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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number 0-27394
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 Number)
5200 Metcalf, Overland Park, Kansas 66201
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (913) 676-5200
Securities registered pursuant to Section 12(b) of the Act:
7% Notes Due February 15, 2026 New York Stock Exchange
(Title of Class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5,000.00 per share
(Title of Class)
-----------------------------------------
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 (ss.229.405 of this chapter) 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 February 28, 1997. None.
At February 28, 1997, 1,000 shares of common stock with a par value of $5,000
were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(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 Registrant's Common Equity and Related
Stockholder Matters.......................................12
Item 6. Selected Financial Data.......................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................13
Item 8. Financial Statements and Supplementary Data...................20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................20
PART III
Item 10. Directors and Executive Officers..............................20
Item 11. Executive Compensation........................................20
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................20
Item 13. Certain Relationships and Related Transactions................20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..............................................21
PART I
Item 1. Business.
GE Global Insurance Holding Corporation ("GE Global" 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 the outstanding common stock of GE Global is owned by
General Electric Capital Services, Inc. ("GE Capital Services"), formerly
General Electric Financial Services, Inc., which in turn is wholly-owned by
General Electric Company ("GE Company").
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 searching for ways to expand 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's principal subsidiary is Employers Reinsurance Corporation
("ERC"). ERC was established in 1914 and principally writes property and
casualty reinsurance. ERC is the second largest reinsurance company in the
United States, based on 1995 statutory net premiums written, and the third
largest in the world, based on 1994 statutory net premiums written. The Company
is also a provider of life and healthcare reinsurance and writes some lines of
primary health, property and casualty and workers' compensation insurance.
The Company conducts business and services its accounts through a network
of local offices located in cities throughout the world. At December 31, 1996,
the Company had 21 offices in North America, 10 offices in Europe and 8 offices
in the Asia/Pacific 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, the Company is continuing to decentralize
underwriting decisions and customer service in its property and casualty
segment.
The Company manages and diversifies its risk through the careful
underwriting of risks, active claims management and the purchase of
retrocessional coverage. The Company monitors adherence to underwriting
guidelines through the use of computer systems and internal audits.
The Company's business strategy is to continue to increase its reinsurance
market share by expanding its international operations through internal growth,
enhancing the Company's domestic position with the large regional and national
primary insurers while retaining the Company's focus on small and medium
regional customers, by expanding the Company's product lines to take advantage
of market niche opportunities and by selectively acquiring existing businesses.
The Company does not intend, however, to increase market share at the expense of
its underwriting results.
The Company has expanded its global operations in recent years through
acquisitions of both property and casualty and life reinsurance business. In the
third quarter of 1995, the Company acquired over 93% of Frankona
Ruckversicherungs-Aktien-Gesellschaft ("Frankona Re") and certain assets
comprising a majority of the reinsurance business of Aachener
Ruckversicherungs-Gesellschaft-Aktiengesellschaft, two major reinsurance
businesses in Germany. Currently, the Company's ownership percentage of
Frankona Re has increased to approximately 98% through the purchase of
additional shares owned by minority shareholders. The Company also acquired a
large block of life and health reinsurance business from NRG Victory
Reinsurance Limited in the United Kingdom during 1994.
These acquisitions together with existing companies in London and
Copenhagen have been fully integrated and these individual companies together
are marketed as the "ERC Frankona Group." The coordinated activities of the
individual companies of the ERC Frankona Group produce synergies in its global
reinsurance business. In combining and integrating the various businesses, the
ERC Frankona Group has carefully evaluated the resulting mix of business and
accumulation of risks. The accumulation of risks has been proactively managed
through adjustment of the Company's retrocession program and a reduction in ERC
Frankona Group's aggregate exposures on certain reinsurance programs.
Also in recent years, the Company has expanded its global business through
the extension of its local office network. The Company opened offices in Hong
Kong in 1994, Tokyo and Mexico City in 1995 and Sydney, Melbourne, Brisbane and
Auckland in 1996. Consistent with its global expansion strategy, the Company
anticipates further expanding its presence in the Asia/Pacific and Latin America
regions.
Unless otherwise indicated, all financial data has been prepared in
accordance with United States generally accepted accounting principles ("GAAP").
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
following table shows the geographic breakdown, based on net premiums written,
of the Company's principal product lines.
Year ended December 31,
-----------------------------------------------------
(In millions) 1996 1995 1994
-----------------------------------------------------
Domestic Int'l Domestic Int'l Domestic Int'l
-----------------------------------------------------
Property and Casualty Segment
Property and Casualty..... $1,167 $2,196 $1,421 $1,002 $1,276 $405
Healthcare................ 405 - 522 - 532 -
Specialty................. 169 - 178 - 167 -
Life Segment................. 189 447 116 322 59 134
------ ------ ------ ------ ------ ----
Total..................... $1,930 $2,643 $2,237 $1,324 $2,034 $539
====== ====== ====== ====== ====== ====
The following is a summary description of the Company's domestic and
international business based on the Company's 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 74%
of the Company's worldwide net premiums written in 1996. 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 "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 domestic property and casualty business is conducted
primarily throughout the United States and Canada. For the year ended December
31, 1996, approximately 46% of the Company's domestic net premiums written from
the property and casualty segment were derived from property reinsurance,
approximately 40% from casualty reinsurance, approximately 8% from aviation and
marine reinsurance and approximately 6% from other lines of reinsurance. Based
on 1996 net premiums written, approximately 62% of the Company's domestic
property and casualty reinsurance was written on a direct basis. The Company
writes the remaining property and casualty reinsurance business through
reinsurance brokers.
The Company's international property and casualty business services
worldwide markets, including Germany, Scandinavia, the United Kingdom, France,
Italy, Spain and countries in the Middle East and Far East. For the year ended
December 31, 1996, based on 1996 net premiums written, 64% of the Company's
international property and casualty business was written on a direct basis with
the remainder written through brokers. Approximately 49% of the Company's
international net premiums written from property and casualty reinsurance was
derived from property reinsurance, approximately 18% from casualty reinsurance
and approximately 22% from aviation and marine reinsurance.
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. Although this consolidation has
decreased the number of reinsurers, it has increased the number of companies
that are competitive with the Company. 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 long-haul trucking liability. 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 in recent years.
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, also targeting employers, public entities, manufacturers and others
for certain product lines. Coverages include primary insurance and reinsurance
for medical professional liability and reinsurance protecting primary insurers
(including self-insurers) in the healthcare market (i.e., reinsurance of
long-term care, excess workers compensation, stop loss insurance and provider
excess coverages).
The changes in the healthcare delivery systems have led to increased
competition in the healthcare insurance market. Companies that historically
specialized in physician business are now expanding their scope to write
hospital professional liability and companies that specialized in hospital
professional liability are aggressively competing for physician business to
serve the needs of their hospital clients that are purchasing physician
practices.
