<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 33-80193
Prospectus Supplement
(To Prospectus dated February 8, 1996)
GE Global Insurance Holding Corporation
$400,000,000
6.45% Notes due March 1, 2019
----------------
GE Global will pay interest on the Notes on March 1 and September 1 of each
year. The first such payment will be made on September 1, 1999. GE Global may,
at any time, redeem the Notes at the redemption price calculated as described
herein.
----------------
Investing in the Notes involves certain risks. See "Risk Factors" beginning
on page 4 of the Prospectus.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus Supplement and the attached Prospectus.
Any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount GE Global
------------ ------------ ------------
<S> <C> <C> <C>
Per Note................................. 99.633% 0.875% 98.758%
Total.................................... $398,532,000 $3,500,000 $395,032,000
</TABLE>
It is expected that delivery of the Notes will be made on or about March 1,
1999, through the facilities of The Depository Trust Company against payment
therefor in immediately available funds.
----------------
Joint Book Managers
Morgan Stanley Dean Witter Salomon Smith Barney
February 24, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
The Company................................................................ S-3
Use of Proceeds............................................................ S-3
Ratio of Earnings to Fixed Charges......................................... S-4
Capitalization............................................................. S-4
Description of Notes....................................................... S-4
Underwriting............................................................... S-8
Experts.................................................................... S-9
Legal Matters.............................................................. S-9
Prospectus
Available Information...................................................... 2
Documents Incorporated by Reference........................................ 2
Risk Factors............................................................... 4
The Company................................................................ 6
Use of Proceeds............................................................ 25
Ratio of Earnings to Fixed Charges......................................... 25
Description of Debt Securities............................................. 25
Plan of Distribution....................................................... 28
Legal Matters.............................................................. 29
Experts.................................................................... 29
</TABLE>
----------------
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement and the attached Prospectus in making
your investment decision. We have not authorized anyone to provide you with any
other information. If you receive any unauthorized information, you must not
rely on it.
We are offering to sell the notes and seeking offers to buy the notes only
in jurisdictions where offers and sales are permitted. The commissioner of
insurance of the State of North Carolina has not approved or disapproved this
offering nor has such commissioner passed upon the accuracy or adequacy of this
Prospectus Supplement or the attached Prospectus.
The information contained in this Prospectus Supplement and the attached
Prospectus is accurate only as of the date of this Prospectus Supplement and
the attached Prospectus regardless of the time of delivery of this Prospectus
Supplement and the attached Prospectus or any sale of the Notes.
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<PAGE>
THE COMPANY
General
GE Global Insurance Holding Corporation, through its direct and indirect
subsidiaries, engages principally in the reinsurance business in the United
States and throughout the world. All the outstanding common stock of GE Global
is owned by General Electric Capital Services, Inc., which in turn is wholly
owned by General Electric Company.
GE Global is one of the world's largest reinsurance groups, with
subsidiaries providing risk management solutions for over a century. We are a
global provider of property and casualty reinsurance, life and healthcare
reinsurance and write some lines of primary health, property and casualty and
excess workers' compensation insurance. Our principal subsidiaries are
Employers Reinsurance Corporation and GE Reinsurance Corporation (formerly
Kemper Reinsurance Company).
Our principal executive offices are located at 5200 Metcalf, Overland Park,
Kansas 66201. Our telephone number is (913) 676-5200. When we refer to "GE
Global", "we" or "our" in this Prospectus Supplement, we mean GE Global
Insurance Holding Corporation and its subsidiaries on a consolidated basis,
unless the context requires otherwise.
Strategy
Our business strategy is to continue to increase our revenues by:
. expanding our global operations, including in the Asia/Pacific region
and Latin America, through internal growth;
. enhancing our domestic position with the large regional and national
primary insurers;
. retaining our focus on small and medium regional customers;
. expanding our product lines to take advantage of market niche
opportunities;
. increasing fee-for-service activities; and
. selectively acquiring existing businesses domestically and globally.
We do not intend, however, to increase our premium income at the expense of
our underwriting results.
Our operating strategy is to maximize our profitability by capitalizing on
our financial resources and reputation and our position as a major direct
writer of reinsurance, building long-term relationships with our clients and
limiting our exposure through adherence to strict underwriting guidelines. We
believe that our size, claims-paying ratings, and reputation will enable us to
maintain and enhance our position in the markets in which we compete.
