General Electric Co.'s looming $6.2 billion charge in its GE Capital unit is one of the biggest yet in a corner of the insurance industry that has reeled from pricing miscalculations made decades ago. About 7.3 million of the policies are in consumers' hands, some with generous lifetime benefits.
Although GE sold much of its financial-services operations after the 2008 financial crisis, it kept on its books responsibility for billions of dollars of coverage for long-term-care policies that had been sold by other insurers to consumers. Those policies -- about 300,000 of them -- promise to pay for nursing homes and other care for individuals.
Insurers have taken $10.5 billion in pretax charges against their earnings in recent years to boost reserves for future claims, according to analysts at investment bank Evercore ISI.
Genworth Financial Inc., which was spun off from GE in 2004, has tallied losses from its older long-term-care policies of $2.5 billion since 2006.
Long-term-care insurance took off in the early 1990s. The policies had strong appeal to older people, and many insurers thought they had the perfect product to profit from people's concerns about becoming unable to care for themselves and outliving their savings.
In general, the policies pay for nursing homes, assisted-living facilities or health-care aides in people's private residences. Such care generally isn't paid by the Medicare health-insurance program for older people, while the state-federal Medicaid program is for the poor.
But by the mid-2000s, many insurers were rapidly ratcheting back the benefits, concluding they had badly miscalculated how many people would file claims and how long they would draw benefits before dying, among other things.
GE disclosed Tuesday that in addition to booking the charge in its fourth quarter, it would have to set aside $15 billion over seven years to bolster insurance reserves at GE Capital.
(END) Dow Jones Newswires
January 16, 2018 19:23 ET (00:23 GMT)