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 accident and health coverage, utilizing
multiple products and disciplines 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 commercial property and casualty policies written on a
primary basis in niche markets. The Company's specialty business concentrates on
providing commercial insurance products for target markets, usually professional
associations and homogeneous groups. These products include professional
liability programs, communications/media liability coverages and some niche
programs in the general property/casualty area. This coverage provides insurance
for errors and omissions (E&O) arising out of the professional activities of the
insureds. Professional classes underwritten include property and casualty
insurance agents and brokers, life and health insurance agents and brokers, real
estate professionals, educators and school board members, directors and officers
(not-for-profit), and a few miscellaneous classes such as travel agents,
computer consultants, and marketing consultants. The majority of this business
provides coverage to property and casualty and life insurance agents and
brokers, and real estate professionals.
Competition for the classes of business underwritten by 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 services, to its specialty line customers.
Life Reinsurance Segment
Life Reinsurance. The Company is engaged in the reinsurance of traditional
life insurance products, including term, whole and universal life, annuities,
group long-term health and health products and the provision of financial
reinsurance to life insurers. Based on net premiums written, life reinsurance
accounted for approximately 14% of the Company's worldwide business in 1996.
With respect to life reinsurance, the Company writes mostly on a direct
basis with primary insurers. The Company's traditional life reinsurance business
consists principally of treaty business and is written generally on an excess of
loss basis. The Company's domestic life reinsurance business is comprised
exclusively of traditional life reinsurance contracts and is written in every
state in the United States. The Company's international life reinsurance
business services worldwide markets, including the United Kingdom, France,
Spain, Scandinavia, Italy, Singapore, Mexico, Israel and Greece. For the year
ended December 31, 1996, 74% of the Company's international life reinsurance net
premiums written were for traditional life reinsurance with the balance for
healthcare 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. In response to these trends, the Company has
expanded its presence in the international life reinsurance market by increasing
its presence in the market for reinsurance of annuity providers.
Financial Reinsurance. Financial reinsurance is primarily designed 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. The Company writes financial reinsurance
through brokers and generally only for companies with credit ratings of not less
than "A" at the inception of the policy and that have a minimum capital and
surplus of $15 million. Financial reinsurance typically has a duration of three
to five years. Historically, fees generated by the Company's financial
reinsurance business have not been a significant contributor to the Company's
consolidated revenues or net income.
Property and Casualty Reserves for Unpaid Claims and Claim Expenses
Domestic. The Company's domestic 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 (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 reflected in the financial
statements in the period in which the adjustment occurs.
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 of the Company based on subsequent
developments and audits of ceding companies.
In accordance with industry practice, the Company 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.
International. The Company's international property and casualty
reinsurance operations establish their reserves using analytical techniques
similar to those utilized by GE Global's domestic subsidiaries. They also
maintain IBNR reserves using actuarial and statistical projections. 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. As of December 31, 1996, approximately 2% of the Company's net
international reserves ($78 million) related to business acquired by the Company
from Assurance Compagniet Baltica Aktiesellskab ("Baltica") in 1988. At the time
of the acquisition, the Company obtained from Baltica a 90% loss development
guarantee, pursuant to which Baltica is obligated to pay the Company, at
December 31, 1997, 90% of the amount of claim reserve development (adjusted for
certain income and expenses) from 1988 to such date.
Reserve Development. The table that follows presents the development of net
balance sheet liabilities of ERC and subsidiaries for unpaid claims and claim
expenses for 1986 through 1996.
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 1986 to 1996.
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, etc., through up to 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, 1996", 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, 1996, 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. By way of example, the
deficiency for the year 1994, calculated as of December 31, 1996, represents a
deficiency in the Company's original estimate of unpaid claims and claim
expenses for 1994 and prior years.
The last seven lines of data present the development of reserves on a
"gross of reinsurance" basis, reconciled to the "net of reinsurance basis" shown
in the immediately preceding tables.
Changes in Historical Reserves for Unpaid Claims and Claim Expenses
For the Last Ten Years - GAAP Basis as of December 31, 1996
Year ended December 31,
----------------------------------------------------------------------------------------------------
(In millions) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
----------------------------------------------------------------------------------------------------
Net liability for
unpaid claims and
claim expenses $2,083 $2,620 $3,087 $3,338 $3,579 $3,596 $3,991 $4,525 $5,071 $9,351 $ 9,458
Paid (cumulative) as of:
One year later....... 554 615 681 706 747 665 802 949 1,115 1,964
Two years later...... 899 1,006 1,064 1,125 1,119 1,103 1,274 1,602 1,804 ---
Three years later.... 1,202 1,314 1,432 1,469 1,524 1,499 1,739 2,054 --- ---
Four years later..... 1,429 1,553 1,687 1,746 1,772 1,784 2,036 --- --- ---
Five years later..... 1,612 1,754 1,919 1,929 1,989 2,008 --- --- --- ---
Six years later...... 1,764 1,945 2,065 2,072 2,173 --- --- --- --- ---
Seven years later.... 1,901 2,063 2,221 2,229 --- --- --- --- --- ---
Eight years later.... 1,998 2,181 2,347 --- --- --- --- --- --- ---
Nine years later..... 2,103 2,284 --- --- --- --- --- --- --- ---
Ten years later...... 2,194 --- --- --- --- --- --- --- --- ---
Net liability
re-estimated as of:
One year later....... $2,177 $2,746 $3,134 $3,390 $3,616 $3,625 $3,919 $4,612 $5,173 $9,192
Two years later...... 2,385 2,861 3,220 3,482 3,583 3,587 4,066 4,656 5,313 ---
Three years later.... 2,541 2,941 3,346 3,462 3,564 3,701 4,095 4,793 ---- ---
Four years later..... 2,672 3,057 3,360 3,472 3,654 3,687 4,238 --- ---- ---
Five years later..... 2,807 3,094 3,406 3,537 3,635 3,818 --- --- ---- ---
Six years later...... 2,848 3,151 3,470 3,521 3,758 --- --- --- ---- ---
Seven years later.... 2,916 3,210 3,494 3,626 --- --- --- --- ---- ---
Eight years later.... 2,979 3,259 3,582 --- --- --- --- --- ---- ---
Nine years later..... 3,036 3,324 --- --- --- --- --- --- ---- ---
Ten years later...... 3,098 --- --- --- --- --- --- --- --- ---
Redundancy (Deficiency)
at December 31, 1996 (1,015) (704) (495) (288) (179) (222) (247) (268) (242) 159
Effect of foreign
exchange (1) 16 24 (17) (20) 42 29 (196)
------- ------- ------- ------- ------- ------- ------ -------- ------- -------
Redundancy (Deficiency)
at December 31,
1996, excluding
foreign exchange $(1,015) $ (704) $ (479) $ (264) $ (196) $ (242) $ (247) $ (226) $ (213) $ (37)
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
(In millions) 1992 1993 1994 1995 1996
------------------------------------------
Gross liability-end of year................................................... $4,815 $5,312 $6,020 $11,145 $10,869
Reinsurance recoverables on unpaid claims and claim expenses.................. 824 787 949 1,794 1,411
------ ------ ------ ------- -------
Net liability-end of year..................................................... 3,991 4,525 5,071 9,351 9,458
------ ------ ------ ------- =======
Gross re-estimated liability-latest........................................... 5,253 5,813 6,424 11,081
Re-estimated reinsurance recoverables on latest unpaid claims
and claim expenses......................................................... 1,015 1,020 1,111 1,889
------ ------ ------ -------
Net re-estimated liability-latest............................................. 4,238 4,793 5,313 9,192
------ ------ ------ -------
Gross cumulative redundancy (deficiency)...................................... $ (438) $ (501) $ (404) $ 64
====== ====== ====== =======
(1) The foreign currency translation impact on the cumulative redundancy
(deficiency) arises from the difference between the net liability for
unpaid claims and claim expenses translated at the exchange rates at the
end of the year in which the liabilities were originally estimated, and
the exchange rates during the years in which such liabilities were paid
or 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 sections entitled "Reserve
Development."
