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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to________
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Commission file number 0-27394
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GE Global Insurance Holding Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-3435367
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 Metcalf, Overland Park, Kansas 66201 (913) 676-5200
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number, including area code)
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SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Name of each
Title of each class exchange on which registered
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7% Notes Due February 15, 2026 New York Stock Exchange
SECURITIES REGISTERED PURSUANT
TO SECTION 12(g) OF THE ACT:
Title of each class
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Common Stock, par value $5,000 per share
Indicate by check mark whether the registrant(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at February 27, 1998. None.
At February 27, 1998, 1,000 shares of common stock with a par value of $5,000
were outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b)
OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED DISCLOSURE
FORMAT.
TABLE OF CONTENTS
Page
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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................................21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures..............................................21
PART III
Item 10. Directors and Executive Officers...........................................21
Item 11. Executive Compensation.....................................................21
Item 12. Security Ownership of Certain Beneficial Owners and Management.............21
Item 13. Certain Relationships and Related Transactions.............................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............22
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") which in turn is
wholly-owned by General Electric Company ("GE Company").
GE Global's principal executive offices are located at 5200 Metcalf, Overland
Park, Kansas 66201 (Telephone number (913) 676-5200).
Overview of the Reinsurance Industry
Reinsurance is a form of insurance in which a reinsurer indemnifies a primary
insurer against part or all of the liability assumed by the primary insurer
under one or more insurance policies. Reinsurance may provide a primary insurer
with several major benefits: a reduction in net liability of individual risks,
protection against catastrophic losses, reduction of financial leverage and
stabilization of operating results. Reinsurance may also provide a primary
insurer the ability to increase its underwriting capacity by allowing the
primary insurer to accept larger risks and to more rapidly expand its book of
business.
The global reinsurance industry continues to be impacted by industry
consolidation, excess market capacity and primary insurers seeking alternative
forms of risk transfer such as insurance captives, structured securities and
derivative products. Global reinsurers are offering ways to meet the demands of
this changing global market by expanding their markets, entering into new
reinsurance niches, offering new reinsurance products and spreading their risks
geographically. This changing reinsurance environment may affect the industry's
profitability which has historically been influenced by the insurance industry's
underwriting cycle, changes in interest rates and catastrophic events.
General
GE Global is one of the largest reinsurance companies in the world with certain
subsidiaries providing reinsurance solutions for well over a century. GE
Global's principal subsidiary, Employers Reinsurance Corporation ("ERC"), was
established in 1914 and principally writes property and casualty reinsurance.
ERC is the third largest reinsurance company in the United States, based on 1997
statutory net premiums written. The Company is also a global 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, 1997, the
Company had 20 offices in the North American region, 12 offices in the European
region, 8 offices in the Asia/Pacific region and 3 offices in the Latin American
region.
As one of the largest direct writers of reinsurance in the world, the Company
works directly with its clients which enhances the Company's ability to evaluate
its clients and their respective risks and allows the Company to be more
responsive to the individual needs of its customers. The Company utilizes its
network of local offices throughout the world to service the particular needs of
its reinsurance clients. This system enables the Company to provide a wider
range of services targeted at the needs of a particular market. To enhance its
responsiveness to customer needs in the property and casualty segment, the
Company operates in a decentralized environment with respect to underwriting
decisions and customer service.
1
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, expanding the Company's product lines to take advantage of
market niche opportunities and selectively acquiring existing businesses. The
Company does not intend, however, to increase market share at the expense of its
underwriting results.
The Company in 1997, as a result of GE Capital's acquisition of Coregis
Insurance Company ("Coregis"), acquired the renewal rights of certain domestic
property and casualty business to continue expansion of its specialty insurance
product line. On January 6, 1998, the Company purchased for $235 million the
assets and assumed the renewal rights of Industrial Risk Insurers ("IRI"), a
leader in providing highly protected risk property insurance. The business
underwritten through IRI will be managed by a joint venture formed between the
Company and The Hartford Steam Boiler Inspection and Insurance Company ("HSB")
as stipulated by a management agreement. IRI will write business utilizing the
licensing authority of HSB and the business underwritten will be subsequently
allocated to HSB and the Company in accordance with certain reinsurance
agreements between HSB and the Company. In conjunction with this acquisition,
the Company purchased $300 million of 7% convertible capital securities from a
Delaware business trust formed by HSB's parent, HSB Group, Inc., to provide
capital for HSB to support the anticipated increase in gross premiums written
associated with the IRI business. The expansion into these two niche markets
positions the Company to continue to meet the demands of the changing domestic
market and provide services to a new base of customers.
Additionally in 1997, the Company announced it will form a subsidiary to provide
customers financial and capital markets expertise. This financial and capital
markets business will offer customers products such as multi-line/multi-year
"baskets" of insurance and financial risk protection, "multiple-trigger"
insurance products (wherein two or more insured events are covered),
securitizations of insurance risks and equity-indexed life products. The
expansion into the financial and capital markets business enables the Company to
be more flexible, creative and innovative in designing solutions to meet
increasingly sophisticated customer demands. There are no results of operations
included in 1997 for this financial and capital markets business.
The Company has expanded its international 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-Aktiengesellschaft ("Frankona Re") and certain assets
comprising a majority of the reinsurance business of Aachener
Ruckversicherungs-Gesellschaft, two major reinsurance businesses in Europe.
Recently, the Company's ownership percentage of Frankona Re has increased to
approximately 99% through the purchase of additional shares owned by minority
shareholders. These acquisitions together with existing subsidiaries in London,
Folkestone 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 provide strong
synergies in the global reinsurance business.
Also in recent years, the Company has expanded its global business through the
extension of its local office network. The Company opened offices in Buenos
Aires and Montreal in 1997, Sydney, Melbourne, Brisbane and Auckland in 1996,
and Tokyo and Mexico City in 1995. Consistent with its global expansion
strategy, the Company anticipates further expanding its presence in the
Asia/Pacific and Latin American regions.