USE OF PROCEEDS
The net proceeds from the sale of the notes offered hereby (the "Notes")
are estimated to be approximately $395,032,000 (after deduction of
underwriting discounts and commissions). We will use the net proceeds from the
sale of the Notes to repay outstanding short-term borrowings under an
intercompany credit agreement with General Electric Capital Services, the
proceeds of which were used to fund recent business acquisitions and for other
general corporate purposes. The weighted average interest rate on the
outstanding balance under the intercompany credit agreement at September 26,
1998, was 5.68% per annum.
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RATIO OF EARNINGS TO FIXED CHARGES
We have set forth below the ratio of earnings to fixed charges for GE Global
for the periods indicated. For the purposes of calculating this ratio, earnings
consist of net earnings adjusted to add back the provision for income taxes and
fixed charges. Fixed charges consist of interest and discount on all
indebtedness, minority interest in pre-tax earnings from purchased affiliates
and dividends on subsidiary's preferred stock and one-third of annual rentals,
which we believe is a reasonable approximation of the interest factor of such
rentals.
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------- Nine Months Ended
1993 1994 1995 1996 1997 September 26, 1998
- ---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C>
4.33 4.59 5.01 5.80 6.33 7.72
</TABLE>
CAPITALIZATION
The following table sets forth our capitalization at September 26, 1998 and
as adjusted to reflect the issuance of the Notes offered hereby and to give
effect to the repayment of short-term borrowings. See "Use of Proceeds."
<TABLE>
<CAPTION>
September 26, 1998
-------------------------
Actual As Adjusted
---------- -------------
(dollars in millions)
<S> <C> <C>
Short-term borrowings................................ $ 100 $ ---
Long-term borrowings................................. 557 557
Notes................................................ --- 400
---------- ----------
Total debt......................................... 657 957
---------- ----------
Minority interest in equity of consolidated
subsidiaries........................................ 1,176 1,176
---------- ----------
Stockholder's equity:
Preferred stock, $100,000 par value; authorized,
issued and outstanding--1,500 shares.............. 150 150
Common stock, $5,000 par value; authorized, issued
and outstanding--1,000 shares..................... 5 5
Paid-in capital.................................... 845 845
Accumulated non-owner changes in equity............ 598 598
Retained earnings.................................. 4,283 4,283
---------- ----------
Total stockholder's equity....................... $ 5,881 $ 5,881
---------- ----------
Total capitalization............................. $ 7,714 $ 8,014
---------- ----------
Ratio of debt to total capitalization................ 8.52% 11.94%
</TABLE>
DESCRIPTION OF NOTES
The following description of the Notes supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of Debt Securities set forth in the Prospectus, to which we refer
you.
General
The Notes are an issue of the Debt Securities described in the accompanying
Prospectus and will be issued as a separate series of Debt Securities under the
Indenture dated as of February 1, 1996 (the "Indenture") entered into between
GE Global and The Chase Manhattan Bank, as Trustee (the "Trustee"). The Notes
are limited to an aggregate principal amount of $400,000,000. In addition to
the Notes, we may issue from time to time other series of Debt Securities under
the Indenture consisting of debentures, notes or other unsecured,
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unsubordinated evidences of indebtedness, but such other series will be
separate from and independent of the Notes. The Indenture does not limit the
amount of Debt Securities or any other debt which we may incur. In addition,
the provisions of the Indenture do not protect you in the event that we enter
into a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction that may adversely affect you. The Notes will be the second
series of Debt Securities that we have issued under the Indenture. We refer you
to the Prospectus for a description of other general terms of the Debt
Securities.
The Notes will mature on March 1, 2019. Interest on the Notes will accrue
from March 1, 1999 and is payable semiannually on March 1 and September 1,
commencing September 1, 1999, to the persons in whose names the Notes are
registered at the close of business on the February 15 or August 15 prior to
each payment date at the annual rate of 6.45%. The Notes will be issued as
fully registered Notes (to be deposited with the depositary) and in
denominations of $1,000 or integral multiples thereof.
Redemption at the Option of the Company
The Notes will be redeemable, in whole or in part, at our option, on any
date at a redemption price equal to the greater of (a) 100% of the principal
amount of the Notes to be redeemed or (b) the sum of the present values of the
remaining scheduled payments of principal and interest on the Notes (exclusive
of interest accrued to such redemption date) discounted to such redemption date
on a semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Rate plus 25 basis points, plus accrued and unpaid
interest on the principal amount being redeemed to such redemption date;
provided, however, that installments of interest on Notes that are due and
payable on an interest payment date falling on or prior to the relevant
redemption date will be payable to the holders of such Notes, registered as
such at the close of business on the relevant record date according to their
terms and the provisions of the Indenture.