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. The claims and claim expenses reserve
deficiencies developed to December 31, 1996, as reflected in the preceding
table, included reserve deficiencies of approximately $367 million in 1986, $257
million in 1987, $181 million in 1988, $130 million in 1989 and $98 million in
1990 related to the general liability business on the books of Puritan Excess
and Surplus Lines Insurance Company ("PESLIC") before the Company's acquisition
of PESLIC in 1994. Prior to 1994, PESLIC was owned by GE Capital. Additionally,
beginning in 1985 the Company strengthened the reserves for its excess liability
and workers' compensation business for qualified self-insured employers. Claims
and claim expenses reserve development in the mid 1980's in these businesses
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 expenses reserve development by
increasing rates and strengthening claims and claim expenses reserves. This is
reflected, with respect to the Company, in the significant reductions in the
reserve deficiencies in recent years.
To a lesser degree, development of asbestos and environmental claims has
affected the Company's results. 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. Also affecting the reserve
structure has been an increase in both frequency and severity of claims.
Partially offsetting the above factors is favorable development in recent years
in medical professional liability and facultative casualty businesses as well as
an increase in net retentions by ceding companies.
The reconciliation of reserves for unpaid claims and claim expenses on a
GAAP basis for each of the years indicated is shown below.
Year ended December 31,
-----------------------------
(In millions) 1996 1995 1994
-----------------------------
Reserves at beginning of year.......... $11,145 $ 6,020 $5,312
Reinsurance recoverables on unpaid
claims and claim expenses........... 1,794 949 787
------- ------- ------
Net reserves at beginning of year...... 9,351 5,071 4,525
------- ------- ------
Net incurred related to:
Current year........................ 2,763 2,638 1,657
Prior years......................... 106 104 87
------- ------- ------
Total net incurred..................... 2,869 2,742 1,744
------- ------- ------
Net payments related to:
Current year........................ 485 295 374
Prior years......................... 1,990 1,426 949
------- ------- ------
Total net payments..................... 2,475 1,721 1,323
------- ------- ------
Foreign exchange and other............. (287) (54) 125
------- ------- ------
Net reserves at end of year............ 9,458 6,038 5,071
Reinsurance recoverables on unpaid
claims and claim expenses...........
1,411 1,794 949
Acquired businesses unpaid claims
and claim expenses.................. - 3,313 -
------- ------- ------
Reserves at end of year................ $10,869 $11,145 $6,020
======= ======= ======
The liabilities for claims and claim expenses in the preceding table
include long-term disability claims that are discounted at a 6% rate. As a
result of discounting the Company's long-term disability claims, the Company's
total liabilities for claims and claim expenses have been reduced by an
estimated 3% at December 31, 1996 and 1995. The amortization of discount is
included in current operating results as part of the development of prior year
liabilities. For the years ended December 31, 1996, 1995 and 1994, long-term
disability discounts accrued as a percentage of claims, claim expenses and
policy benefits were approximately 5%, 5% and 8%, respectively, and discounts
amortized were approximately 2% in 1996 and 1% in 1995 and 1994.
The reconciliation of reserves for unpaid claims and claim expenses between
statutory basis and GAAP basis for each of the years indicated is shown below:
Year ended December 31,
-------------------------------
(In millions) 1996 1995 1994
-------------------------------
Statutory basis U.S. reserves............. $ 5,875 $ 5,758 $4,966
Adjustments to GAAP basis (1)............. (435) (413) (383)
------- ------- ------
Net GAAP reserves for U.S. companies...... 5,440 5,345 4,583
Net GAAP reserves for non-U.S. companies.. 4,018 4,006 488
------- ------- ------
Net GAAP reserves......................... 9,458 9,351 5,071
Reinsurance recoverables.................. 1,411 1,794 949
------- ------- ------
Gross reserves on a GAAP basis............ $10,869 $11,145 $6,020
======= ======= ======
(1) Statutory basis reserves reclassified to other liabilities based on
risk transfer provisions of FAS No. 113.
- -----------------------------------------------------------------------------
Environmental and Asbestos Exposure. Prior to 1986, the Company wrote
domestic property and casualty reinsurance principally for small to medium-sized
primary insurers that did not generally have environmental and asbestos
exposures. Although the Company has in the last few years increased its
marketing efforts with medium to larger-sized primary insurers, since 1986,
primary policies have tended to explicitly exclude environmental and asbestos
risks from coverage. The Company's international property and casualty
reinsurance operations are currently being reviewed to identify environmental
and asbestos exposures. No estimates of these exposures are currently available
although management does not believe the findings will have a material adverse
effect on the financial position, results of operations or cash flows of the
Company.
The following table presents three calendar years of development of claims
and claim expenses reserves associated with the Company's asbestos and
environmental claims, including case and IBNR reserves.
Year ended December 31,
----------------------------------
(In millions) 1996 1995 1994
----------------------------------
Gross Basis:
Reserve balance at January 1......... $436 $317 $309
Incurred claims and claim expenses... (32) 61 25
IBNR allocation (1).................. - 99 -
Claims and claim expenses paid....... 36 41 17
---- ---- ----
Reserve balance at December 31....... $368 $436 $317
==== ==== ====
Net Basis:
Reserve balance at January 1......... $196 $139 $138
Incurred claims and claim expenses... 19 23 9
IBNR allocation (1).................. - 51 -
Claims and claim expenses paid....... 21 17 8
---- ---- ----
Reserve balance at December 31....... $194 $196 $139
==== ==== ====
- --------
(1) Prior to 1995, the Company's allocation of asbestos and environmental IBNR
reserves associated with PESLIC was primarily made on a non-specific basis.