Unless otherwise indicated, all financial data has been prepared in accordance
with United States generally accepted accounting principles ("GAAP").
2
Lines of Business
The Company's two business segments are (1) property and casualty
insurance/reinsurance and (2) life reinsurance. The Company's principal product
lines under the property and casualty segment are traditional property and
casualty reinsurance, healthcare reinsurance and specialty insurance (generally
primary property and casualty insurance) and its principal product lines under
the life reinsurance segment are traditional life reinsurance and financial
reinsurance. The Company also provides primary insurance products to hospitals,
health maintenance organizations and medical professionals as part of its
healthcare product line and to niche customers as part of its specialty
insurance product line.
Unless otherwise indicated, the Company's domestic results include business
written in the United States (including business written in the United States
where the reinsured is outside the United States) and Canada, and the
international results include all other business written by the Company. The
following table shows the geographic breakdown, based on net premiums written,
of the Company's principal product lines.
Year ended December 31,
------------------------------------------------------------------------
(In millions) 1997 1996 1995
------------------------------------------------------------------------
Inter- Inter- Inter-
Domestic national Domestic national Domestic national
------------------------------------------------------------------------
Property and Casualty Segment
Property and Casualty.............. $1,038 $1,592 $1,167 $2,196 $1,421 $1,002
Healthcare......................... 432 92 405 - 522 -
Specialty.......................... 339 - 169 - 178 -
Life Segment.......................... 512 540 189 447 116 322
------ ------ ------ ------ ------ ------
Total.............................. $2,321 $2,224 $1,930 $2,643 $2,237 $1,324
====== ====== ====== ====== ====== ======
The following is a summary description of the Company's domestic and
international business based on principal product lines.
Property and Casualty Insurance/Reinsurance Segment
Property and Casualty Reinsurance. The Company's largest product line,
traditional property and casualty reinsurance, accounted for approximately 58%
of the Company's worldwide net premiums written in 1997. 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, 1997,
approximately 46% of the Company's domestic net premiums written from the
property and casualty segment were derived from property reinsurance,
approximately 43% from casualty reinsurance, approximately 4% from aviation and
marine reinsurance and approximately 7% from other lines of reinsurance. Based
on 1997 net premiums written, approximately 59% 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.
3
The Company's international property and casualty business services worldwide
markets, including most European countries and countries in the Middle East, Far
East, and Latin America. For the year ended December 31, 1997, based on 1997 net
premiums written, 61% of the Company's international property and casualty
business was written on a direct basis with the remainder written through
brokers. Approximately 47% of the Company's international net premiums written
from property and casualty reinsurance was derived from property reinsurance,
approximately 24% from casualty reinsurance, approximately 17% from aviation and
marine reinsurance and approximately 12% from other lines of 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. In competing with a smaller number of
global reinsurers, the Company has found that a number of its global customers
are increasingly demanding that reinsurers provide a broader range of coverages.
In response to this trend, the Company has expanded the property and casualty
risks it reinsures beyond its more traditional property and casualty reinsurance
business to include risks such as errors and omissions, directors and officers
and non-standard auto liability. In addition to the expansion of lines of
business, property and casualty reinsurance has aligned its marketing efforts
with its core expertise in areas such as aviation, national accounts and global
accounts. Management believes that the Company is well positioned to compete on
a global basis in these markets.
The property and casualty reinsurance industry has experienced a significant
increase in catastrophic exposure and loss during the last decade. Increased
population density, particularly in regions susceptible to tropical storms or
earthquakes, and the higher incidence and greater severity of catastrophes, has
increased the losses incurred in many recent catastrophes. As a result of these
developments, the Company has taken steps to limit its exposure by carefully
monitoring and allocating its property and casualty exposure to specific
geographic zones, both domestically and internationally.
Healthcare. As part of the Company's property and casualty business segment, the
Company provides insurance and reinsurance for the healthcare industry, 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 healthcare industry continues to change and evolve due to voluntary
healthcare reform, expansion of managed healthcare initiatives, increased
competition and the uncertainty related to the extent of government regulation.
In addition, companies that historically specialized in one line of business
have expanded their lines of business and are now writing multiple lines of
business. The Company, to serve the growing needs of their clients, has
developed new and innovative healthcare products and has expanded coverages to
include various other lines of business. Additionally, the Company's
international operations have begun to write accident and health reinsurance
from the property and casualty insurance/reinsurance segment.
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. The acquisition of the renewal rights
associated with Coregis will significantly increase the specialty business'
premium volume and provides access to several new customer groups. Specialty
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 and commercial property and casualty
coverages for niche programs.
4
Professional classes underwritten include lawyers, property and casualty
insurance agents and brokers, life and health insurance agents and brokers, real
estate professionals, 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 lawyers and
property and casualty and life insurance agents and brokers.
Competition for the classes of business underwritten within the Company's
specialty insurance product line has recently increased as more companies have
redirected their resources to the specialty niche business. In order to compete
for this business, the Company has provided value-added services, including
enhanced underwriting and automated processing services, to its specialty line
customers.
Life Reinsurance Segment
Life Reinsurance. The Company is engaged in the reinsurance of various life
insurance products, including term, whole and universal life, annuities, group
long-term health and health products and provides financial reinsurance to life
insurers. Based on net premiums written, life reinsurance accounted for
approximately 23% of the Company's worldwide business in 1997.
With respect to life reinsurance, the Company writes mostly on a direct basis
with primary insurers. The Company's life reinsurance business consists
principally of treaty business and is written generally on a pro-rata basis. The
Company's domestic life reinsurance business is written in every state in the
United States. The Company's international life reinsurance business services
worldwide markets, including the United Kingdom, France, Spain, Scandinavia,
Italy, Singapore, Mexico, Israel and Greece. For the year ended December 31,
1997, 63% 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 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 on a
direct basis and 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. The Company has expanded this segment in
recent years to include transactions that provide financial reinsurance of
existing portfolios of in force business.
