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GE Capital Reserves, Premiums, and Impairments Securities Class Action

GE Capital Logo on Aqua Ground

The bad news about GE Capital’s insurance business took months to emerge, the complaint for this class action claims, but it seems to have built up over a number of years.

The class for this action is all persons who acquired General Electric securities between February 26, 2013 and January 12, 2018.

General Electric offers a wide range of technology and financial services in many areas, such as financial services, aircraft engines, electrical power generation, water processing, and household appliances. This class action concerns GE Capital, the company’s financial unit, which offers commercial lending and leasing, financial services for commercial aviation, energy, and financial support for GE’s industrial businesses.

The complaint quotes from GE’s public filings during the class period, beginning with the Form 10-K 2012 annual report. They spoke about reducing ENI (ending net investment), “a metric used by us to measure the total capital we have invested in our financial services business.” The company wanted a tighter focus “on selective financial services products where we have deep domain experience, broad distribution,” and other advantages, “while managing our overall balance sheet size and risk.”

In 2015, the company announced a “GE Capital Exit Plan” to “reduce the size of its financial services business through the sale of most of the assets of GECC over the next 24 months” while retaining a select few financial businesses. Later filings indicated that the company expected to receive gains from the sell-off. In June 2016, GE received approval for rescission of its nonbank Systemically Important Financial Institution designation.

However, the complaint claims that GE’s public statements failed to disclose important points, such as that GE was failing to allocate sufficient reserves to cover premium deficiencies and other risks from GE Capital’s legacy reinsurance business. According to the complaint, these risks were accruing billions of dollars in unreported impairment charges, so that GE’s value was overstated during the class period, making additional impairments necessary.

These facts emerged slowly, first with a confession in July 2017 that the company had “had adverse claims experience in a portion of [its] long-term care portfolio” and had to “assess the adequacy of [its] premium returns.” In October, it spoke of “elevated claims” in long-term care, which cause the company to review “premium deficiency assumptions…”

On January 16, 2018, the company confirmed “a multi-billion dollar loss in GE’s legacy reinsurance business” as well as a need to make “statutory reserve contributions” of about $15 billion over seven years after conversations with regulators.

After each corrective announcement, GE’s stock lost value. The complaint claims that the failure to admit to the issues over the previous years violated the Securities Exchange Act of 1934. 

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