As of December 31, 1995, PESLIC specifically allocated IBNR reserves to
asbestos and environmental liabilities from a portion of previously
established IBNR reserves.
These amounts are management's best estimate, based on currently available
information, of claims and claim expense payments and recoveries that are
expected to develop in future years. The increase in claim payments in 1996 and
1995 and negative incurred claims in 1996 is principally due to the Company
aggressively settling its claims and executing contract commutation provisions
so that possible future adverse claim development is mitigated. 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 law, 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, cash flows and
financial position.
Breast Implant Exposure. The Company has minimal exposure to products
liability claims involving silicone breast implants. The Company has, in the
past, generally avoided the products liability reinsurance business,
specifically pharmaceutical and chemical exposures.
Life and Health Reserves for Future Policy Benefits and Accumulated Contract
Values
Future policy benefits for life and health reinsurance contracts are 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
range from 3.0% to 8.5% per annum at December 31, 1996. Payments received from
sales of investment contracts are recognized by providing liabilities equal to
the accumulated contract values of the policyholders' contracts. Interest rates
credited to such investment contracts are guaranteed for the policy terms with
renewal rates determined by the Company. Such crediting interest rates ranged
from 3.25% to 9.00% per annum in 1996.
Regulatory Matters
GE Global and its domestic subsidiaries are subject to regulation under the
insurance statutes, including insurance holding company statutes, of various
states, including Missouri and Kansas, the domiciliary states of GE Global's
principal domestic insurance company subsidiaries. The ERC Frankona Group is
subject to regulation under insurance statutes of various foreign countries.
General. The regulation and supervision to which GE Global'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, methods of
accounting, 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 securityholders of
the regulated reinsurer. GE Global 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.
Risk-Based Capital. The National Association of Insurance Commissioners
("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, 1996,
each of GE Global's domestic insurance subsidiaries exceeds 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.
Dividends by ERC. Because the operations of GE Global are conducted
primarily through ERC, GE Global is dependent upon dividends and tax allocation
and other payments primarily from ERC to service its debt and meet its other
obligations. The payment of dividends and other payments to GE Global by ERC is
subject to limitations imposed by the Missouri Insurance Code. 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 or Missouri 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 during 1997 by
ERC to GE Global without prior regulatory approval is $297 million through
December 20, 1997, and $420 million thereafter. Of these amounts, $82 million is
committed to pay dividends on preferred stock issued by ERC to a subsidiary of
GE Capital Services.
International Regulations. Approximately 58% 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 ERC Frankona 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 ERC Frankona 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 ERC Frankona 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
participant policies. Regulations governing constitution of technical reserves
(including equalization reserves required under German law) and remittance
balances 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 ERC
Frankona Group's operations.
Legislative and Regulatory Proposals. From time to time, various regulatory
and legislative changes have been proposed in the insurance and reinsurance
industry that may affect reinsurers. A substantial number of states have
recently adopted, or are considering adopting, laws and regulations that, among
other things, limit the ability of primary insurance companies to effect premium
rate increases or to cancel or not renew existing policies. The Company is
unable to predict whether any of these laws and regulations will be adopted in
additional states, the form in which any such laws and regulations might be
adopted in additional states, or the effect, if any, these developments will
have on the Company.
Item 2. Properties.
The Company and its subsidiaries conduct their businesses from various
facilities, most of which are leased. In addition, the Company owns its
administrative offices in Overland Park, Kansas, Copenhagen, Denmark and Aachen
and Munich, Germany.
Item 3. Legal Proceedings.
There are no pending legal proceedings beyond the ordinary course of
business that could have a material financial effect on the Company, except for
an action in connection with a dispute under specific retrocession agreements
relating to disability insurance assumed by the Company from various insurers.
The retrocessionaire, St. Paul Fire and Marine Insurance Co., has initiated
legal proceedings in the Southern District of New York against the Company
seeking, alternatively, rescission of the retrocession contracts or indemnity
against loss payable by the retrocessionaire under these retrocession contracts.
The Company's motion to stay proceedings pending arbitration has been granted
and the dispute will be resolved by arbitration. The total amount in dispute is
approximately $50 million. The Company believes the retrocession contracts are
valid and the amounts due under such contracts are recoverable. Accordingly, the
Company has committed no reserves to cover any contingent liabilities.
Management believes that an adverse outcome of this matter would not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Omitted
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
All of GE Global's Common Stock, 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. GE Global paid dividends on its
Common Stock on December 20, 1996 of $58 million.
Item 6. Selected Financial Data.
Consolidated Financial Data
Year ended December 31,
----------------------------------------------------------
(In millions) 1996 1995 1994 1993 1992
----------------------------------------------------------
Total revenues................................ $ 5,751 $ 4,798 $ 3,148 $ 2,927 $ 2,396
Net premiums written.......................... 4,573 3,561 2,573 2,413 1,832
Net investment income......................... 837 676 528 465 449
Net realized gains on investments............. 223 191 103 147 158
Earnings before income taxes.................. 780 561 409 395 370
Net earnings.................................. 567 437 358 312 293
Total investments............................. 16,479 15,394 9,850 8,561 6,954
Total assets.................................. 25,388 25,613 14,496 11,928 10,313
Stockholder's equity.......................... $ 4,760 $ 4,191 $ 2,722 $ 2,938 $ 2,521
Return on equity (average).................... 12.7% 12.6% 12.7% 11.4% 11.9%
Stockholder's equity excluding unrealized
gains (losses) on investment securities.... $ 4,260 $ 3,755 $ 2,888 $ 2,635 $ 2,485
Return on equity excluding unrealized gains
(losses) on investment securities
(average).................................. 14.1% 13.2% 13.0% 12.2% 12.0%
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net premiums written in 1996 increased $1.012 billion or 28%, of which
$1.308 billion reflects recording a full year of the operating results
for the 1995 acquisitions of Frankona Re and the Aachen Re Business (the
"Acquired Businesses") in 1996 compared to recording only five months of
operating results in 1995. This 1996 increase in net premiums written
related to the Acquired Businesses was partially offset by a decrease in
domestic property and casualty net written premiums.
Net earnings in 1996 increased $130 million or 30%, including an
increase in after-tax net realized gains on investments of $21 million.