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.
5
When a claim is reported to a ceding company, the ceding company's claims
personnel establish a "case reserve" for the estimated amount of the ultimate
payment. The estimate reflects the informed judgment of such personnel based on
general insurance reserving practices and on the experience and knowledge of
such personnel regarding the nature and value of the specific type of claim. The
Company, in turn, typically establishes a case reserve when it receives notice
of a claim from the ceding company. Such reserves are based on an independent
evaluation by the Company's claims departments, taking into consideration
coverage, liability, severity of injury or damage, jurisdiction, an assessment
of the ceding company's ability to evaluate and handle the claim, and the amount
of reserves recommended by the ceding company. Case reserves are adjusted
periodically by the claims departments based on subsequent developments and
audits of ceding companies.
In accordance with 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, 1997, approximately 2% of the Company's net international reserves
($65 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, during 1998, 90% of
the amount of claim reserve development (adjusted for certain income and
expenses) from 1988 through December 31, 1997.
Reserve Development. The table that follows presents the development of net
balance sheet property and casualty liabilities of ERC and subsidiaries for
unpaid claims and claim expenses for 1987 through 1997.
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 1987 to 1997.
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, 1997", 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, 1997, 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, 1997, 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.
6
Changes in Historical Reserves for Unpaid Claims and Claim Expenses
For the Last Ten Years - GAAP Basis as of December 31, 1997
Year ended December 31,
-------------------------------------------------------------------------------------------------------
(In millions) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
-------------------------------------------------------------------------------------------------------
Net liability for unpaid
claims and claim
expenses $2,620 $3,087 $3,338 $3,579 $3,596 $3,991 $4,525 $5,071 $9,351 $9,458 $9,114
Paid (cumulative) as of:
One year later....... 615 681 706 747 665 802 949 1,115 1,964 1,949 ---
Two years later...... 1,006 1,064 1,125 1,119 1,103 1,274 1,602 1,804 3,130 --- ---
Three years later.... 1,314 1,432 1,469 1,524 1,499 1,739 2,054 2,341 --- --- ---
Four years later..... 1,553 1,687 1,746 1,772 1,784 2,036 2,424 --- --- --- ---
Five years later..... 1,754 1,919 1,929 1,989 2,008 2,293 --- --- --- --- ---
Six years later...... 1,945 2,065 2,072 2,173 2,208 --- --- --- --- --- ---
Seven years later.... 2,063 2,221 2,229 2,348 --- --- --- --- --- --- ---
Eight years later.... 2,181 2,347 2,380 --- --- --- --- --- --- --- ---
Nine years later..... 2,284 2,478 --- --- --- --- --- --- --- --- ---
Ten years later...... 2,394 --- --- --- --- --- --- --- --- --- ---
Net liability
re-estimated as of:
One year later....... $2,746 $3,134 $3,390 $3,616 $3,625 $3,919 $4,612 $5,173 $9,192 $9,229 ---
Two years later...... 2,861 3,220 3,482 3,583 3,587 4,066 4,656 5,313 8,959 --- ---
Three years later.... 2,941 3,346 3,462 3,564 3,701 4,095 4,793 5,256 --- --- ---
Four years later..... 3,057 3,360 3,472 3,654 3,687 4,238 4,747 --- --- --- ---
Five years later..... 3,094 3,406 3,537 3,635 3,818 4,154 --- --- --- --- ---
Six years later...... 3,151 3,470 3,521 3,758 3,771 --- --- --- --- --- ---
Seven years later.... 3,210 3,494 3,626 3,734 --- --- --- --- --- --- ---
Eight years later.... 3,259 3,582 3,608 --- --- --- --- --- --- --- ---
Nine years later..... 3,324 3,575 --- --- --- --- --- --- --- --- ---
Ten years later...... 3,321 --- --- --- --- --- --- --- --- --- ---
Redundancy (Deficiency)
at December 31, 1997 (701) (488) (270) (155) (175) (163) (222) (185) 392 229 ---
Effect of foreign
exchange (1) --- 6 16 (15) (21) 3 23 8 (352) (289) ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Redundancy (Deficiency)
at December 31, 1997,
excluding foreign
exchange $ (701) $ (482) $ (254) $ (170) $ (196) $ (160) $ (199) $ (177) $ 40 $ (60) $ ---
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
(In millions) 1992 1993 1994 1995 1996 1997
----------------------------------------------------------
Gross liability-end of year............................................ $4,815 $5,312 $6,020 $11,145 $10,869 $10,936
Reinsurance recoverables............................................... 824 787 949 1,794 1,411 1,822
------ ------ ------ ------- ------- -------
Net liability-end of year.............................................. 3,991 4,525 5,071 9,351 $ 9,458 $ 9,114
------ ------ ------ ------- ------- -------
Gross re-estimated liability-latest.................................... 5,210 5,766 6,352 10,808 11,033 ---
Re-estimated reinsurance recoverables.................................. 1,056 1,019 1,096 1,849 1,804 ---
------ ------ ------ ------- ------- -------
Net re-estimated liability-latest...................................... 4,154 4,747 5,256 8,959 9,229 ---
------ ------ ------ ------- ------- -------
Gross redundancy (deficiency).......................................... (395) (454) (332) 337 (164) ---
Effect of foreign exchange (1)......................................... 3 24 7 (457) (363) ---
------ ------ ------ ------- ------- -------
Gross redundancy (deficiency) excluding foreign exchange............... $ (392) $ 430 $ (325) $ (120) $ (527 $ ---
====== ====== ====== ======= ======= =======
(1) The results of the Company's international operations translated from
functional currencies into U.S. dollars are included with the Company's
U.S. underwriting operations in this table from 1988 to 1996. The foreign
currency translation impact on the cumulative redundancy (deficiency)
arises from the difference between reserve developments translated at the
exchange rates at the end of the year in which the liabilities were
originally estimated, and the exchange rates at the end of the year in
which the liabilities were re-estimated.
