsidiary insurers that are
licensed in the state. State insurance holding company laws and regulations,
with respect to domestic insurers, also require prior notice or regulatory
approval of changes in control of an insurer or its holding company and of
material inter-affiliate transactions within the holding company structure.
11
Dividends by Subsidiaries. Because the operations of GE Global Insurance are
conducted primarily through Employers Reinsurance Corporation ("ERC"), GE Re and
Medical Protective, GE Global Insurance is dependent upon dividends, tax
allocation and other payments primarily from ERC, GE Re and Medical Protective
to service its debt and meet its other obligations. The payment of dividends and
other payments to GE Global Insurance by ERC, GE Re and Medical Protective are
subject to limitations imposed by the Missouri, Illinois and Indiana Insurance
Codes, respectively. The payment of dividends to ERC by its principal life
reinsurance subsidiaries, Employers Reassurance Corporation and ERC Life
Reinsurance Corporation, are subject to limitations imposed by the Kansas and
Missouri Insurance Codes, respectively. No prediction can be made as to whether
any legislative proposals relating to dividend rules in Kansas, Missouri,
Illinois or Indiana will be made, whether any such legislative proposal will be
adopted in the future, or the effect, if any, any such proposal would have on
the Company.
The maximum amount available for the payment of dividends by ERC without prior
regulatory approval is $206 million at December 31, 2000. Such amount will
increase to $360 million by December 31, 2001. Of this amount, $88 million is
committed to pay dividends on the preferred stock issued by ERC to GE Capital
Corporation. GE Re will not be able to make any dividend payments during 2001
without the prior approval of the Director of Insurance for the State of
Illinois. The maximum amount available for the payment of dividends during 2001
by Medical Protective without prior regulatory approval is $80 million after
December 18, 2001.
International Regulations. Based on 2000 net premiums written, approximately 43%
of the Company's business is carried on outside of the United States. The degree
of regulation and supervision in foreign jurisdictions varies from minimal in
some to stringent in others. Licenses issued by foreign authorities to the GE
Frankona Re Group are subject to modification or revocation by such authorities,
and such subsidiaries could be prevented from conducting business in certain of
the jurisdictions where they currently operate. In the past, the GE Frankona Re
Group has been allowed to modify their operations to conform with new licensing
requirements in all jurisdictions that are material to the Company's
international operations.
In addition to licensing requirements, the GE Frankona Re Group is regulated in
various jurisdictions with respect to, among other things, currency, policy
language and terms, methods of accounting and auditing, amount and type of
security deposits, amount and type of reserves, amount and type of local
investment and the share of profits to be returned to policyholders on
participating policies. Regulations governing constitution of technical reserves
(including equalization reserves) in some countries could hinder the remittance
of profits and repatriation of assets and the payment of dividends; however, the
Company does not believe that these regulations will have a material impact on
the GE Frankona Re Group's operations.
Item 2. Properties.
The Company conducts business from various facilities, most of which are leased.
In addition, the Company owns its administrative offices in Overland Park,
Kansas, Fort Wayne, Indiana and Munich, Germany.
Item 3. Legal Proceedings.
There are no pending legal proceedings beyond the ordinary course of business
that in the opinion of the Company's management, based on information available
at the date of this report, would have a material adverse effect on the
Company's consolidated results of operation or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted
12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
All of the common stock of GE Global Insurance, its sole class of common equity
on the date hereof, is owned by GE Capital Services. Accordingly, there is no
public trading market for the Company's common equity.
Item 6. Selected Financial Data.
Consolidated Financial Data
Year ended December 31,
------------------------------------------------------------
(In millions) 2000 1999 1998 1997 1996
------------------------------------------------------------
Total revenues................................ $10,131 $ 9,031 $ 7,203 $ 5,784 $ 5,751
Net premiums written.......................... 8,191 7,147 5,984 4,545 4,573
Net investment income......................... 1,315 1,151 985 910 837
Net realized gains on investments............. 522 699 432 303 223
Earnings before income taxes.................. 605 988 1,070 882 780
Net earnings.................................. 581 720 779 648 567
Total investments............................. 21,191 21,539 21,987 18,343 16,479
Total assets.................................. 38,564 37,561 35,047 27,532 25,388
Stockholder's equity.......................... $ 6,025 $ 5,575 $ 6,020 $ 5,374 $ 4,760
Return on equity (average).................... 10.0% 12.4% 13.7% 12.8% 12.7%
Stockholder's equity, excluding unrealized
gains (losses) on investment securities.... $ 5,882 $ 5,524 $ 5,088 $ 4,628 $ 4,260
Return on equity (average), excluding
unrealized gains (losses) on investment
securities................................. 10.2% 13.6% 16.0% 14.6% 14.1%
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Year Ended December 31, 2000 Compared to Year Ended December 31 1999
Net premiums written increased $1,044 million or 15% in 2000, primarily
attributable to the combination of hardening pricing within the overall property
and casualty insurance/reinsurance industry, a focus on growth within the niche
direct commercial market and the impact of a full year of operating activity for
the March 1999 acquisition of Eagle Star Re. This growth was somewhat offset by
the 2000 decisions to exit certain lines of business and customer relationships
as part of a reunderwriting initiative undertaken during the year, an increase
in contingently payable ceded premiums related to recorded recoveries under
aggregate excess retrocession programs and the impact of foreign currency
translation in connection with the continued strengthening of the U.S. dollar
compared to most major European currencies.