"Treasury Rate" means, with respect to any redemption date for the Notes,
(a) the yield, under the heading that represents the average for the
immediately preceding week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication that is
published weekly by the Board of Governors of the Federal Reserve System and
that established yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant Maturities,"
for the maturity corresponding to the Comparable Treasury Issue (if no maturity
is within three months before or after the maturity date, yields for the two
published maturities most closely corresponding to the Comparable Treasury
Issue shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the nearest
month) or (b) if such release (or any successor release) is not published
during the week preceding the calculation date or does not contain such yields,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date. The Treasury Rate shall be
calculated on the third business day preceding the redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or
Salomon Smith Barney Inc. or if such firm is unwilling or unable to select the
Comparable Treasury Issue, an independent investment banking institution of
national standing appointed by the Trustee after consultation with us.
"Comparable Treasury Price" means, with respect to any redemption date, (a)
the average of four Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such
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Reference Treasury Dealer Quotations, or (b) if the Trustee obtains fewer than
four such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Reference Treasury Dealer" means (1) Morgan Stanley & Co. Incorporated and
Salomon Smith Barney Inc. and their respective successors, provided, however,
that if Morgan Stanley & Co. Incorporated or Salomon Smith Barney Inc. shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), we will substitute another Primary Treasury Dealer,
and (2) any two other Primary Treasury dealers selected by us.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
We will mail notice of any redemption at least 30 days but not more than 60
days before any redemption date to each holder of Notes to be redeemed. If we
choose to redeem less than all the Notes, the Trustee will select, in such
manner as it deems fair and appropriate, the Notes of such series to be
redeemed in whole or in part.
Unless we default in payment of the redemption price, on and after any
redemption date interest will cease to accrue on the Notes or portion thereof
called for redemption.
Book-Entry System
The Notes will be issued in whole or in part in the form of one or more
fully registered global securities (the "Global Notes"). The Global Notes will
be deposited with, or on behalf of, The Depository Trust Company, as depositary
and registered in the name of a nominee of the depositary. No Global Note may
be transferred, except as a whole, by the depositary to a nominee of the
depositary. Global Notes may also be transferred as a whole by a nominee of the
depositary to the depositary or another nominee of the depositary or by the
depositary or the nominee to a successor of the depositary or a nominee of the
successor.
The depositary has advised GE Global as follows: It is a limited-purpose
trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934. The
depositary was created to hold securities for its participating organizations
and to facilitate the clearance and settlement of securities transactions
between its participants in such securities through electronic book-entry
changes in accounts of its participants. The depositary's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations some of whom or representatives of which own
the depositary. Access to the depositary's system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants"). Persons who are not participants may
beneficially own securities held by the depositary only through participants or
indirect participants.
The depositary has advised GE Global that upon the issuance of the Global
Notes, the depositary will credit on its book-entry system the respective
principal amounts of the individual Notes represented by such Global Notes to
the accounts of the appropriate participants. The accounts to be credited shall
be designated by the Underwriters. Ownership of beneficial interests in the
Global Notes will be limited to participants or persons that own beneficial
interests through participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the participants of the depositary or
persons that hold through such participants. The laws of some states require
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that certain purchasers of securities take physical delivery of such
securities. Such laws may limit the market for beneficial interests in the
Global Notes.
So long as the depositary, or its nominee, is the registered owner of the
Global Notes, the depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Global Notes for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in the
Global Notes will not be entitled to have Notes registered in their names, will
not receive or be entitled to receive physical delivery of Notes in
certificated form and will not be considered the owners or holders thereof
under the Indenture. Accordingly, each person owning a beneficial interest in
the Global Notes must rely on the procedures of the depositary and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
Indenture. GE Global understands that under existing industry practices, in the
event that GE Global requests any consent or action of holders or if an owner
of a beneficial interest in the Global Notes desires to give a consent or take
any action which a holder is entitled to give or take under the Indenture, the
depositary would authorize the participants holding the relevant beneficial
interests to give such consent or take such action, and such participants would
authorize beneficial owners holding through such participants to give such
consent or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Principal and interest payments on the Global Notes registered in the name
of the depositary or its nominee will be made by the Trustee to the depositary
or such nominee as the registered owner of the Global Notes. Under the terms of
the Indenture, GE Global and the Trustee will treat the persons in whose names
the Global Notes are registered as the sole owner or holder of the Global Notes
for the purpose of receiving payment of principal and interest on the Global
Notes and for all other purposes whatsoever. Therefore, neither GE Global, the
Trustee nor any paying agent has any direct responsibility or liability for the
payment of principal or interest on the Global Notes to owners of beneficial
interests in the Global Notes. Neither GE Global, the Trustee or any paying
agent nor any registrar for the Notes will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global Notes, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any action or inaction of the depositary or its nominee or any
participant. The depositary has advised GE Global and the Trustee that its
current practice is, upon receipt of any payment of principal or interest, to
immediately credit the accounts of the participants with such payment in
amounts proportionate to their respective beneficial interests in the Global
Notes as shown in the records of the depositary. Payments by participants and
indirect participants to owners of beneficial interests in the Global Notes
will be governed by standing instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the participants
or indirect participants.