Note: For a description of the purpose of the above table and the various table
sections, please refer to the immediately preceding section entitled "Reserve
Development."
7
A number of major trends that occurred within the insurance industry, the
economy in general and several Company-specific factors have had a significant
effect on the Company's liabilities for unpaid claims and claim expenses during
the period covered by the preceding table. The claims and claim expenses reserve
deficiencies developed to December 31, 1997, as reflected in the preceding
table, included reserve deficiencies of approximately $236 million in 1987, $161
million in 1988, $110 million in 1989, $78 million in 1990 and $54 million in
1991 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. Higher than anticipated levels of inflation in
certain lines of reinsurance businesses has also had an adverse effect on
liabilities for claims and claim expenses, particularly in excess of loss
reinsurance. 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 property and casualty 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) 1997 1996 1995
---------------------------------------
Gross reserves at beginning of year...................... $10,869 $11,145 $ 6,020
Reinsurance recoverables................................. 1,411 1,794 949
------- ------- -------
Net reserves at beginning of year........................ 9,458 9,351 5,071
------- ------- -------
Net incurred related to:
Current year.......................................... 2,438 2,763 2,638
Prior years........................................... 71 106 104
------- ------- -------
Total net incurred.................................... 2,509 2,869 2,742
------- ------- -------
Net payments related to:
Current year.......................................... 612 485 295
Prior years........................................... 1,949 1,990 1,426
------- ------- -------
Total net payments.................................... 2,561 2,475 1,721
------- ------- -------
Acquired businesses' net unpaid claims and
claim expenses........................................ --- --- 3,313
Foreign exchange and other............................... (292) (287) (54)
------- ------- -------
Net reserves at end of year.............................. 9,114 9,458 9,351
Reinsurance recoverables................................. 1,822 1,411 1,794
------- ------- -------
Gross reserves at end of year............................ $10,936 $10,869 $11,145
======= ======= =======
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, total liabilities for
claims and claim expenses have been reduced by an estimated 3% at December 31,
1997 and 1996. The amortization of discount is included in current operating
results as part of the development of prior year liabilities.
8
For the years ended December 31, 1997, 1996 and 1995, long-term disability
discounts accrued as a percentage of claims, claim expenses and policy benefits
were approximately 1%, 5% and 5%, respectively, and discounts amortized were
approximately 1% in 1997, 2% in 1996 and 1% in 1995.
The reconciliation of property and casualty 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) 1997 1996 1995
-------------------------------------------
Statutory basis U.S. reserves............................. $ 5,527 $ 5,875 $ 5,758
Adjustments to GAAP basis (1)............................. (118) (435) (413)
------- ------- -------
Net GAAP reserves for U.S. companies...................... 5,409 5,440 5,345
Net GAAP reserves for non-U.S. companies.................. 3,705 4,018 4,006
------- ------- -------
Net GAAP reserves......................................... 9,114 9,458 9,351
Reinsurance recoverables.................................. 1,822 1,411 1,794
------- ------- -------
Gross reserves on a GAAP basis............................ $10,936 $10,869 $11,145
======= ======= =======
- --------
(1) Statutory basis reserves reclassified to contract deposit liabilities based
on risk transfer provisions of FAS No. 113.
Environmental and Asbestos Exposure. Included in the Company's liability for
claims and claim expenses are liabilities for environmental and asbestos
exposures. These claims and claim expenses are primarily related to policies
written prior to 1986 as the policies written since 1986 have tended to
explicitly exclude environmental and asbestos risks from coverage and most of
the environmental and asbestos exposures arise from risks located in the United
States. The Company's international operations have now completed the initial
process of identifying environmental and asbestos claims that had been reserved
in prior periods but were initially aggregated and coded under other general
lines of business rather than being specifically identified as environmental or
asbestos claims.
The following table presents the three-year 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) 1997 1996 1995
----------------------------------
Gross reserves at beginning of year....................... $368 $436 $317
Reinsurance recoverables.................................. 174 240 178
---- ---- ----
Net reserves at beginning of year......................... 194 196 139
Incurred claims and claim expenses........................ 54 19 23
Claim identification and IBNR allocation.................. 43 (1) - 51 (2)
Claims and claim expense payments......................... 22 21 17
---- ---- ----
Net reserves at end of year............................... 269 194 196
Reinsurance recoverables.................................. 193 174 240
---- ---- ----
Gross reserves at end of year............................. $462 $368 $436
==== ==== ====
- --------
(1) Prior to 1997, the Company's international operations were unable to
identify recorded claim reserves that related to asbestos and environmental
exposures, as they were grouped with claim reserves in various lines of
business such as general liability. The Company in 1997 is now able to
identify the asbestos and environmental claims related to its international
operations.
(2) 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.
9
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 incurred claims in 1997 is
principally due to the inclusion of international environmental and asbestos
claim activity for the first time in 1997 as discussed previously.
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.
Year 2000 Exposure. The Company is currently monitoring the possibility of Year
2000 related claims arising in the future under specific insurance or
reinsurance contracts and will establish liabilities, if appropriate, at such
time when sufficient information has been developed to indicate a liability has
been incurred and can be reasonably estimated. In addition, the Company is
evaluating certain actions which can be taken to mitigate the exposure to such
losses. It is not possible to estimate with any certainty the future amount of
additional net loss, or the range of net loss, that may arise from Year 2000
issues; therefore, there can be no assurance that future liabilities will not
materially affect the Company's results of operations, cash flows or financial
position.
Life and Health Reserves for Future Policy Benefits and Accumulated Contract
Values
Future policy benefits for traditional life and health reinsurance contracts
represent the present value of such benefits based on mortality and other
assumptions which were appropriate at the time the policies were issued or, in
the event the policies were acquired by the Company from another insurer, at the
date of acquisition. Interest rate assumptions used in calculating the present
value range from 3.0% to 8.5% per annum at December 31, 1997. Payments received
from sales of universal life and investment contracts are recognized by
providing liabilities equal to the accumulated contract values of the
policyholders' contracts. Interest rates credited to such universal life and
universal life and investment contracts are guaranteed for the policy terms with
renewal rates determined by the Company. Such crediting interest rates ranged
from 3.75% to 9.00% per annum in 1997.