Excluding after-tax net realized gains on investments, 1996 net earnings
increased $109 million or 35%. This 1996 increase was primarily
attributable to the Acquired Businesses reflecting a full year's
operating results in 1996 compared to recording only five months of
operating results in 1995. The remainder of the increase was due to
improvement in the domestic and international property and casualty
underwriting results and growth in the investment portfolio due mostly
from cash flow from international operations. These increases were
partially offset by a 5% increase in the effective tax rate due to a
greater proportion of earnings before taxes provided by operations that
reside in higher income tax jurisdictions.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net premiums written in 1995 increased $988 million, including $561
million related to the operations of the Acquired Businesses. The
remainder of the increase primarily related to the NRG Business acquired
in 1994 and an increase in premiums generated from new and existing
clients in both the domestic and international property and casualty
markets.
Net earnings in 1995 increased $79 million, including an increase in
after-tax net realized gains on investments of $57 million. Excluding
after-tax net realized gains on investments, 1995 net earnings increased
$22 million. This 1995 increase consisted of $40 million from the
Acquired Businesses and $42 million from increased net investment income
resulting from growth in the investment portfolio, due mostly to cash
flow from operations, offset by a $47 million increase in underwriting
losses primarily related to long-term disability business.
Domestic Property and Casualty Business
Year ended December 31,
----------------------------
(In millions) 1996 1995 1994
----------------------------
Net premiums written........................... $1,741 $2,121 $1,975
Net underwriting loss.......................... (98) (138) (105)
Net investment income.......................... 390 395 371
Earnings before income taxes................... 415 364 336
Net realized gains on investments.............. 169 135 87
Earnings before income taxes, excluding net
realized gains on investments............... 246 229 249
GAAP ratios (1):
GAAP claims and claim expenses ratio........ 75.7% 79.1% 76.9%
GAAP underwriting expense ratio............. 29.7% 27.4% 28.6%
------ ------ ------
GAAP combined ratio......................... 105.4% 106.5% 105.5%
====== ====== ======
- --------
(1) Represents data for the applicable periods calculated in accordance with
GAAP. Claims and claim expenses 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
expenses ratio and the underwriting expense ratio.
Domestic net premiums written decreased $380 million or 18% in 1996,
principally due to management's decision to not renew certain unprofitable
reinsurance contracts and a general decrease in reinsurance premium rates.
Domestic net premiums written increased $146 million in 1995, principally due to
the Acquired Businesses and lower retrocession costs.
The GAAP combined ratio is an indicator of underwriting performance in
property and casualty reinsurance, with a percentage lower than 100% generally
indicating an underwriting profit. While underwriting results expressed as the
combined ratio have been in excess of 100%, indicating an underwriting loss in
all years presented, the operating results of insurance companies include
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 1996 and 1995 GAAP combined ratios were
moderately impacted by catastrophe costs and certain significant unprofitable
reinsurance contracts that management has elected not to renew. In 1994,
catastrophe costs, principally from the Northridge, California earthquake,
heavily impacted the GAAP combined ratio.
Net investment income decreased $5 million or 1% in 1996. The 1996 decrease
was due primarily to the transfer of significant assets to the ERC Frankona
Group in the second half of 1995 which was substantially offset by investment of
cash flow from operating activites. Net investment income increased $24 million
in 1995, due primarily to the Acquired Businesses and growth in the investment
portfolio caused from cash flow from operating activities.
Earnings before income taxes, excluding net realized gains on investments,
increased $17 million or 7% in 1996, primarily due to a 1.1% improvement in the
GAAP combined ratio as lower catastrophe costs and the non-renewal of certain
unprofitable contracts were partially offset by a slight reduction in
reinsurance premium rates. Improvement in the GAAP combined ratio was partially
offset by a slight decline in net investment income. Earnings before income
taxes, excluding net realized gains on investments, decreased $20 million in
1995, due primarily to an increase in long-term disability losses and moderate
catastrophe losses, partially offset by lower retrocession premiums and an
increase in net investment income.
International Property and Casualty Business
Year ended December 31,
----------------------------
(In millions) 1996 1995 1994
----------------------------
Net premiums written........................ $2,196 $1,002 $405
Net underwriting gain (loss)................ 18 (38) (11)
Net investment income....................... 266 125 39
Earnings before income taxes................ 247 107 33
Net realized gains on investments........... 31 27 6
Earnings before income taxes, excluding net
realized gains on investments............ 216 80 27
GAAP ratios (1):
GAAP claims and claim expenses ratio..... 68.0% 73.3% 71.7%
GAAP underwriting expense ratio.......... 31.2% 29.6% 31.3%
----- ------ ------
GAAP combined ratio...................... 99.2% 102.9% 103.0%
===== ====== ======
- --------
(1) Represents data for the applicable periods calculated in accordance with
GAAP. Claims and claim expenses 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
expenses ratio and the underwriting expense ratio.
International property and casualty net premiums written increased $1.194
billion or 119% in 1996, of which $1.203 billion reflects recording a full year
of the Acquired Businesses operating results in 1996 compared to recording only
five months of operating results in 1995. This 1996 increase in net premiums
written related to the Acquired Businesses was partially offset by a minor
decrease in other international net premiums written, primarily due to the
integration of international operations. Net written premiums increased $597
million in 1995, including $426 million related to the Acquired Businesses. The
balance of the 1995 increase related to improved market conditions, an increase
in premium rates in Europe and intensified marketing efforts.
The 3.7% improvement in the 1996 GAAP combined ratio was caused by
favorable loss experience and is indicative of improved international premium
rates and market conditions in recent years. The 1996 GAAP combined ratio was
also favorably impacted by a decline in both the frequency and severity of
international catastrophe losses.
Net investment income increased $141 million or 113% in 1996, including
$126 million related to recording a full year of the Acquired Businesses
operating results in 1996 compared to recording only five months of operating
results in 1995. The remaining $15 million 1996 increase was due primarily to
growth in the investment portfolio resulting from cash flow from operating
activities. Net investment income increased $86 million in 1995, due primarily
to the Acquired Businesses.
Earnings before income taxes, excluding net realized gains on investments,
increased $136 million or 170% in 1996 as a result of two major factors: (1)
inclusion of a full year of the Acquired Businesses operating results in 1996
compared to recording only five months of operating results in 1995 and (2) a
significant improvement in the underwriting results, as illustrated by the 3.7%
improvement in the GAAP combined ratio. Earnings before income taxes, excluding
net realized gains on investments, increased $53 million in 1995, due primarily
to the Acquired Businesses.
Life Reinsurance Business
Year ended December 31,
-----------------------------
(In millions) 1996 1995 1994
-----------------------------
Revenues............................. $881 $656 $351
Earnings before income taxes......... 118 90 40
Revenues from the Company's life reinsurance segment include life insurance
premium revenues, net investment income, net realized gains on investments and
income from certain investment related products. The 1996 increase of $225
million or 34% primarily reflects a full year's operating results from the
Acquired Businesses and continued expansion in the domestic and international
life reinsurance business. Revenues increased $305 million or 87% in 1995,
principally as a result of the Acquired Businesses.