Net earnings decreased $139 million or 19% in 2000, including a decrease in
after-tax net realized gains on investments of $100 million. Excluding after-tax
net realized gains on investments, net earnings decreased $39 million or 14% in
2000. This decrease reflects deterioration of underwriting results, including
adverse development on prior year recorded losses. The significant level of
adverse development on prior year recorded losses is primarily attributable to
the combination of the effects of continued insufficient pricing within the
overall property and casualty insurance/reinsurance industry and the insurance
industry's undervaluing the initial loss estimates for certain European
windstorms occurring late in December 1999. Based on the continued escalation in
reported losses relative to associated premiums, it became more apparent during
2000 that the level of general price erosion that occurred in the primary
property and casualty insurance industry in recent years was significantly
greater than had been previously contemplated. In response to this new
information, it became necessary for the Company to increase claim reserves to
reflect the higher ultimate loss projections resulting from this increasing
trend of claim development on these more recent underwriting years.
Partially offsetting these reductions in net earnings were: (1) an increase in
net investment income due to the combination of higher average investment yields
(as a result of the increasing U.S. interest rate environment throughout most of
2000) and repositioning of the investment portfolio to include a higher
proportion of fixed maturity securities and (2) tax benefits attributable to a
step-up in the tax basis of certain assets following the conversion of a
corporate subsidiary to a partnership for German tax purposes.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net premiums written increased $1,163 million or 19% in 1999, primarily
attributable to inclusion of a full year of operating activity for the October
1998 acquisitions of GE Re and Medical Protective, the March 1999 acquisition of
Eagle Star Re and core growth in various product lines. This increase was
partially offset by continued competitive market conditions, an increase in
contingently payable ceded premiums relating to recorded recoveries under
aggregate excess retrocession programs and the impact of foreign currency
translation in connection with the strengthening of the U.S. dollar compared to
most major European currencies.
Net earnings decreased $59 million or 8% in 1999, including an increase in
after-tax net realized gains on investments of $176 million. Excluding after-tax
net realized gains on investments, net earnings decreased $235 million or 46% in
1999. This decrease was primarily attributable to increased property and
casualty-related losses related to the frequency and severity of large loss
events occurring in 1999 as compared to 1998 and, to a lesser extent, adverse
development on prior year recorded losses. Large loss events are individual
events that, after specific reinsurance recoveries and related premium
adjustments, affect operations by $2 million or more, and include losses from
earthquakes, aviation or railroad accidents, fire damage, and weather-related
damage from hurricanes, tornadoes, wind and ice. Large loss events occurring in
1999 resulted in recorded losses of approximately $510 million, as compared to
approximately $150 million in 1998. A portion of the 1999 losses was recovered
under aggregate excess retrocession coverages obtained in the ordinary course of
business. The increase in property and casualty-related losses was partially
offset by a $166 million increase in net investment income, primarily due to
growth in the investment portfolio as a result of acquisitions, and a $134
million increase in other revenues, primarily due to acquisitions, equity-method
investments and a gain on disposition of the Company's reinsurance brokerage
subsidiary. An increase in underwriting and operating expenses associated with
acquisitions and continued competitive market conditions also contributed to the
deterioration in underwriting results.
14
Domestic Property and Casualty Business
Year ended December 31,
-------------------------------
(In millions) 2000 1999 1998
-------------------------------
Net premiums written............................ $3,801 $3,370 $2,499
Net underwriting loss........................... (419) (423) (58)
Net investment income........................... 606 513 419
Earnings before income taxes.................... 250 533 601
Net realized gains on investments............... 128 516 311
Earnings before income taxes, excluding
net realized gains on investments............ 122 17 290
GAAP ratios (1):
GAAP claims and claim expense ratio.......... 77.4% 79.5% 68.9%
GAAP underwriting expense ratio.............. 34.4% 33.6% 33.6%
----- ----- -----
GAAP combined ratio.......................... 111.8% 113.1% 102.5%
===== ===== =====
(1) Represents data for the applicable periods calculated in accordance with
GAAP. Claims and claim expense ratio represents incurred claims and claim
expenses as a percentage of net premiums earned. Underwriting expense
ratio represents acquisition costs and other underwriting expenses
(excluding amortization of intangibles, interest expense and minority
interest in net earnings of consolidated subsidiaries) as a percentage of
net premiums earned. The combined ratio represents the sum of the claims
and claim expense ratio and the underwriting expense ratio.