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, 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.
10
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, 1997, each of GE
Global's domestic insurance subsidiaries exceeded the minimum risk-based capital
requirements.
Insurance Holding Company Regulations. The insurance holding company laws and
regulations vary from state to state, but generally require an insurance holding
company to register with its domiciliary state insurance regulatory agency and
file certain reports that include current information concerning the capital
structure, ownership, management, financial condition and general business
operations of the insurance holding company and its subsidiary insurers that are
licensed in the state. State insurance holding company laws and regulations,
with respect to domestic insurers, also require prior notice or regulatory
approval of changes in control of an insurer or its holding company and of
material inter-affiliate transactions within the holding company structure.
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 1998 by ERC to
GE Global without prior regulatory approval is $78 million through December 29,
1998, and $458 million thereafter. Of these amounts, $85 million is committed to
pay dividends on preferred stock issued by ERC to a subsidiary of GE Capital
Services.
International Regulations. Approximately 49% of the Company's business is
carried on outside of the United States based on 1997 net premiums written. 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) 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.
11
Item 2. Properties.
The Company conducts business from various facilities, most of which are leased.
In addition, the Company owns its administrative offices in Overland Park,
Kansas, 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. On October 4, 1997,
an arbitration panel ruling was issued relieving the retrocessionaire, St. Paul
Fire and Marine Insurance Company, from certain liabilities under specific
retrocession agreements relating to disability insurance. As a result, the
Company determined that approximately $38.5 million of previously recorded
reinsurance recoverables were not collectible. The Company's reserves were
adequate to absorb this loss.
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 29, 1997 of $225 million.
Item 6. Selected Financial Data.
Consolidated Financial Data
Year ended December 31,
-------------------------------------------------------------
(In millions) 1997 1996 1995 1994 1993
-------------------------------------------------------------
Total revenues........................... $ 5,784 $ 5,751 $ 4,798 $ 3,148 $ 2,927
Net premiums written..................... 4,545 4,573 3,561 2,573 2,413
Net investment income.................... 910 837 676 528 465
Net realized gains on investments........ 303 223 191 103 147
Earnings before income taxes............. 882 780 561 409 395
Net earnings............................. 648 567 437 358 312
Total investments........................ 18,343 16,479 15,394 9,850 8,561
Total assets............................. 27,532 25,388 25,613 14,496 11,928
Stockholder's equity..................... $ 5,374 $ 4,760 $ 4,191 $ 2,722 $ 2,938
Return on equity (average)............... 12.8% 12.7% 12.6% 12.7% 11.4%
Stockholder's equity excluding unrealized
gains (losses) on investment securities $ 4,628 $ 4,260 $ 3,755 $ 2,888 $ 2,635
Return on equity excluding unrealized
gains (losses) on investment securities
(average)............................. 14.6% 14.1% 13.2% 13.0% 12.2%
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net premiums written in 1997 were $4.545 billion compared to $4.573 billion in
1996. The slight decrease in net written premiums was driven by a decrease in
international property and casualty written premiums, reflecting competitive
market conditions, repositioning certain portfolios to minimize loss
accumulations and foreign currency translation due to the strengthening of the
U.S. dollar. This decrease in international property and casualty net premiums
written was substantially offset by an increase in domestic business, reflecting
strong growth in life reinsurance business and the assumption of the renewal
rights of a portfolio of specialty property and casualty insurance business
obtained as a result of GE Capital's acquisition of Coregis Insurance Company.
Net earnings in 1997 increased $81 million or 14%, including an increase in
after-tax net realized investment gains on investments of $49 million. Excluding
after-tax net realized gains on investments, 1997 net earnings increased $32
million or 7.0%. This 1997 increase was primarily attributable to a $73 million
increase in investment income resulting from continued growth in the investment
portfolio and a $61 million increase in other revenues reflecting an increase in
revenues generated from investment-related life and financial reinsurance
products. These increases were partially offset by a decrease in property and
casualty underwriting results reflecting increased underwriting and operating
expenses and competitive market conditions.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net premiums written in 1996 increased $1.012 billion, 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 was partially offset by a
decrease in domestic property and casualty net written premiums.
Net earnings in 1996 increased $130 million, including an increase in after-tax
net realized gains on investments of $20 million. Excluding after-tax net
realized gains on investments, 1996 net earnings increased $110 million. 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 property and casualty underwriting results and growth in the investment
portfolio due mostly from cash flows from international operations. These
increases were partially offset by an 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.
13
Domestic Property and Casualty Business
Year ended December 31,
-------------------------------------------
(In millions) 1997 1996 1995
-------------------------------------------
Net premiums written...................................... $1,809 $1,741 $2,121
Net underwriting loss..................................... (64) (98) (138)
Net investment income..................................... 389 390 395
Earnings before income taxes.............................. 489 415 364
Net realized gains on investments......................... 212 169 135
Earnings before income taxes, excluding
net realized gains on investments...................... 277 246 229
GAAP ratios (1):
GAAP claims and claim expenses ratio................... 70.8% 75.7% 79.1%
GAAP underwriting expense ratio........................ 33.0% 29.7% 27.4%
----- ----- -----
GAAP combined ratio.................................... 103.8% 105.4% 106.5%
===== ===== =====
- --------
(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 increased $68 million or 3.9% in 1997, reflecting
new business associated with GE Capital's acquisition of Coregis Insurance
Company and growth in the national accounts business partially offset by the
termination of certain long-term disability business and continued competitive
market conditions. 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 slight decrease in reinsurance premium
rates.
