GE Shortfall Just Part of Insurance Industry’s $100 Billion Gap

Julie Westermann, a Genworth spokeswoman, said the company regularly evaluates the adequacy of its reserves and has taken a "very proactive approach to rate increases, without which we would have needed much larger reserve increases."

The business became popular in the 1980s, and insurers couldn't have predicted back then that people would begin to live longer and health care costs would surge, straining reserves. Since insurers invest policyholder funds mostly in bonds, 10 years of rock-bottom interest rates didn't help either. Insurers need the reserves to backstop their ability to pay claims.

GE, which has diversified far beyond its industrial roots, was a pioneer, winning about about one-quarter of the market by 2001, according to a presentation by the National Organization of Life and Health Insurance Guaranty Associations.

Last month, Kansas's state regulator told GE it could add to its reserves over several years, and the $15 billion is an estimate.

"The actual amount may vary each year based on the company's cash-flow testing results," according to the regulator.

Difficult Conversations

The National Association of Insurance Commissioners, the industry's governing body, has set up a task force that includes Washington state's Kreidler to assess the solvency of long-term-care insurers.

No one "is really certain of the extent of the concern," Kreidler's spokesman said in an email. "The NAIC is trying to get a better handle on it."

Evercore Inc. analysts told clients in a January note that, after GE's charge, other companies may have to face "more difficult conversations with auditors and regulators." Current capital standards allow companies to "operate the most troubled line of business at very thin capital levels," they said. They expect regulators to change the rules to require higher reserves, they said.

"If you look at the amount of additional reserves GE has put into its reinsurance unit, that suggests that on a policy-by-policy basis, other reserves may be short," said Bloomberg Intelligence senior analyst Jonathan Adams. "The simple way of thinking about it is: Who's got the biggest share in the industry? They're probably the worst off."

—With assistance from Richard Clough.

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