Net premiums written increased $431 million or 13% in 2000, primarily
attributable to the combination of hardening pricing within the overall property
and casualty insurance/reinsurance industry and a focus on growth within the
niche direct commercial market. This increase was partially offset by the 2000
decision to exit certain lines of business and customer relationships as part of
a reunderwriting initiative undertaken during the year and higher levels of
ceded premiums under aggregate excess retrocession programs. Net premiums
written increased $871 million or 35% in 1999, primarily attributable to the
acquisitions of GE Re and Medical Protective and core growth in various product
lines, partially offset by continued competitive market conditions and an
increase in contingently payable ceded premiums relating to recorded recoveries
under aggregate excess retrocession programs.
Typically, the underwriting performance of property and casualty business is
measured in terms of a combined ratio. The combined ratio is the sum of the loss
ratio and the underwriting expense ratio, with a ratio lower than 100%
indicating an underwriting profit and a ratio greater than 100% indicating an
underwriting loss. Although the combined ratio has been greater than 100% for
the three years presented above, the operating results of insurance/reinsurance
companies include net investment income which generally yields an overall
operating profit as reflected above in the caption "Earnings before income
taxes, excluding net realized gains on investments."
The relatively high combined ratios in 2000 and 1999 primarily reflect the
effects of continued insufficient pricing within the overall property and
casualty insurance/reinsurance industry and adverse development on prior year
recorded losses. The 1999 combined ratio was also adversely impacted by a
heightened frequency and severity of large loss events occurring in that year.
Net investment income increased $93 million or 18% in 2000, primarily
attributable to the combination of higher average investment yields (as a result
of the increasing U.S. interest rate environment throughout most of 2000) and
repositioning of the investment portfolio to include a higher proportion of
fixed maturity securities. Net investment income increased $94 million or 22% in
1999, primarily attributable to inclusion of a full year of investment activity
in 1999 for the 1998 GE Re and Medical Protective acquisitions.
Earnings before income taxes, excluding net realized gains on investments,
increased $105 million in 2000, primarily attributable to the decrease in the
combined ratio and the increase in net investment income discussed above.
Earnings before income taxes, excluding net realized gains on investments,
decreased $273 million in 1999, primarily attributable to the significant
increase in the combined ratio, partially offset by the increase in net
investment income discussed above.
15
International Property and Casualty Business
Year ended December 31,
-------------------------------
(In millions) 2000 1999 1998
-------------------------------
Net premiums written............................ $2,754 $2,513 $2,389
Net underwriting loss........................... (509) (238) (31)
Net investment income........................... 347 340 286
Earnings before income taxes.................... 117 211 312
Net realized gains on investments............... 297 101 87
Earnings before income taxes, excluding
net realized gains on investments............ (180) 110 225
GAAP ratios (1):
GAAP claims and claim expense ratio.......... 91.6% 76.3% 70.5%
GAAP underwriting expense ratio.............. 26.4% 33.6% 30.9%
------ ----- -----
GAAP combined ratio.......................... 118.0% 109.9% 101.4%
====== ===== =====
(1) Represents data for the applicable periods calculated in accordance with
GAAP. Claims and claim expense ratio represents incurred claims and claim
expenses as a percentage of net premiums earned. Underwriting expense ratio
represents acquisition costs and other underwriting expenses (excluding
amortization of intangibles, interest expense and minority interest in net
earnings of consolidated subsidiaries) as a percentage of net premiums
earned. The combined ratio represents the sum of the claims and claim
expense ratio and the underwriting expense ratio.
Net premiums written increased $241 million or 10% in 2000, primarily
attributable to the combination of hardening pricing within the overall property
and casualty insurance/reinsurance industry and the impact of a full year of
operating activity for the March 1999 acquisition of Eagle Star Re. This
increase was somewhat offset by the 2000 decision to exit certain lines of
business and customer relationships as part of a reunderwriting initiative
undertaken during the year. Net premiums written increased $124 million or 5% in
1999, primarily attributable to the acquisitions of Eagle Star Re and GE Re and
core growth in various product lines. Premium growth in both 2000 and 1999 was
also partially offset by an increase in contingently payable ceded premiums
relating to recorded recoveries under aggregate excess retrocession programs and
the impact of foreign currency translation in connection with the strengthening
of the U.S. dollar compared to most major European currencies.