The GAAP combined ratio is an indicator of underwriting performance in property
and casualty reinsurance, with a percentage lower than 100% 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 1997 GAAP combined ratio was favorably impacted by a reduction
in catastrophe costs due to a decline in both frequency and severity of
catastrophe losses, although it was moderately impacted by an increase in
underwriting and operating costs due to the implementation of new strategic
business initiatives. 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.
Net investment income of $389 million in 1997 was comparable to the $390 million
in 1996. Net investment income decreased $5 million in 1996, 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 activities.
Earnings before income taxes, excluding net realized gains on investments,
increased $31 million or 13% in 1997, primarily due to a 1.6% decrease in the
GAAP combined ratio associated with a decrease in catastrophe costs partially
offset by an increase in underwriting and operating costs. Earnings before
income taxes, excluding net realized gains on investments, increased $17 million
in 1996, reflecting lower catastrophe costs and the non-renewal of certain
unprofitable contracts, partially offset by a slight reduction in reinsurance
premium rates, and a slight decline in net investment income.
14
International Property and Casualty Business
Year ended December 31,
---------------------------------------
(In millions) 1997 1996 1995
---------------------------------------
Net premiums written...................................... $1,684 $2,196 $1,002
Net underwriting gain (loss).............................. (64) 18 (38)
Net investment income..................................... 292 266 125
Earnings before income taxes.............................. 241 247 107
Net realized gains on investments......................... 48 31 27
Earnings before income taxes, excluding
net realized gains on investments...................... 193 216 80
GAAP ratios (1):
GAAP claims and claim expenses ratio................... 70.1% 68.0% 73.3%
GAAP underwriting expense ratio........................ 33.4% 31.2% 29.6%
----- ---- -----
GAAP combined ratio.................................... 103.5% 99.2% 102.9%
===== ==== =====
- --------
(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 decreased $512 million
or 23% in 1997, including approximately a $235 million decrease resulting from
foreign currency translation due to the strengthening of the U.S. dollar.
Excluding the impact related to foreign currency translation, international
property and casualty net premiums written decreased approximately $277 million
reflecting a $58 million increase in ceded premium as the Company expanded its
retrocession program, repositioned certain portfolios to minimize loss
accumulation and a general decrease in premium rates associated with competitive
market conditions. International property and casualty net premiums written
increased $1.194 billion 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 increase was
partially offset by a minor decrease in other international net premiums
written, primarily due to the integration of international operations.
The 4.3% increase in the GAAP combined ratio for 1997 from 1996 was caused by
less favorable loss experience, a general decline in international premium rates
and market conditions and increased underwriting and operating costs associated
with the implementation of new strategic business initiatives. The 1997 GAAP
combined ratio was also adversely impacted by certain large catastrophe losses
such as the Eastern Europe floods and aviation losses. The 3.7% improvement in
the 1996 GAAP combined ratio compared to 1995 was caused by favorable loss
experience and a decline in both the frequency and severity of international
catastrophe losses.
Net investment income increased $26 million or 9.8% in 1997. This increase
reflects continued growth in the investment portfolios related to the
reinvestment of earnings, partially offset by the impact of foreign currency
translation. Net investment income increased $141 million in 1996, primarily due
to including $126 million related to recording a full year of the Acquired
Businesses operating results in 1996 compared to recording only five months in
1995.
Earnings before income taxes, excluding realized gains, decreased $23 million or
11% in 1997. This decrease reflects a 4.3% increase in the combined ratio
partially offset by a $26 increase in net investment income and a $27 million
increase in other revenues related to growth in financial reinsurance products.
Earnings before income taxes, excluding net realized gains on investments,
increased $136 million in 1996 resulting from the inclusion of a full year of
the Acquired Businesses operating results in 1996 compared to recording only
five months in 1995 and improvement in the underwriting results, as illustrated
by the 3.7% improvement in the GAAP combined ratio.
15
Life Reinsurance Business
Year ended December 31,
-------------------------------
(In millions) 1997 1996 1995
-------------------------------
Revenues.................................................. $1,283 $881 $656
Earnings before income taxes.............................. 152 118 90
Revenues from the Company's life reinsurance segment include life insurance
premium revenues, net investment income, net realized gains on investments and
income from investment-related and financial reinsurance products. The 1997
increase in revenues of $402 million or 46% reflects growth in the domestic
traditional life and credit life business principally related to four
significant quota share reinsurance contracts as well as growth in
investment-related and financial reinsurance life products. Revenues increased
$225 million or 34% in 1996, which primarily reflected a full year's operating
results from the Acquired Businesses.
Earnings before income taxes increased $34 million in 1997, including a $20
million increase in net realized gains from investments. Excluding net realized
gains on investments, earnings before income taxes increased $14 million
primarily due to an increase in net investment income attributable to continued
growth in the investment portfolio and fees generated from investment-related
and financial reinsurance products. Earnings before income taxes increased $28
million in 1996, due primarily to the inclusion of a full year's operating
results from the Acquired Businesses.
Liquidity and Capital Resources
GE Global's ability to meet its obligations, including debt service and
operating expenses, and pay dividends to its shareholder 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
1997 and 1996 decrease in cash flows from operating activities is principally
due to an increase in claim settlements relative to the collection of premiums
and an increase in underwriting and operating cash outlays due to the
implementation of new strategic business initiatives.
Cash flows used for investing activities increased $290 million in 1997,
principally due to the purchase of other invested assets and the acquisition of
minority shares associated with the Company's 1995 acquisition of Frankona Re.
Cash used for investing activities decreased $1.377 billion in 1996, principally
due to the $1.024 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 $353 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 $47 million in 1997, reflecting
an increase in dividends paid to affiliates partially offset by an increase in
contract deposits and proceeds from short-term borrowings. 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.
16
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 specify credit quality
and concentration limits with respect to both fixed income and equity
securities.
