Is GE Looking To Sell Its Employers Re Unit?

GE's Employers Reinsurance Corp., rumored to be spun off by parent General Electric Co., in March said it would combine its Property and Casualty Re Americas and Europe/Asia operating units. Rick Smith was been named President & CEO of the new Global P&C Re business. With the new alignment, GE ERC now has three operating units: Global P&C Re, Global Life & Health and Commercial Insurance.The move could be a precursor to selling the operation through an initial public offering of stock. The Wall Street Journal reported that GE is considering a plan that would involve an IPO of 20% of the Employers Reinsurance Corp., unit later this year. An IPO could be expected to value the business at $8 billion to $10 billion.

"Since Employers Reinsurance was acquired in 1984, it has generated nearly a 22% return on investment. Today, however, the property and casualty market suffers from a challenging pricing environment, escalating claims costs, soft contract terms, the September 11 attack and a toughened investment environment," GE stated in its 2001 annual report.

Analysts believe that after the IPO was completed, GE would probably wait for a tax opinion before spinning off the remaining 80%.

Standard & Poor's Corp. did not change its AAA rating for Employers Reinsurance Corp.

"Currently, it is our understanding that GE is committed to its reinsurance franchise," said Standard & Poor's credit analyst Grace Osborne.

The potential spin off would affect other GE insurance companies as well. If the spin-off plans are confirmed, Standard & Poor's would also place its ratings on GE Reinsurance Corp. on CreditWatch negative. It is also likely that Standard & Poor's would place its ratings on GE Global Insurance Holding Corp. on CreditWatch negative until the terms of servicing and debt repayment could be determined.

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