Consistent with experience in the domestic property and casualty business, the
relatively high combined ratios in 2000 and 1999 primarily reflect the effects
of continued insufficient pricing within the overall property and casualty
insurance/reinsurance industry and adverse development on prior year recorded
losses. The increase in the combined ratio in 2000 includes the impact of
significant adverse development relating to certain European windstorms
occurring late in 1999. The 1999 combined ratio was also adversely impacted by a
heightened frequency and severity of large loss events occurring in that year.
Net investment income increased $7 million or 2% in 2000, primarily attributable
to the repositioning of the investment portfolio to include a higher proportion
of fixed maturity securities. Net investment income increased $54 million or 19%
in 1999, primarily attributable to the acquisitions of GE Re and Eagle Star Re.
Earnings before income taxes, excluding net realized gains on investments,
decreased $290 million in 2000, primarily attributable to the significant
increase in the combined ratio discussed above. Earnings before income taxes,
excluding net realized gains on investments, decreased $115 million or 51% in
1999, primarily attributable to the significant increase in the combined ratio,
partially offset by the increase in net investment income discussed above.
16
Life Reinsurance Business
Year ended December 31,
--------------------------
(In millions) 2000 1999 1998
--------------------------
Revenues............................................. $2,207 $1,789 $1,525
Earnings before income taxes......................... 238 244 157
Revenues, which consist of net premiums earned, net investment income, net
realized gains on investments and other revenues, including fees generated from
investment-related life reinsurance products and financial reinsurance
transactions, increased $418 million or 23% in 2000. This increase was primarily
attributable to growth in the domestic traditional life and credit life business
and an increase in net realized gains on investments. Revenues increased $264
million or 17% in 1999, primarily attributable to growth in the domestic
traditional life and credit life business, an increase in net realized gains on
investments and fees generated from investment-related life reinsurance products
and financial reinsurance transactions.
Earnings before income taxes decreased $6 million or 2% in 2000, including a $15
million increase in net realized gains on investments. Excluding net realized
gains on investments, earnings before income taxes decreased $21 million or 13%
in 2000, primarily attributable to an increase in claims experience. Earnings
before income taxes increased $87 million or 55% in 1999, including a $48
million increase in net realized gains on investments. Excluding net realized
gains on investments, earnings before income taxes increased $39 million or 32%
in 1999, primarily attributable to an increase in net investment income,
primarily due to continued growth in the investment portfolios, and fees
generated from investment-related life reinsurance products and financial
reinsurance transactions.
Liquidity and Capital Resources
GE Global Insurance's ability to meet its obligations, including debt service
and operating expenses, and pay dividends to its shareholder depends primarily
upon the receipt of sufficient funds from its insurance subsidiaries. The
payment of dividends by ERC, GE Re and Medical Protective are subject to
restrictions set forth in the insurance laws of Missouri, Illinois and Indiana,
respectively, as well as other restrictions. Historically, the Company's
liquidity requirements have been met by funds provided from operations and from
the maturity and sales of investments.
Cash flows from operating activities, which primarily consists of premiums
collected during the period and payments made for claims and claim expenses,
decreased $1,030 million in 2000, primarily as a result of an escalation in
claim-related payments attributable to higher levels of incurred claims and
claim expenses in recent years. Cash flows from operating activities increased
$578 million in 1999, primarily attributable to a decrease in claim settlements
relative to the collection of premiums, somewhat offset by an increase in
reinsurance recoverables under the Company's aggregate excess retrocession
programs.
Cash flows from investing activities increased $447 million in 2000, primarily
attributable to a net decrease in the purchases of investment securities as a
result of the decrease in operating cash flows discussed above. Cash flows from
investing activities increased $374 million in 1999, primarily attributable to a
reduction in cash used to fund acquisitions in 1999 due to the 1998 acquisitions
of Medical Protective and GE Re, somewhat offset by a net increase in the
purchases of investment securities.
Cash flows from financing activities increased $520 million in 2000, primarily
attributable to the following factors: (1) an increase in short-term borrowings,
(2) a reduction in dividends paid on common stock and (3) an increase in
contract deposit liabilities resulting from growth in financial reinsurance
business volumes. The $691 million of proceeds from long-term borrowings in 2000
were substantially all used to repay outstanding borrowings under an interim
loan agreement with GE Capital Corporation used to fund the Company's 1998
acquisition of Medical Protective. Cash flows from financing activities
decreased $733 million in 1999, primarily attributable to the large amount of
1998 proceeds from short-term borrowings associated with the acquisitions of
Medical Protective and GE Re and the change in contract deposit liabilities
resulting from the 1998 commutation of a significant financial reinsurance
treaty. The $395 million of proceeds from long-term borrowings in 1999 were used
largely to repay short-term borrowings made in 1998 under the Company's
revolving credit agreement with GE Capital Services.
