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OLDWICK, N.J.–(BUSINESS WIRE)–The potential need for General Electric (GE) to bolster its long-term care (LTC) insurance reserves at two subsidiaries could also generate pressure on insurers that rely on those companies for reinsurance, according to a new AM Best commentary.

The Best’s Commentary, titled, “GE’s Long-Term Care Exposure Magnifies Counterparty Risk for Several Insurers,” notes that GE has continually needed to strengthen reserves for assumed LTC blocks of business (including $15 billion in reserve strengthening announced in fourth quarter 2018).

Recently, a forensic accountant sounded the alarm that more increases may be necessary for the company’s LTC block. This LTC exposure rests specifically with two GE insurance subsidiaries—Employers Reassurance Corp. & Union Fidelity Life Insurance Corp. (ERAC).

The report notes that there has been a steady increase in claims and unfavorable experience in the LTC segment overall, as well as a continuous growth in reserves, which has placed continued pressure on many carriers’ capital and earnings. The only alternative for LTC writers who want to shrink their existing exposures and reinsure their business is to go to lower or non-rated reinsurers, bringing its own risks, specifically, counterparty risk.

LTC accounts for more than half the $27.5 billion of total reserve liability assumed by the ERAC group—52% based on its 2018 statutory annual statement. Nearly 58% of ERAC’s reserve liability, from roughly 140 entities, is derived from Genworth companies alone, both from LTC and annuity reinsurance transactions. The top five entities account for more than 75% of exposure, while the top 10 account for nearly 94%, highlighting the concentration in exposed insurance entities.

ERAC’s LTC book has been historically volatile and unprofitable relative to original actuarial expectations. GE has provided considerable implicit and explicit capital support under a capital maintenance agreement, but recent media stories are questioning GE’s financial stability and its ability to provide support. Should GE need to establish additional reserves or attempt to unwind existing reinsurance transactions with cedents, some cedents are more exposed than others. For example, eight entities of various sizes have ceded more than one-half of their total ceded reserve credits taken to ERAC, while 15 have ceded more than 10% —indicating reinsurer concentration for these entities absent a long list of reinsurers willing to accept LTC risk.

AM Best will continue to monitor how this situation unfolds, and notes that, to limit counterparty credit risk exposure, strong counterparty due diligence on the part of cedents is critical, which is generally within the realm of strong enterprise risk management. Counterparty diversification, the use of collateral and ratings triggers can help mitigate the effects of a potential reinsurer’s insolvency.

To access a copy of this commentary, please visit

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


Jason Hopper

Associate Director,

Industry Research and Analytics

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Erik Miller

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Bruno Caron

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Jim Peavy

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