If (x) the depositary is at any time unwilling or unable to continue as
depositary or the depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, (y) GE Global executes and delivers to the
Trustee an order to the effect that the Global Notes shall be transferable and
exchangeable for Notes in definitive form or (z) an event of default has
occurred and is continuing with respect to the Notes, the Global Notes will be
transferable or exchangeable for Notes in definitive form of like tenor in an
equal aggregate principal amount. Such definitive Notes shall be registered in
such name or names as the depositary shall instruct the Trustee.
The depositary has advised GE Global that the depositary's management is
aware that some computer applications, systems and the like for processing data
that are dependent upon calendar dates, including dates before, on, and after
January 1, 2000, may encounter "Year 2000 problems." The depositary has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems, as the same
relate to the timely payment of distributions (including principal and interest
payments) to security holders, book-entry deliveries, and settlement of trades
within the depositary, continue to function appropriately. This program
includes a technical assessment and a remediation plan, each
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of which is complete. Additionally, the depositary's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, the depositary's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom the depositary licenses
software and hardware, and third party vendors on whom the depositary relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. The depositary has informed
its participants and other members of the financial community that it is
contacting (and will continue to contact) third party vendors from whom the
depositary acquires services to: (i) impress upon them the importance of such
services being Year 2000 compliant; and (ii) determine the extent of their
efforts for Year 2000 remediation (and, as appropriate, testing) of their
services. In addition, the depositary is in the process of developing such
contingency plans as it deems appropriate.
According to the depositary, the foregoing information with respect to the
depositary has been provided to its participants and other members of the
financial community for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters") have severally agreed to
purchase, and we have agreed to sell to them, the respective principal amount
of Notes set forth opposite their respective names below.
<TABLE>
<CAPTION>
Principal
Amount
Name of Notes
---- ------------
<S> <C>
Morgan Stanley & Co. Incorporated.............................. $200,000,000
Salomon Smith Barney Inc....................................... 200,000,000
------------
Total........................................................ $400,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to, among
other things, the approval of certain legal matters by their counsel and
certain other conditions. The Underwriters are obligated to take and pay for
all the Notes if any are taken.
The Underwriters propose initially to offer part of the Notes to the public
at the public offering price set forth on the cover page hereof and in part to
certain dealers at prices that represent a concession not in excess of .50% of
the principal amount of the Notes. Any Underwriter may allow, and such dealers
may reallow, a concession not in excess of .25% of the principal amount of the
Notes to certain other dealers. After the initial offering of the Notes, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
We do not intend to apply for listing of the Notes on a national securities
exchange, but have been advised by the Underwriters that they presently intend
to make a market in the Notes, as permitted by applicable laws and regulations.
The Underwriters are not obligated, however, to make a market in the Notes and
any such market making may be discontinued at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriters may over-allot in connection with
this offering, creating short positions in the Notes for their own account. In
addition, to cover over-
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allotments or to stabilize the price of the Notes, the Underwriters may bid
for, and purchase, Notes in the open market. Finally, the Underwriters may
reclaim selling concessions allowed to an underwriter or dealer for
distributing Notes in this offering, if the Underwriters repurchase previously
distributed Notes in transactions that cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Notes above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
The Underwriters or their affiliates have provided and may in the future
continue to provide investment banking, commercial banking and other financial
services to us in the ordinary course of business for which they have received
and will receive customary compensation.
EXPERTS
The consolidated financial statements and schedules of GE Global as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Notes will be passed upon for
GE Global by Simpson Thacher & Bartlett, New York, New York and John M.
Connelly, General Counsel to GE Global, and for the Underwriters by Davis Polk
& Wardwell, New York, New York.