17
The Company has a one-year $600 million revolving credit agreement with GE
Capital Services which enables the Company to borrow from GE Capital Services at
an interest rate per annum equal to GE Capital Services' cost of funds for a one
year period. The agreement is automatically extended for successive terms of one
year each unless terminated in accordance with terms of the agreement.
Investments
General. The Company follows a conservative investment strategy that emphasizes
maintaining a high quality investment portfolio. The primary goals include a
growing stream of investment income and improving total investment returns. All
investments are administered under guidelines established and approved by the
Company's Board of Directors. The Company's guidelines specify credit quality
and concentration limits with respect to both fixed maturity and equity
securities.
In structuring its fixed maturity portfolios, the Company considers the duration
of its assets and claims and claim expense reserves. Most fixed maturity
portfolios have total return benchmarks against which relative performance is
measured. The total return benchmarks include investment income and realized and
unrealized gains and losses on investments. Equity portfolios are managed for
total return and performance is measured against equity benchmarks.
On a worldwide basis, based on data as of December 31, 2000, the Company manages
75% of its investments internally. General Electric Investment Corporation
manages an additional 9% of the Company's investments, and the balance is
managed by unaffiliated outside managers.
The Company's investment results are summarized as follows:
Year ended December 31,
---------------------------------------------------
(In millions) 2000 1999 1998 1997 1996
---------------------------------------------------
Average invested assets (at cost)............. $21,197 $20,940 $18,794 $16,417 $15,195
Net investment income......................... 1,315 1,151 985 910 837
Net effective yield........................... 6.2% 5.5% 5.2% 5.5% 5.5%
Net realized gains on investments............. $ 522 $ 699 $ 432 $ 303 $ 223
Unrealized gains on investment
securities before deferred income taxes.... 244 92 1,554 1,189 799
The increase in unrealized gains on investment securities before deferred income
taxes in 2000 is primarily due to the concentration of fixed maturity debt
securities held in the investment portfolio and the effects of a general
decrease in interest rates which occurred in late 2000.
The Company continues to seek opportunities to enhance investment yield through
a conservative, primarily fixed maturity investment strategy. Its current
investment strategy does not contemplate material additional investments in
non-investment grade debt securities, commercial real estate, commercial
mortgages, equity securities or derivatives.
18
Domestic Investment Operations. The Company's domestic property and casualty
investment portfolios are principally invested in tax-exempt state and municipal
bonds, which the Company believes provide the most attractive after-tax yield.
The Company's domestic life investment portfolios are largely invested in
taxable debt securities.
The Company's domestic fixed maturity portfolios, categorized by rating based on
market values, are summarized as follows:
Domestic Property
and Casualty Domestic Life
---------------------------------------
December 31,
---------------------------------------
2000 1999 2000 1999
---------------------------------------
U.S. government and government agency securities..... 0.5% 0.9% 2.6% 7.4%
Aaa.................................................. 45.2 44.0 1.7 1.6
Aa................................................... 29.4 31.1 9.0 6.2
A.................................................... 10.8 9.7 27.9 21.8
Baa.................................................. 1.5 1.2 13.1 12.9
Ba................................................... 0.5 0.4 0.8 1.5
Canadian securities.................................. 3.6 4.0 7.2 4.8
Mortgage-backed and other asset-backed securities.... 6.7 4.3 36.0 37.8
Other................................................ 1.8 4.4 1.7 6.0
----- ----- ----- -----
Total............................................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Ratings are as assigned by Moody's when available, or by S&P and converted to
the generally comparable Moody's rating.
The Company's emphasis on investment quality is evidenced by the preceding
table, which indicates that the bonds in the Company's investment portfolios are
principally invested in either U.S. government and government agency securities
or issues rated "Baa" or above. The Canadian securities held by the Company are
similar in quality to the other securities held in its domestic portfolio. Fixed
maturity securities held by the Company in its domestic life portfolios include
mortgage-backed and other asset-backed securities that are matched to the
liability profile of specific life reinsurance contracts. Investments in
mortgage-backed and other asset-backed securities are limited to lower risk
tranches and do not include any interest only or principal only securities.
Mortgage-backed and other asset-backed securities in the Company's investment
portfolio were principally issued by Federal agencies. The majority of the
balance of other securities held in both the domestic property and casualty and
domestic life portfolios represent investments in non-rated debt securities. The
Company does not contemplate significant additional investment in non-investment
grade securities in either the property and casualty or life portfolios.