In structuring its fixed maturity portfolios, the Company considers the duration
of its assets and claims and claim expenses reserves. Most fixed maturity
portfolios have total return benchmarks against which relative performance is
measured. The total return benchmarks include investment income and realized and
unrealized gains and losses on investments. Equity 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) 1997 1996 1995 1994 1993
----------------------------------------------------
Average invested assets (at cost)........... $16,417 $15,195 $12,153 $9,020 $7,395
Net investment income....................... 910 837 676 528 465
Net effective yield......................... 5.5% 5.5% 5.6% 5.9% 6.3%
Net realized gains on investments........... $ 303 $ 223 $ 191 $ 103 $ 147
Unrealized gains (losses) on investment
securities before deferred income taxes.. 1,189 799 684 (251) 622
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.
17
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 returns 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) 1997 1996 1997 1996
---------------------------------------------
U.S. government and government agency securities............ 1.4% 2.6% 8.3% 5.8%
Aaa......................................................... 48.9 45.7 1.8 18.8
Aa.......................................................... 27.1 26.3 2.8 13.2
A........................................................... 11.4 16.1 16.9 13.6
Baa......................................................... .5 .2 9.4 2.3
Ba.......................................................... .1 .1 1.5 .7
Canadian securities......................................... 3.9 4.2 0.0 0.0
Mortgage-backed securities.................................. .3 .1 45.8 39.8
Other....................................................... 6.4 4.7 13.5 5.8
----- ----- ----- -----
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 other bonds with an investment grade
rating. 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.
18
As of December 31, 1997, the ERC Frankona Group's investments totaled $6.4
billion, an increase of $151 million from December 31, 1996. The composition of
ERC Frankona Group's investments was as follows:
December 31,
---------------------
1997 1996
---------------------
Fixed maturity securities............................ 81.4% 86.4%
Equity securities.................................... 13.2% 10.4%
Other invested assets................................ 5.4% 3.2%
----- -----
Total................................................ 100.0% 100.0%
===== =====
The ERC Frankona Group's investment portfolios are globally diversified, with
most fixed maturities having a term less than ten years. The fixed maturity
securities consist of high credit quality securities, and almost all bonds are
investment grade securities with a comparable average rating equal to or above a
Moody's or S&P "AA" rating. Fixed maturity securities include German and Danish
mortgage-backed securities, although these mortgage-backed securities have
significantly less 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.
Interest Rate and Currency Risk Management
In normal operations, the Company must deal with effects of changes in interest
rates and currency exchange rates. The following discussion presents an overview
of how such changes are managed, a view of their potential effects, and,
finally, what considerations arise from recent developments in Asia.
The Company utilizes various financial instruments, such as currency and
interest rate swaps, options and currency forwards to manage risks. The Company
is exclusively an end user of these financial instruments, which are commonly
referred to as derivatives. The Company does not engage in any derivatives
trading, market-making or other speculative activities in the derivative
markets.
The Company manages its exposure to currency principally by matching the
underlying reinsurance liabilities with the corresponding assets. Any remaining
significant net asset/liability positions in a given currency are hedged with
forward currency purchase or sale contracts to further mitigate currency
exposures. The Company also hedges its currency risk on its foreign subsidiary
investments by utilizing currency swaps that have been designated to modify
currency exposure associated with specific debt instruments.
On a limited basis, and as part of ongoing customer activities, the Company
utilizes interest rate swaps and options to minimize its exposure to movements
in interest rates and financial markets that have a direct correlation with
certain of its reinsurance products.
Substantially all derivative transactions are executed by the Company's Treasury
Department which works closely with GE Capital Treasury personnel to maintain
controls on all exposures, adhere to stringent counterparty credit standards and
actively monitor marketplace exposures. Although the Company is exposed to
credit risk that the counterparty may not be able to comply with the terms and
conditions of the contracts, the Company utilizes only highly rated institutions
as counterparties to the derivative transactions.
19
The Securities and Exchange Commission requires that registrants include
information about potential effects of changes in interest rates and currency
exchange in their financial statements. Although the rules offer alternatives
for presenting this information, none of the alternatives is without
limitations. The following discussion is based on so-called "shock-tests," which
model effects of interest rate and currency shifts on the reporting company.
Shock tests, while probably the most meaningful analysis permitted, are
constrained by several factors, including the necessity to conduct the analysis
based on a single point in time and by their inability to include the
extraordinarily complex market reactions that normally would arise from the
market shifts modeled. While the following results of shock tests for interest
rates and currencies may have some limited use as benchmarks, they should not be
viewed as forecasts.
One means of assessing exposure to interest rate changes is a
duration-based analysis that measures the potential loss in net earnings
resulting from a hypothetical decrease in interest rates of 100 basis
points across all maturities (sometimes referred to as a "parallel shift in
the yield curve"). Under this model, it is estimated that, all else
constant, such a decrease, including repricing effects in the securities
portfolio, would reduce the 1998 net earnings of the Company based on
December 31, 1997 positions by an insignificant amount.
One means of assessing exposure to changes in currency exchange rates is
to model effects on reported earnings using a sensitivity analysis.
Year-end 1997 consolidated currency exposures, including financial
instruments designated and effective as hedges, were analyzed to identify
Company assets and liabilities denominated in other than their relevant
functional currency. Net unhedged exposures in each currency were then
remeasured assuming a 10 percent decrease (20 percent for hyperinflationary
economies) in currency exchange rates compared with the U.S. dollar. Under
this model, it is estimated that, all else constant, such a decrease would
reduce the 1998 net earnings of the Company based on December 31, 1997
positions by an insignificant amount.
Recent economic developments in parts of Asia have altered somewhat the risks
and opportunities of Company activities in affected economies. These activities
encompass providing certain reinsurance products and investing in marketable
securities within those Asian economies. As such, exposure exists to, among
other things, increased receivable delinquencies and potential bad debts,
impairment of marketable securities and increased reinsurance claims activity.