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PROSPECTUS
GE Global Insurance Holding Corporation
Debt Securities
GE Global Insurance Holding Corporation ("GE Global") may offer from time
to time its senior, unsecured debt securities ("Debt Securities"). The Debt
Securities are hereinafter in this Prospectus referred to as the "Debt
Securities," although any series of Debt Securities to which the accompanying
Prospectus Supplement relates may bear a different title. The Debt Securities
will be offered on terms determined at the time of sale. The Debt Securities
will be non-convertible investment grade securities. The accompanying
Prospectus Supplement sets forth specifically with regard to the Debt
Securities in respect of which this Prospectus is being delivered:
.the title of the Debt Securities,
.the aggregate principal amount offered,
.the currency, currencies or currency units in which payments on the Debt
Securities are payable,
.the rate or method of calculation, and the dates of payment of interest,
if any,
.the date or dates from which such interest shall accrue,
.the method of determining holders to whom any such interest shall be
payable,
.the authorized denominations,
.the maturity,
.the offering price or terms,
.the terms of any sinking fund, purchase fund or mandatory redemption, and
of any redemption or repayment at the option of GE Global or the holder,
.the underwriter or underwriters or agent or agents, if any, for the Debt
Securities, their compensation or the basis of determining the same and
the net proceeds to GE Global, and
.the exchanges, if any, on which the Debt Securities may be listed.
The Debt Securities will be sold either through underwriters or dealers,
through agents designated from time to time, or directly by GE Global.
See "Risk Factors", beginning on page 4, for a description of certain
factors that should be considered by purchasers of the Debt Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
February 8, 1996
<PAGE>
IN CONNECTION WITH THE OFFERING OF DEBT SECURITIES, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE DEBT SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THE OFFERING NOR HAS SUCH COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
With respect to the first offering of Debt Securities hereunder, until 25
days after the date of the Prospectus Supplement relating to such offering,
all dealers effecting transactions in such Debt Securities, whether or not
participating in the distribution of such Debt Securities, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus and the accompanying Prospectus
Supplement in connection with the offer contained in this Prospectus and the
accompanying Prospectus Supplement and, if given or made, such information or
representations must not be relied upon as having been authorized by GE Global
or by any agent, underwriter or dealer. Neither the delivery of this
Prospectus and the accompanying Prospectus Supplement, nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of GE Global since the dates as of which
information is given in this Prospectus and in the accompanying Prospectus
Supplement. This Prospectus and the accompanying Prospectus Supplement do not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
AVAILABLE INFORMATION
GE Global is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and in accordance therewith
files reports and other information which contain information about GE Global
with the Securities and Exchange Commission (the "Commission"). Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission, 450 Fifth Street, N.W, Washington,
D.C. 20549, as well as the Regional Offices of the Commission at 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, New York,
New York 10048 and copies can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed
rates.
GE Global is not required to deliver annual reports to its security holders
pursuant to the 1934 Act or any stock exchange requirement. Copies of its
annual, quarterly and periodic reports to the Commission on Forms 10-K, 10-Q
and 8-K (containing financial information audited by independent accountants
in the case of its annual report on Form 10-K) are required to be furnished to
the trustee under the indenture pursuant to which the Debt Securities will be
issued.
DOCUMENTS INCORPORATED BY REFERENCE
There is hereby incorporated in this Prospectus by reference GE Global's
Registration Statement on Form 10, as amended, filed with the Commission
pursuant to Section 12(g) of the 1934 Act, to which reference is hereby made.
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All documents filed by GE Global pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act after the date of the initial filing of the Registration
Statement of which this Prospectus is a part and prior to the termination of
the offering of the Debt Securities offered by the accompanying Prospectus
Supplement shall be deemed to be incorporated in this Prospectus by reference
and to be a part hereof from the date of filing of such documents.
GE Global hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to Robert E. Monroe, Vice
President and Comptroller, Employers Reinsurance Corporation, 5200 Metcalf,
Overland Park, Kansas 66201, Telephone No. (913) 676-5200.
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RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing Debt Securities offered hereby.
Holding Company Structure
Because the operations of GE Global are conducted through GE Global's only
direct operating subsidiary, Employers Reinsurance Corporation ("ERC"), GE
Global is dependent upon dividends from ERC to service its debt and meet its
other obligations. The payment of dividends and other payments to GE Global by
ERC is subject to limitations imposed by the laws of Missouri. Substantially
all of GE Global's other indirect subsidiaries are subject to regulatory
control by various state insurance departments and other foreign insurance
regulatory authorities. Therefore, the ability of such subsidiaries to pay
dividends or make loans or advances to GE Global or any of GE Global's other
subsidiaries without prior regulatory approval is limited by applicable laws
and regulations. In addition, insurance regulators have authority in certain
circumstances to block payments by ERC and the other insurance subsidiaries of
dividends and other amounts that would otherwise be permitted without
regulatory approval. See "The Company--Regulatory Matters--Dividends by ERC"
and "Description of Debt Securities--General."