International Investment Operations. The investment portfolios of the Company's
international operations (other than certain equity portfolios, which are
managed by outside managers) are managed by the GE Frankona Re Group's
investment personnel based in Munich, within guidelines established by the
management of the GE Frankona Re Group and under the overall supervision and
review of ERC's investment department.
The principal objective of the GE Frankona Re Group's investment policy is to
manage the investment portfolios on a total return basis taking into
consideration the duration and currency structure of the GE Frankona Re Group's
reinsurance liabilities. The GE Frankona Re Group's investment portfolios are
geographically diversified with investments principally from the major European
markets and the United States.
19
As of December 31, 2000, the fair value of the GE Frankona Re Group's
investments totaled $6,740 million, a decrease of $750 million from December 31,
1999. The composition of GE Frankona Re Group's investments is summarized as
follows:
December 31,
-----------------
2000 1999
-----------------
Fixed maturity securities......................... 89.5% 81.8%
Equity securities................................. 7.5 15.8%
Other invested assets............................. 3.0 2.4%
----- -----
Total............................................. 100.0% 100.0%
===== =====
Most fixed maturity securities within the GE Frankona Re Group's investment
portfolios have a term of less than ten years. The fixed maturity securities
consist of high credit quality securities, and almost all bonds are investment
grade securities with a comparable average rating equal to or above a Moody's or
S&P "AA" rating. Fixed maturity securities include German and Danish
mortgage-backed securities, although these mortgage-backed securities have
significantly less prepayment risk than typical U.S. mortgage-backed securities,
as the German and Danish tax and social environments are not conducive to risks
of prepayment of interest and principal. Equity securities and other invested
assets were internationally diversified with principal holdings in Germany, the
United Kingdom and the United States.
Interest Rate and Currency Risk Management
Interest rate and currency risk management is important in the normal
operations of the Company. The following discussion presents an overview of such
management.
The Company manages its exposure to currency principally by matching the
underlying reinsurance liabilities with the corresponding assets. Any remaining
significant net asset/liability positions in a given currency are hedged with
forward currency purchase or sale contracts to further mitigate currency
exposures. The Company also hedges its currency risk on a portion of its foreign
subsidiary investments by utilizing cross currency swaps and currency forwards.
The Company manages its exposure to interest rates principally by matching
floating rate liabilities with corresponding floating rate assets and by
matching fixed rate liabilities with corresponding fixed rate assets. Certain of
the products reinsured within the life segment include fixed rate interest rate
features that are matched with fixed rate investments of a similar duration.
The Company uses various financial instruments, such as cross currency swaps,
options and currency forwards, principally to manage currency risks. The Company
is exclusively an end-user of these instruments, which are commonly referred to
as derivatives. The Company does not engage in trading, market-making or other
speculative activities in the derivatives markets. Management requires that
derivative financial instruments relate to specific asset, liability or equity
transactions or to currency exposures. More detailed information about these
financial instruments, as well as the strategies and policies for their use, is
provided in Notes 2 and 14 to the consolidated financial statements.
On a limited basis, and as part of ongoing customer activities, the Company uses
equity options to minimize its exposure to movements in equity markets that have
a direct correlation with certain of its reinsurance products. Additionally, the
Company has entered into a limited number of credit default swaps to lessen its
exposure on certain financial guarantee reinsurance business.
Substantially all derivative transactions are executed by the Company's Treasury
Department, which works closely with GE Capital Treasury personnel to maintain
controls on all exposures, adhere to stringent counterparty credit standards and
actively monitor marketplace exposures. Although the Company is exposed to
credit risk that the counterparty may not be able to comply with the terms and
conditions of the contracts, the Company uses only highly rated institutions as
counterparties to the derivative transactions.
20
The U.S. Securities and Exchange Commission requires that registrants provide
information about potential effects of changes in interest rates and currency
exchange. Although the rules offer alternatives for presenting this information,
none of the alternatives is without limitations. The following discussion is
based on so-called "shock-tests," which model effects of interest rate and
currency shifts on the reporting company. Shock tests, while probably the most
meaningful analysis permitted, are constrained by several factors, including the
necessity to conduct the analysis based on a single point in time and by their
inability to include the complex market reactions that normally would arise from
the market shifts modeled. While the following results of shock tests for
interest rates and currencies may have some limited use as benchmarks, they
should not be viewed as forecasts.
One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical decrease in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such a decrease, including repricing effects in the securities
portfolio, would reduce the 2001 net earnings of the Company based on
year-end 2000 positions by an insignificant amount. Based on positions at
year-end 1999, the pro forma effect on 2000 net earnings of such a decrease
in interest rates was also estimated to be an insignificant amount.
