General Electric Co. shares resumed their slump Aug. 20 after Fitch Ratings ranked the conglomerate among the insurers that are under-reserved against the losses related to their "risky" long-term care, or LTC, insurance product.
In Fitch's latest annual report on the LTC market, GE placed second among four insurers with "very high" exposure to the LTC market and below-average reserve adequacy, just below Genworth Financial Inc., which was spun off from GE in 2004.
"Exposure to the long-term care market remains a plague," said Anthony Beato, director of insurance at Fitch. "It continues to be a risky product despite the adoption of more conservative reserving philosophies that more closely align to its volatile liabilities."
Fitch said LTC policies are among the riskiest insurance products because of their volatile performance, high reserve and statutory capital requirements, and heightened exposure to risks tied to interest rate changes.
Those factors can affect the stability of the company's capital and earnings for years, the rating agency said.
GE shares were down 3.34% to $8.38 shortly before 3:30 p.m. ET.
The Fitch report followed allegations raised last week by fraud investigator Harry Markopolos that GE is in immediate need of $18.5 billion in new cash to boost the reserves of its LTC insurance unit. Markopolos also said the company would have to take another $10.5 billion noncash charge by the first quarter of 2021 to equalize its statutory and GAAP reserves.
In an Aug. 19 statement, GE maintained that its current reserves are "well-supported for our portfolio characteristics."
"Our future liabilities [on LTC insurance] depend on variables that will play out over decades, not years, and are dictated by rigorous testing processes, sound actuarial analysis, and the application of regulatory and accounting rules," GE said.
In the Fitch report, Unum Group and Senior Health Insurance Co. of Pennsylvania are the other insurers with "very high" exposure to the LTC market and below-average reserve adequacy.
Fitch said it expects insurers to further strengthen reserves over the near-to-intermediate term.