Earnings before income taxes increased $28 million or 31% in 1996,
including a $6 million decrease in net realized gains on investments. Excluding
net realized gains on investments, earnings before income taxes increased $34
million due to a full year's operating results from the Acquired Businesses and
continued growth in worldwide life reinsurance business. Earnings before income
taxes increased $50 million in 1995, principally related to the Acquired
Businesses and a $19 million increase in net realized gains on investments.
Liquidity and Capital Resources
GE Global's ability to meet its obligations, including debt service and
operating expenses, and pay dividends to its shareholders depends primarily upon
receiving sufficient funds from its insurance subsidiaries. The payment of
dividends by ERC is subject to restrictions set forth in the insurance laws of
Missouri, as well as other restrictions. Historically, the Company's liquidity
requirements are met by funds provided by operations and from the maturity and
sales of investments.
Cash flows from operating activities primarily consists of premiums
collected during the period in excess of payments made for claims and claim
expenses. The 1996 decrease in cash flows from operating activities is
principally due to a slight increase in claim payments and the timing of
reinsurance settlements. The increase in 1995 cash flows from operating
activities primarily reflects cash flow activity from the Acquired Businesses.
Cash used for investing activities decreased $1.377 billion in 1996,
principally due to the $1.022 billion purchase of the Acquired Businesses in
1995. The purchases of the Acquired Businesses in 1995 were partially funded by
GE Capital Services contributing $300 million to the equity of GE Global and GE
Capital Corporation, an affiliate of GE Global, purchasing 1,500 shares of 5%
cumulative preferred stock issued by GE Global for an aggregate purchase price
of $150 million. The remaining $355 million 1996 decrease in cash used for
investing activities was primarily attributable to a decrease in purchases of
investments, net of sales and maturities, which was caused by a decline in cash
flows from operations.
Cash flows from financing activities decreased $958 million in 1996, due
primarily to the financing and capitalization of the 1995 acquisitions described
above, partially offset by an increase in contract deposits related to the life
financial reinsurance business.
In 1996, GE Global executed a $1 billion shelf registration statement of
senior unsecured debt securities, of which $600 million is outstanding and is
rated AA by Standard & Poor's. The remaining unissued $400 million may be
offered from time to time in the future, the proceeds of which will be added to
the general funds of GE Global and made available to finance its operations,
unless otherwise stated at the time of the offering.
In addition, the Company, as of January 1, 1997, 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 shall
be 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 require
that no more than 2.5% of the Company's bond portfolio may be invested in any
one issue of debt securities and no more than 10% of the stock portfolio may be
invested in the equity securities of any one issuer.
In structuring its fixed maturity portfolios, the Company considers the
duration of its assets and claims and claim expenses reserves. Each fixed
maturity portfolio has a total return benchmark against which relative
performance is measured. The total return benchmark includes investment income
and realized and unrealized gains and losses on investments. Equity funds are
managed for total return, and performance is measured against equity benchmarks.
On a worldwide basis, the Company manages 70% of its investments
internally. General Electric Investment Corporation manages an additional 20% of
the Company's investments, and the balance is managed by unaffiliated outside
managers.
The following table presents investment results for the Company's business.
Year ended December 31,
-------------------------------------------------------
(In millions) 1996 1995 1994 1993 1992
-------------------------------------------------------
Average invested assets (at cost)........... $15,195 $12,153 $9,020 $7,395 $6,545
Net investment income....................... 837 676 528 465 449
Net effective yield......................... 5.5% 5.6% 5.9% 6.3% 6.9%
Net realized gains on investments........... $ 223 $ 191 $ 103 $ 147 $ 158
Unrealized gains (losses) on investment
securities before deferred income taxes 798 684 (251) 622 333
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.
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. Some additional commitment was made to equity securities in 1996 and
1995 to enhance total investment return in the longer term. The Company's
domestic life investment portfolios are largely invested in taxable debt
securities.
The following table categorizes the Company's domestic fixed maturity
portfolios by rating based on market values.
Domestic Property
and Casualty Domestic Life
-----------------------------------------------
December 31,
-----------------------------------------------
(In millions) 1996 1995 1996 1995
-----------------------------------------------
U.S. government and government agency securities... 2.6% 3.2% 5.8% 6.9%
Aaa................................................ 45.7 42.1 18.8 18.3
Aa................................................. 26.3 28.3 13.2 16.9
A.................................................. 16.1 19.2 13.6 15.3
Baa................................................ .2 0.3 2.3 5.0
Ba................................................. .1 0.2 .7 1.0
Canadian securities................................ 4.2 3.5 0.0 0.0
Mortgage-backed securities......................... .1 1.1 39.8 33.4
Other.............................................. 4.7 2.1 5.8 3.2
----- ----- ----- -----
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 table
above, 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 "A" or above. The Canadian securities held by the Company were
similar in quality to the other securities held in its domestic property and
casualty portfolio. Bonds held by the Company in its domestic life portfolios
include mortgage-backed securities that are matched to the liability profile of
specific life reinsurance contracts. Investments in mortgage-backed securities
are limited to lower risk tranches and do not include any interest only or
principal only elements. Mortgage-backed securities in the Company's investment
portfolio were principally issued by Federal agencies. The balance of the other
securities held in the domestic life portfolios were principally U.S. government
and government agency securities and bonds with a rating of "A" or higher. The
Company does not contemplate significant 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 ERC Frankona Group's
investment personnel based in Munich, within guidelines established by the
management of the ERC Frankona Group and under the overall supervision and
review of the investment department of ERC.
The principal objective of the ERC Frankona 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 ERC Frankona Group's
reinsurance liabilities. The ERC Frankona Group's investment portfolios are
geographically diversified with investments principally from the major European
markets and the United States.
As of December 31, 1996, the ERC Frankona Group's investments totaled $6.2
billion, an increase of $204 million from December 31, 1995. The composition of
ERC Frankona Group's investments was as follows:
December 31,
----------------------
1996 1995
----------------------
Fixed maturity securities....... 86.4% 86.6%
Equity securities............... 10.4% 10.1%
Other invested assets........... 3.2% 3.3%
----- -----
Total........................... 100.0% 100.0%
===== =====
The fixed maturity securities consisted of high credit quality securities.
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 principal and interest
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.