One means of assessing exposure to changes in currency exchange rates is to
model effects on reported earnings using a sensitivity analysis. Year-end
2000 consolidated currency exposures, including financial instruments
designated and effective as hedges, were analyzed to identify Company
assets and liabilities denominated in other than their relevant functional
currency. Net unhedged exposures in each currency were then remeasured
assuming a 10 percent decrease (substantially greater decreases for
hyperinflationary currencies) in currency exchange rates compared with the
U.S. dollar. Under this model, it is estimated that, all else constant,
such a decrease would reduce the 2001 net earnings of the Company based on
year-end 2000 positions by an insignificant amount.
Cyclicality
The property and casualty reinsurance industry has been highly cyclical.
Underwriting results of primary property and casualty insurance companies and
prevailing general economic and reinsurance premium rates significantly
influences demand for reinsurance. The cyclical trends in the industry and the
industry's profitability can also be affected significantly by volatile and
unpredictable developments, including changes in what the Company believes to be
the propensity of courts to grant large awards, natural disasters and other
catastrophic events (such as hurricanes, windstorms, earthquakes, floods and
fires), fluctuations in interest rates and other changes in the investment
environment which affect inflationary pressures that may tend to affect the size
of losses experienced by ceding primary insurance companies.
21
New Accounting Standards
The Financial Accounting Standards Board ("FASB") has issued, then subsequently
amended, Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective for the
Company on January 1, 2001. Upon adoption, all derivative instruments (including
certain derivative instruments embedded in other contracts) will be recognized
in the balance sheet at their fair values; changes in such fair values must be
recognized immediately in earnings unless specific hedging criteria are met.
Effects of qualifying changes in fair value will be recorded in equity pending
recognition in earnings as offsets to the related earnings effects of the hedged
items. Management estimates that, at January 1, 2001, the effects on its
consolidated financial statements of adopting SFAS No. 133, as amended, will be
a one-time reduction of net earnings of less than $20 million. The precise
transition effect is uncertain because the accounting for certain derivatives
and hedging relationships in accordance with SFAS No. 133 is subject to further
interpretation by the FASB.
Effects of Inflation
The Company's ultimate claims and claim expense costs on claims not yet settled
is increased by the effects of inflation, and changes in the inflation rate
therefore could become a significant factor in determining appropriate claims
and claim expense reserves, as well as reinsurance premium rates. Generally, the
Company's methods used to estimate claims and claim expense reserves and to
calculate reinsurance premium rates take into account the anticipated effects of
inflation in estimating the ultimate claims and claim expense costs. The Company
uses both insurance industry data and government economic indices in estimating
the effects of inflation on reinsurance premium rates and claims and claim
expense reserves. However, until claims are ultimately settled, the full effect
of inflation on the Company's results cannot be known.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Information about potential effects of changes in interest rates and currency
exchange on the Company is discussed on pages 20-21.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and the Independent Auditors'
Report thereon and the Supplementary Financial Statement Schedules listed on the
accompanying Index to Financial Statements and Financial Statement Schedules are
filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
22
PART III
Item 10. Directors and Executive Officers of the Registrant.
Omitted
Item 11. Executive Compensation.
Omitted
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Omitted
Item 13. Certain Relationships and Related Transactions.
Omitted
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements and Schedules.
The consolidated financial statements of the Company filed as part of
this report are listed in the Index to Consolidated Financial
Statements and Financial Statement Schedules (page 25).
(a) 2. Financial Statement Schedules.
The consolidated financial statement schedules of the Company filed
as part of this report are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedules (page 25).
(a) 3. Listing of Exhibits.
3.1 A complete copy of the Articles of Incorporation of the
Company, as last amended on August 30, 1995, and currently in
effect. (Incorporated by reference to Exhibit 3.1 of the
Company's Form 10-K for the year ended December 31, 1995.)
3.2 A complete copy of the By-laws of the Company, as last amended
on February 26, 1995, and currently in effect. (Incorporated
by reference to Exhibit 3.2 of the Company's Registration
Statement on Form 10, File No. 0-27394.)
10.1 First Whole Account Aggregate Excess of Loss Retrocession
Agreement (E1), between Employers Reinsurance Corporation and
National Indemnity Company, dated January 1, 2000 (material
omitted and separately filed with the Securities and Exchange
Commission pursuant to a request for confidential treatment).
23
10.2 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
Centre Insurance Company, dated January 1, 2000 (material
omitted and separately filed with the Securities and Exchange
Commission pursuant to a request for confidential treatment).
10.3 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
National Union Fire Insurance Company of Pittsburgh, PA, dated
January 1, 2000 (material omitted and separately filed with
the Securities and Exchange Commission pursuant to a request
for confidential treatment).
10.4 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
Federal Insurance Company, dated January 1, 2000 (material
omitted and separately filed with the Securities and Exchange
Commission pursuant to a request for confidential treatment).