Conversely, new reinsurance opportunities may arise and the liberalization of
financial and reinsurance regulation may open new opportunities to penetrate
Asian markets. Taken as a whole, while this situation bears close monitoring and
increased management attention, the current situation is expected to have an
immaterial impact on the Company's financial position, results of operations and
cash flows in 1998.
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.
Year 2000
Year 2000 compliance programs and information systems modifications have been
initiated in an attempt to ensure that these systems and key processes will
remain functional. This objective is expected to be achieved either by modifying
present systems using existing internal and external programming resources or by
installing new systems, including enterprise systems, and by monitoring supplier
and other third-party interfaces. While there can be no assurance that all such
modifications will be successful, management does not expect that either costs
of modifications or consequences of any unsuccessful modifications should have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
20
New Accounting Standards
New accounting standards issued in 1997 are described below. Neither of these
standards will have any effect on the financial position or results of
operations of the Company.
The Financial Accounting Standards Board issued two Statements of Financial
Accounting Standards (SFAS) that will affect presentation in the Company's 1998
Annual Report on Form 10-K. SFAS No. 130, Reporting Comprehensive Income, will
require display of certain information about adjustments to equity - most
notably, adjustments arising from market value changes in marketable securities.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, will require additional information about industry segments.
Effects of Inflation
The Company's ultimate claims and claim expense costs on claims not yet settled
is increased by the effects of inflation, and changes in the inflation rate
therefore could become a significant factor in determining appropriate claims
and claim expense reserves, as well as reinsurance premium rates. Generally, the
Company's methods used to estimate claims and claim expense reserves and to
calculate reinsurance premium rates take into account the anticipated effects of
inflation in estimating the ultimate claims and claim expense costs. The Company
uses both insurance industry data and government economic indices in estimating
the effects of inflation on reinsurance premium rates and claims and claim
expense reserves. However, until claims are ultimately settled, the full effect
of inflation on the Company's results cannot be known.
Item 8. Financial Statements and Supplementary Data.
The Company's Consolidated Financial Statements and the Independent Auditors
Report thereon and the Supplementary Financial Statement Schedules listed on the
accompanying Index to Financial Statements and Financial Statement Schedules are
filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
Not applicable
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
21
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 23).
(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 23).
(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, 1997 (portions
redacted in accordance with application for confidentiality
to be filed).
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, 1997
(portions redacted in accordance with application for
confidentiality to be filed).
10.3 Second Whole Account Aggregate Excess of Loss Retrocession
Agreement (E2), between Employers Reinsurance Corporation and
National Union Fire Insurance Company of Pittsburgh, PA, dated
January 1, 1997 (portions redacted in accordance with
application for confidentiality to be filed).
12 Computation of ratio of earnings to fixed charges.
23 Consent of KPMG Peat Marwick LLP.
(b) Reports on Form 8-K.
None.
22
ITEM 14(a)
GE Global Insurance Holding Corporation
and Subsidiaries
Index to
Consolidated Financial Statements
and
Financial Statement Schedules
Page
----
Consolidated Financial Statements
Independent Auditors' Report.............................................24
Consolidated Statement of Earnings.......................................25
Consolidated Statement of Financial Position.............................26
Consolidated Statement of Stockholder's Equity...........................28
Consolidated Statement of Cash Flows.....................................29
Notes to Consolidated Financial Statements...............................30
Financial Statement Schedules
Schedule II - Condensed Financial Information of Registrant..............54
Schedule III - Supplementary Insurance Information.......................58
23
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,
1997 and 1996, and the related consolidated statements of earnings,
stockholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1997. Our audits also included the financial statement
schedules listed in the Index at Item 14(a) as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Kansas City, Missouri
January 23, 1998
24
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Earnings
Year ended December 31,
--------------------------------
(In millions) 1997 1996 1995
--------------------------------
Revenues
Net premiums written (Note 8) $4,545 $4,573 $3,561
====== ====== ======
Net premiums earned (Note 8) $4,467 $4,648 $3,886
Net investment income (Note 4) 910 837 676
Net realized gains on investments (Note 4) 303 223 191
Other revenues 104 43 45
------ ------ ------
Total revenues 5,784 5,751 4,798
------ ------ ------
Costs and Expenses
Claims, claim expenses and policy benefits 3,260 3,373 2,994
Insurance acquisition costs 1,073 1,106 847
Amortization of intangibles 78 82 60
Interest expense 42 42 16
Other operating costs and expenses 366 284 225
Minority interest in net earnings of consolidated
subsidiaries (Notes 3 and 9) 83 84 95
------ ------ ------
Total costs and expenses 4,902 4,971 4,237
------ ------ ------
Earnings before income taxes 882 780 561
------ ------ ------
Provision for income taxes (Note 6):
Current (37) 207 150
Deferred 271 6 (26)
------ ------ ------
234 213 124
------ ------ ------
Net earnings $ 648 $ 567 $ 437
====== ====== ======
See Notes to Consolidated Financial Statements.
25
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Financial Position
December 31,
---------------------------
(In millions) 1997 1996
---------------------------
Assets
Investments (Note 4):
Fixed maturity securities available-for-sale, at fair value $14,816 $13,572
Equity securities, at fair value 2,513 2,303
Short-term investments, at amortized cost 661 339
Other invested assets 353 265
------- -------
Total investments 18,343 16,479
Cash 269 377
Securities and indebtedness of related parties 318 310
Accrued investment income 369 391
Premiums receivable 2,279 2,645
Funds held by reinsured companies 502 519
Reinsurance recoverables 2,791 2,358
Deferred insurance acquisition costs 844 495
Intangible assets 897 986
Other assets 920 828
------- -------
Total assets $27,532 $25,388
======= =======
26
GE GLOBAL INSURANCE HOLDING CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Financial Position (continued)
December 31,
-------------------------
(In millions) 1997 1996
-------------------------
Liabilities and equity
Claims and claim expenses (Note 5) $10,961 $10,869
Accumulated contract values 2,305 1,643
Future policy benefits for life and health contracts 1,604 831
Unearned premiums