Subordination of the Notes to the Obligations of the Subsidiaries
GE Global is a non-operating holding company which conducts its business
through its insurance subsidiaries. The Debt Securities will be effectively
subordinated to the liabilities of GE Global's subsidiaries. In the event of
the insolvency, liquidation or other reorganization of any of GE Global's
subsidiaries, the creditors and shareholders of GE Global would have no right
to proceed against any such subsidiary or to cause the liquidation or
bankruptcy of any such subsidiary under federal or state bankruptcy laws. The
insurance laws of the domiciliary state would govern such proceedings and the
relevant insurance commissioner would act as liquidator or rehabilitator for
the subsidiary. Creditors and policyholders of any such subsidiary would be
entitled to payment in full from the assets of the subsidiary before GE
Global, as a shareholder, would be entitled to receive any distribution
therefrom. See "Description of Debt Securities--General."
Transactions Involving Issuance or Assumption of Debt
The Indenture does not limit the amount of Debt Securities or other
unsecured, senior debt which may be issued thereunder or limit the amount of
Debt Securities or other unsecured, senior debt which may otherwise be issued
by GE Global. In addition, the provisions of the Indenture do not limit the
ability of GE Global to incur indebtedness or afford holders of Debt
Securities protection in the event GE Company, as sole indirect stockholder of
GE Global, causes GE Global to engage in a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction. See "Description
of Debt Securities--General."
Property and Casualty Loss Reserves.
The reserves for losses and loss adjustment expenses established by the
Company (as defined below) are estimates of amounts needed to pay reported and
unreported claims and related loss adjustment expenses. The estimates are
based on certain assumptions related to the ultimate cost to settle such
claims. Due to the inherent uncertainty in estimating reserves for losses and
loss adjustment expenses, there can be no assurance that the ultimate
liability will not exceed amounts reserved, with a resulting adverse effect on
the Company. Management believes that the Company's aggregate reserves are
adequate to meet its future obligations. See "The Company--Property and
Casualty Reserves for Unpaid Losses and Loss Adjustment Expenses--Domestic"
and "The Company--Property and Casualty Reserves for Unpaid Losses and Loss
Adjustment Expenses--International."
Effects of Inflation
The Company's ultimate loss and loss adjustment expense costs on claims not
yet settled are increased by the effects of inflation, and changes in the
inflation rate therefore could become a significant factor in determining
appropriate loss reserves as well as reinsurance premium rates. Generally, the
Company's methods used to estimate loss reserves and to calculate rates take
into account the anticipated effects of inflation. However, until claims are
ultimately settled, the full effect of inflation on the Company's results
cannot be known.
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Cyclicality
The property and casualty reinsurance industry has been highly cyclical.
Demand for reinsurance is significantly influenced by underwriting results of
primary property and casualty insurance companies and prevailing general
economic conditions and reinsurance premium rates. The cyclical trends in the
industry and the industry's profitability can also be affected significantly
by volatile and unpredictable developments, including changes in what the
Company believes to be the propensity of courts to grant large awards, natural
disasters and other catastrophic events, fluctuations in interest rates and
other changes in the investment environment which affect inflationary
pressures that may tend to affect the size of losses experienced by ceding
primary insurance companies.
Legislative and Regulatory Proposals
From time to time, various regulatory and legislative changes have been
proposed that may affect reinsurers. A substantial number of states have
recently adopted, or are considering adopting, laws and regulations that,
among other things, limit the ability of primary insurance companies to effect
premium rate increases or to cancel or not renew existing policies and limit
the right of offset by reinsurers. The Company is unable to predict whether
any of these laws and regulations will be adopted in additional states, the
form in which any such laws and regulations might be adopted in additional
states, or the effect, if any, these developments will have on the Company. In
addition, no prediction can be made as to whether any legislative proposals
relating to dividend rules in applicable jurisdictions will be made, whether
any such legislative proposal will be adopted in the future, or the effect, if
any, any such proposal would have on the Company. See "The Company--Regulatory
Matters--Legislative and Regulatory Proposals."
Foreign Operations
A portion of the Company's business is carried on in foreign countries. The
degree of regulation and supervision in foreign jurisdictions varies from
minimal in some to stringent in others. Licenses issued by foreign authorities
to GE Global's foreign subsidiaries are subject to modification or revocation
by such authorities, and such subsidiaries could be prevented from conducting
business in certain of the jurisdictions where they currently operate. See
"The Company--Regulatory Matters--Dividends by ERC". "The Company--Regulatory
Matters--International Regulations" and "Description of Debt Securities--
General."