12 Computation of ratio of earnings to fixed charges.
(b) Reports on Form 8-K.
None.
24
ITEM 14(a)
GE Global Insurance Holding Corporation
and Subsidiaries
Index to
Consolidated Financial Statements
and
Financial Statement Schedules
Page
----
Consolidated Financial Statements
Independent Auditors' Report..............................................26
Consolidated Statement of Earnings........................................27
Consolidated Statement of Financial Position..............................28
Consolidated Statement of Stockholder's Equity............................30
Consolidated Statement of Cash Flows......................................31
Notes to Consolidated Financial Statements................................32
Financial Statement Schedules
Schedule II - Condensed Financial Information of Registrant...............56
Schedule III - Supplementary Insurance Information........................60
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
GE Global Insurance Holding Corporation:
We have audited the accompanying consolidated statements of financial position
of GE Global Insurance Holding Corporation and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of earnings,
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 2000. Our audits also included the financial statement
schedules listed in the Index at Item 14(a) as of December 31, 2000 and 1999 and
for each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements and schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of GE
Global Insurance Holding Corporation and subsidiaries as of December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Kansas City, Missouri
January 22, 2001
26
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Earnings
Year ended December 31,
------------------------------
(In millions) 2000 1999 1998
------------------------------
Revenues
Net premiums written $8,191 $7,147 $5,984
====== ====== ======
Net premiums earned $8,001 $6,896 $5,635
Net investment income 1,315 1,151 985
Net realized gains on investments 522 699 432
Other revenues 293 285 151
------ ------ ------
Total revenues 10,131 9,031 7,203
------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 6,727 5,385 4,103
Insurance acquisition costs 1,913 1,839 1,357
Amortization of intangibles 143 111 89
Interest expense 126 102 55
Other operating costs and expenses 529 518 444
Minority interest in net earnings of consolidated
subsidiaries 88 88 85
------ ------ ------
Total costs and expenses 9,526 8,043 6,133
------ ------ ------
Earnings before income taxes 605 988 1,070
------ ------ ------
Provision for income taxes:
Current (109) 216 324
Deferred 133 52 (33)
------ ------ ------
24 268 291
------ ------ ------
Net earnings $ 581 $ 720 $ 779
====== ====== ======
See Notes to Consolidated Financial Statements.
27
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Financial Position
December 31,
---------------------
(In millions) 2000 1999
---------------------
Assets
Investments:
Fixed maturity securities available-for-sale, at fair value $18,761 $17,268
Equity securities, at fair value 718 3,104
Short-term investments, at amortized cost 1,348 788
Other invested assets 364 379
------- -------
Total investments 21,191 21,539
Cash 196 359
Securities and indebtedness of related parties 676 299
Accrued investment income 407 419
Premiums receivable 3,844 3,580
Funds held by reinsured companies 740 717
Reinsurance recoverables 6,436 6,029
Deferred insurance acquisition costs 1,494 1,418
Intangible assets 1,640 1,516
Other assets 1,940 1,685
------- -------
Total assets $38,564 $37,561
======= =======
28
December 31,
---------------------
(In millions) 2000 1999
---------------------
Liabilities and equity
Claims and claim expenses $17,678 $18,134
Accumulated contract values 2,161 2,164
Future policy benefits for life and health contracts 2,636 2,230
Unearned premiums 2,584 2,534
Other reinsurance balances 2,062 1,874
Income taxes payable 11 136
Contract deposit liabilities 1,169 1,223
Other liabilities 840 756
Deferred income taxes 31 21
Long-term borrowings 1,654 956
Indebtedness to related parties 536 779
------- -------
Total liabilities 31,362 30,807
------- -------
Minority interest in equity of consolidated
subsidiaries 1,177 1,179
------- -------
Preferred stock, $100,000 par value; authorized,
issued and outstanding - 1,500 shares 150 150
Common stock, $5,000 par value; authorized,
issued and outstanding - 1,000 shares 5 5
Paid-in capital 845 845
Retained earnings 5,204 4,630
Accumulated unrealized gains on investment securities - net (a) 143 51
Accumulated foreign currency translation adjustments (a) (322) (106)
------- -------
Total stockholder's equity 6,025 5,575
------- -------
Total liabilities and equity $38,564 $37,561
======= =======
(a) The sum of accumulated unrealized gains on investment securities and
accumulated foreign currency translation adjustments constitutes
"Accumulated nonowner changes other than earnings," as shown in the
Consolidated Statement of Stockholder's Equity, and was $(179) million and
$(55) million at year-end 2000 and 1999, respectively.
See Notes to Consolidated Financial Statements.
29
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity
Accumulated
Nonowner
Changes