ERC Frankona Group's foreign exchange risk management program assists in
mitigating its foreign currency exposures. The ERC Frankona Group's investment
portfolios are globally diversified, with most fixed maturities having a term
less than ten years. The currency structure of the investment portfolios is
determined by the underlying reinsurance business and is matched with the
corresponding reinsurance liabilities. Any remaining significant net
asset/liability positions in a given currency are hedged with forward currency
purchase or sale contracts to further mitigate foreign currency exposures.
Cyclicality
The property and casualty reinsurance industry has been highly cyclical.
Demand for reinsurance is significantly influenced by underwriting results of
primary property and casualty insurance companies and prevailing general
economic and reinsurance premium rates. 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.
New Accounting Standards
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, among other things, distinguishes transfers
of financial assets that are sales from transfers that are secured borrowings,
based on the control of the transferred assets. SFAS No. 125 is effective for
transfers of financial assets occurring after December 31, 1996, and its
adoption will not have an effect on the financial position or results of
operations of the Company.
Effects of Inflation
The Company's ultimate claims and claim expenses 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 expenses reserves, as well as reinsurance premium rates.
Generally, the Company's methods used to estimate claims and claim expenses
reserves and to calculate reinsurance premium rates take into account the
anticipated effects of inflation in estimating the ultimate claims and claim
expenses 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 expenses reserves. However, until claims are
ultimately settled, the full effect of inflation on the Company's results cannot
be known.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and the Reports of
Independent Auditors 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 Disclosures.
At a meeting held on September 25, 1995, the Board of Directors of the
Company approved the engagement of KPMG Peat Marwick LLP as its independent
auditors for the fiscal year ending December 31, 1995 to replace the firm of
Ernst & Young, LLP.
The report of Ernst & Young, LLP on the Company's financial statements for
the fiscal year ending December 31, 1994 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles, except that reliance has been placed on the
independent audit report of KPMG Peat Marwick LLP on Employers Reassurance
Corporation, Puritan Excess and Surplus Lines Insurance Company and Westport
Insurance Corporation, wholly-owned subsidiaries of ERC.
In connection with the audit of the Company's financial statements for the
fiscal year ended December 31, 1994, and in the subsequent interim period, there
were no disagreements with Ernst & Young, LLP on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Ernst & Young, LLP,
would have caused Ernst & Young, LLP to make reference to the matter in their
report.
The Company requested Ernst & Young, LLP to furnish it a letter addressed
to the Securities and Exchange Commission stating whether it agrees with the
above statements. A copy of that letter, dated December 8, 1995 is incorporated
by reference as Exhibit 16 to this Form 10-K.
PART III
Item 10. Directors and Executive Officers.
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 22).
(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 22).
(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, 1996.
10.2 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
Centre Reinsurance Company of New York, Dated January 1, 1996.
10.3 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
National Union Fire Insuance Company of Pittsburgh, PA, dated
January 1, 1996.
12 Computation of ratio of earnings to fixed charges.
16 Letter Re Change in Certified Accountant. (Incorporated
by reference to Exhibit 16 of the Company's
Registration Statement on Form 10, File No. 0-27394.)
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ernst & Young, LLP.
(b) Reports on Form 8-K.
None.
ITEM 14(a)
GE Global Insurance Holding Corporation
and Subsidiaries
Index to
Consolidated Financial Statements
and
Financial Statement Schedules
Consolidated Financial Statements Page
----
Reports of Independent Auditors...................................23
Consolidated Statement of Earnings................................26
Consolidated Statement of Financial Position......................27
Consolidated Statement of Stockholder's Equity....................29
Consolidated Statement of Cash Flows..............................30
Notes to Consolidated Financial Statements........................31
Financial Statement Schedules
Schedule II - Condensed Financial Information of Registrant.......53
Schedule III - Supplementary Insurance Information................57
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,
1996 and 1995, and the related statements of earnings, stockholder's equity and
cash flows for the years then ended. Our audits also included the financial
statement schedules listed in the Index at Item 14(a) as of December 31, 1996
and 1995 and for the years then ended. 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 generally accepted auditing
standards. 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 financial position of GE Global Insurance
Holding Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
the related 1996 and 1995 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 PEAT MARWICK LLP
Kansas City, Missouri
January 17, 1997
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
GE Global Insurance Holding Corporation:
We have audited the accompanying consolidated statements of earnings,
stockholder's equity and cash flows of GE Global Insurance Holding Corporation
and subsidiaries for the year ended December 31, 1994. Our audit also included
the financial statement schedules listed in the Index at Item 14(a) for the year
ended December 31, 1994. These 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 audit. We did
not audit the financial statements of Employers Reassurance Corporation, Puritan
Excess and Surplus Lines Company and Westport Insurance Corporation,
wholly-owned subsidiaries, which statements reflect earnings before income taxes
constituting 24% of the related 1994 consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us. Our opinion,
insofar as it relates to data included for Employers Reassurance Corporation,
Puritan Excess and Surplus Lines Company and Westport Insurance Corporation, is
based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated results of operations and cash flows of GE Global Insurance
Holding Corporation and subsidiaries for the year ended December 31, 1994 in
conformity with generally accepted accounting principles. Also, in our opinion,
based on our audit and the report of other auditors, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG, LLP
Kansas City, Missouri
January 21, 1995
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Employers Reassurance Corporation,
Westport Insurance Corporation and
Puritan Excess and Surplus Lines Insurance Company:
We have audited the combined statements of earnings, stockholder's equity and
cash flows of Employers Reassurance Corporation (ERAC), Westport Insurance
Corporation (Westport) and Puritan Excess and Surplus Lines Insurance Company
(PESLIC) for the year ended December 31, 1994. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and
combined cash flows of ERAC, Westport and PESLIC for the year ended December 31,
1994 in conformity with generally accepted accounting principles.
As described in Note 1, the combined financial statements of ERAC, Westport and
PESLIC have been prepared to facilitate the preparation of the consolidated
financial statements of GE Global Insurance Holding Corporation.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
January 21, 1995
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Earnings
Year ended December 31,
------------------------
(In millions) 1996 1995 1994
------------------------
Revenues
Net premiums earned (Note 8) $4,648 $3,886 $2,487
Net investment income (Note 4) 837 676 528
Net realized gains on investments (Note 4) 223 191 103
Other revenues 43 45 30
------ ------ ------
Total revenues 5,751 4,798 3,148
------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 3,373 2,994 1,900
Insurance acquisition costs 1,106 847 551
Amortization of intangibles 82 60 36
Interest expense 42 16 -
Other operating costs and expenses 284 225 155
Minority interest in net earnings of consolidated
subsidiaries (Notes 1, 3 and 9) 84 95 97
------- ------ ------
Total costs and expenses 4,971 4,237 2,739
------- ------ ------
Earnings before income taxes 780 561 409
------- ------ ------
Provision for income taxes (Note 6):
Current 207 150 93
Deferred 6 (26) (42)
------- ------ ------
213 124 51
------- ------ ------
Net earnings $ 567 $ 437 $ 358
======= ====== ======
See Notes to Consolidated Financial Statements.