Competition
The Company operates in a highly competitive environment. Concerns
regarding the financial stability of insurance companies have resulted in
emphasis being placed upon insurance company ratings and have created some
measure of competitive advantage for insurance carriers with higher ratings.
GE Global's principal subsidiaries, ERC and Employers Reassurance Corporation
("ERAC"), are rated "A++ (Superior)" and "A+ (Superior)", respectively, by
A.M. Best Company ("A.M. Best"). In the area of claims-paying ability, ERC is
rated "AAA" by Standard & Poor's Corporation ("S&P") and Aaa by Moody's
Investors Services, Inc. ("Moody's") and Frankona Re and the subsidiary
holding the Aachen Re Business (each as defined below) are rated "AAA" by S&P.
Some of GE Global's other subsidiaries are also rated by certain domestic and
foreign rating agencies. Claims-paying ability ratings do not reflect an
insurer's ability to meet non-policy obligations (such as the repayment of
indebtedness). In addition, there can be no assurance that the ratings for ERC
or any of GE Global's other subsidiaries will be maintained. Any downgrade in
the ratings of GE Global's subsidiaries could adversely affect the Company's
business. See "The Company--Ratings."
Lack of Public Market
The Debt Securities will constitute a new issue of securities with no
established trading market. Although GE Global may list the Debt Securities on
the New York Stock Exchange, there can be no assurance as to the liquidity of
the trading market for the Debt Securities.
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THE COMPANY
GE Global (together with its subsidiaries the "Company"), through its
direct and indirect subsidiaries, is principally engaged in the reinsurance
business in the United States and abroad. All the outstanding common stock of
GE Global is owned by General Electric Capital Services, Inc. ("GE Capital
Services"), formerly General Electric Financial Services, Inc., which in turn
is wholly owned by General Electric Company ("GE Company").
Ownership of the Company
GE Company is one of the largest and most diversified industrial
corporations in the world. GE Company and its consolidated affiliates reported
total assets of $194 billion at December 31, 1994 and net earning for the year
ended December 31, 1994 of $4.7 billion.
The business of GE Capital Services consists primarily of the ownership of
the Company and of General Electric Capital Corporation ("GE Capital"). GE
Capital Services and its consolidated affiliates reported total assets from
continuing operations of $145 billion at December 31, 1994 and net earnings
from continuing operations for the year ended December 31, 1994 of $2.1
billion. After giving effect to the discontinued operations of Kidder, Peabody
Group Inc., GE Capital Services' 1994 net earnings were $896 million.
GE Capital operates in four finance industry segments and in a specialty
insurance industry segment. GE Capital's financing activities include a full
range of leasing, lending, equipment management services and annuities. GE
Capital's specialty insurance activities include providing private mortgage
insurance, financial guaranty insurance, principally on municipal bonds and
structured finance issues, and creditor insurance covering international
customer loan repayments. GE Capital is an equity investor in a retailer and
certain other service and financial services organizations. GE Capital and its
consolidated affiliates reported total assets of $131 billion at December 31,
1994 and net earnings for the year ended December 31, 1994 of $1.9 billion.
The long-term debt obligations of GE Company, GE Capital Services and GE
Capital are each rated "AAA" by S&P and "Aaa" by Moody's.
On September 28, 1995, GE Capital Services contributed $300 million to the
equity of GE Global, and GE Capital purchased 1,500 shares of Cumulative
Preferred Stock issued by GE Global for an aggregate purchase price of $150
million. Dividends on the preferred stock will be paid at a rate of 5% per
annum if, as and when declared by the Board of Directors of GE Global. In
addition, on July 24, 1995, GE Capital Services and GE Global entered into a
revolving credit agreement pursuant to which GE Global may borrow up to $600
million at any time outstanding from GE Capital Services. This line of credit
(which is currently unutilized) is available for one year, but may be
terminated by either party earlier.
The Debt Securities will not be guaranteed by GE Global's affiliates named
above.
General
GE Global's principal subsidiary is ERC. ERC was established in 1914 and
principally writes property and casualty reinsurance. ERC is the second
largest reinsurance company in the United States, based on 1994 statutory net
premiums written, and fourth largest in the world based on 1993 statutory net
premiums written. The Company is also a provider of life and healthcare
reinsurance and writes some lines of primary health, property and casualty and
workers' compensation insurance.