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Financial Position
December 31,
-----------------
(In millions) 1996 1995
-----------------
Assets
Investments (Note 4):
Fixed maturity securities available-for-sale, at fair value $13,572 $12,991
Equity securities, at fair value 2,303 1,822
Short-term investments, at amortized cost 339 312
Other invested assets 265 269
------- -------
Total investments 16,479 15,394
Cash 377 455
Securities and indebtedness of related parties 310 275
Accrued investment income 391 323
Premiums receivable 2,645 3,298
Funds held by reinsured companies 519 665
Reinsurance recoverables 2,358 2,936
Deferred insurance acquisition costs 495 474
Intangible assets 986 967
Other assets 828 826
------- -------
Total assets $25,388 $25,613
======= =======
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Financial Position (continued)
December 31,
-------------------
(In millions) 1996 1995
-------------------
Liabilities and equity
Claims and claim expenses (Note 5) $10,869 $11,145
Accumulated contract values 1,643 1,809
Future policy benefits for life and health contracts 831 719
Unearned premiums 1,170 1,328
Other reinsurance balances 1,836 2,598
Income taxes payable (Note 6) 173 119
Contract deposit liabilities 1,458 1,055
Other liabilities 612 584
Deferred income taxes (Note 6) 274 254
Short-term borrowings (Note 7) - 600
Long-term borrowings (Note 7) 556 -
------- -------
Total liabilities 19,422 20,211
------- -------
Minority interest in equity of consolidated
subsidiaries (Notes 1, 3 and 9) 1,206 1,211
------- -------
Common stock, $5,000 par value; authorized,
issued and outstanding - 1,000 shares 5 5
Preferred stock, $100,000 par value; authorized,
issued and outstanding - 1,500 shares 150 150
Paid-in capital 845 845
Unrealized gains on investment securities 500 436
Foreign currency translation adjustments 15 12
Retained earnings 3,245 2,743
------- -------
Total stockholder's equity 4,760 4,191
------- -------
Total liabilities and equity $25,388 $25,613
======= =======
See Notes to Consolidated Financial Statements.
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity
Unrealized
Gains
(Losses) Foreign
on Currency
Common Preferred Paid-In Investment Translation Retained
(In millions) Stock Stock Capital Securities Adjustments Earnings Total
---------------------------------------------------------------------------------
Balance, January 1, 1994 $5 $ - $520 $303 $(19) $2,129 $2,938
Contribution to capital - - 25 - - - 25
Change in unrealized gains (losses) on
investment securities - - - (469) - - (469)
Change in foreign currency translation
adjustments - - - - 20 - 20
Net earnings - - - - - 358 358
Dividends paid on common stock - - - - - (150) (150)
-- ---- ---- ---- ---- ------ ------
Balance, December 31, 1994 5 - 545 (166) 1 2,337 2,722
Issuance of preferred stock (Note 9) - 150 - - - - 150
Contribution to capital (Note 9) - - 300 - - - 300
Change in unrealized gains (losses) on
investment securities - - - 602 - - 602
Change in foreign currency translation
adjustments - - - - 11 - 11
Net earnings - - - - - 437 437
Dividends paid on common stock - - - - - (29) (29)
Dividends paid on preferred stock - - - - - (2) (2)
-- ---- ---- ---- ---- ------ ------
Balance, December 31, 1995 5 150 845 436 12 2,743 4,191
Change in unrealized gains (losses) on
investment securities - - - 64 - - 64
Change in foreign currency translation
adjustments - - - - 3 - 3
Net earnings - - - - - 567 567
Dividends paid on common stock - - - - - (58) (58)
Dividends paid on preferred stock - - - - - (7) (7)
-- ---- ---- ---- ---- ------ ------
Balance, December 31, 1996 $5 $150 $845 $500 $ 15 $3,245 $4,760
== ==== ==== ==== ==== ====== ======
See Notes to Consolidated Financial Statements.
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31,
--------------------------------
(In millions) 1996 1995 1994
--------------------------------
Cash Flows From Operating Activities
Net earnings $ 567 $ 437 $ 358
Adjustments to reconcile net earnings to cash
from operating activities:
Claims and claim expenses 489 608 628
Future policy benefits for life and health contracts 157 (45) 108
Unearned premiums 1 (564) 103
Funds held by reinsured companies 104 (10) (19)
Reinsurance recoverables 210 (268) (171)
Deferred income taxes 6 (26) (43)
Income taxes payable 66 12 (26)
Other, net (460) 1,047 162
Amortization of insurance acquisition costs 1,106 847 551
Insurance acquisition costs deferred (1,157) (833) (586)
Net realized gains on investments (223) (191) (103)
------ ------ ------
Cash from operating activities 866 1,014 962
------ ------ ------
Cash Flows From Investing Activities
Fixed maturity securities available-for-sale:
Purchases (6,219) (5,936) (3,842)
Sales 4,896 4,432 2,260
Maturities 610 474 377
Equity securities:
Purchases (1,330) (1,337) (783)
Sales 1,178 1,178 746
Net purchases of short-term investments (28) (50) (9)
Business acquisitions, net of cash acquired (Note 3) - (807) (80)
Other investing activities 106 (118) (16)
------ ------ ------
Cash used for investing activities (787) (2,164) (1,347)
------ ------ ------
Cash Flows From Financing Activities
Change in contract deposits 460 352 133
Net contract accumulation receipts (payments) (161) (223) 299
Proceeds from short-term borrowings (Note 7) - 600 -
Principal payments on short-term borrowings (Note 7) (600) - -
Proceeds from long-term borrowings (Note 7) 556 - -
Contribution to capital (Note 9) - 300 -
Proceeds from issuance of preferred stock (Note 9) - 150 -
Dividends paid (65) (31) (150)
------ ------ ------
Cash from financing activities 190 1,148 282
------ ------ ------
Effect of exchange rate changes on cash (347) 116 72
------ ------ ------
Increase (decrease) in cash (78) 114 (31)
Cash at beginning of year 455 341 372
------ ------ ------
Cash at end of year $ 377 $ 455 $ 341
====== ====== ======
See Notes to Consolidated Financial Statements.
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
Principles of Consolidation
GE Global Insurance Holding Corporation ("GE Global") is a wholly-owned
subsidiary of General Electric Capital Services, Inc. ("GE Capital Services"),
which is a wholly-owned subsidiary of General Electric Company ("GE Company").
The accompanying consolidated financial statements of GE Global include the
accounts and operations, after intercompany eliminations, of GE Global and
Employers Reinsurance Corporation ("ERC"),