The Company conducts business and services its accounts through a
headquarters office in Overland Park, Kansas and branch and satellite
(smaller, more specialized) offices located in fourteen cities in the United
States and one city in Canada. Operations other than in North America are
conducted through the headquarters office in Overland Park and offices located
in Aachen (Germany). Coral Gables (Latin American operations), Copenhagen,
Beirut, Dublin, London, Folkestone (United Kingdom), Hong Kong, Luxembourg,
Singapore,
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Tokyo, Madrid, Mexico City, Munich, Paris and Turin. The Company writes
business in all fifty states, the District of Columbia, certain provinces of
Canada and elsewhere throughout the world.
The Company's business strategy is to continue to increase premium volume
by acquiring existing businesses, particularly in the international market, by
expanding its international operations through internal growth, by enhancing
the Company's domestic position with the large regional and national primary
insurers while retaining the Company's historical focus on small and medium
regional customers, and by expanding the Company's product lines to take
advantage of market opportunities. The Company does not intend, however, to
increase premium volume at the expense of its underwriting results. See "Lines
of Business" below.
As part of the Company's international expansion strategy, in 1995 the
Company acquired over 93% of the outstanding shares of Frankona
Ruckversicherungs-Aktiengesellschaft ("Frankona Re") and certain assets (the
"Aachen Re Business") comprising a majority of the reinsurance business of
Aachener Ruckversicherungs-Gesellschaft Aktiengesellschaft ("Aachen Re"), two
major reinsurance businesses in Germany, and in 1994 acquired a block of life
and health reinsurance business in the United Kingdom. See "International
Expansion" below.
The Company's operating strategy is to maximize its profitability by
capitalizing on its financial resources and reputation and its position as a
major direct writer of reinsurance, building long-term relationships with its
clients and limiting its exposure through adherence to strict underwriting
guidelines. Management believes that the Company's size, claims-paying
ratings, and reputation will enable the Company to maintain and enhance its
position in the markets in which it competes.
As one of the largest direct writers of reinsurance in the United States,
the Company works directly with its clients which enhances the Company's
ability to evaluate its clients and their respective risks and allows the
Company to be more responsive to the individual needs of its customers. The
Company utilizes its network of branch and satellite offices throughout the
world to service the particular needs of its reinsurance clients. This system
enables the Company to provide a wider range of services targeted at the needs
of a particular market. To enhance its responsiveness to customer needs, the
Company is also continuing to decentralize underwriting decisions and customer
service in its property and casualty segment.
The Company manages and diversifies its risk through the careful
underwriting of risks, active claims management and the purchase of
retrocessional coverage. The Company expects that decentralization of
underwriting decisions will not compromise its underwriting results because of
the continued implementation of its comprehensive written underwriting
guidelines. The Company monitors adherence to underwriting guidelines through
the use of computer systems and internal audits.
Unless otherwise indicated, all financial data has been prepared in
accordance with United States generally accepted accounting principles
("GAAP").
The Company's principal executive offices are located at 5200 Metcalf,
Overland Park, Kansas 66201, Telephone No. (913) 676-5200.
Overview of the Reinsurance Industry
Reinsurance is a form of insurance in which a reinsurer indemnifies a
primary insurer against part or all of the liability assumed by the primary
insurer under one or more insurance policies. Reinsurance provides a primary
insurer with several major benefits: a reduction in net liability on
individual risks, protection against catastrophic losses and assistance in
maintaining acceptable financial ratios. Reinsurance also provides a primary
insurer with additional underwriting capacity by allowing the primary insurer
to accept larger risks and to expand the book of business it writes at a
faster rate.
There are two basic types of reinsurance agreements: treaties and
facultative certificates. A treaty is an agreement, usually continuous or
renewable on an annual basis, between a primary insurer and a reinsurer under
which the reinsurer automatically will assume a predetermined portion of risk
associated with each policy written on a book or class of business, generally
up to a specified limit per insured. Under a facultative certificate, the
primary insurer cedes and the reinsurer assumes all or part of the risks
insured under a single primary insurance
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policy. A facultative certificate is separately negotiated for each risk or
group of risks ceded. Facultative reinsurance is normally purchased by
insurance companies for (1) individual risks not covered by their reinsurance
treaties, (2) higher limits on risks covered by their reinsurance treaties,
(3) supplementing the protection provided by its reinsurance treaties and (4)
risks outside of the cedent's normal book of business.
Reinsurers indemnify primary insurers under treaties and facultative
certificates on either a proportional or excess of loss basis. In the case of
proportional reinsurance, the reinsurer, in return for a predetermined portion
or share of the insurance premium charged by the primary insurer, indemnifies
the primary insurer against a predetermined similar portion of the losses and
loss adjustment expenses ("LAE") of the primary insurer under the covered
primary policy or policies. In the case of excess of loss reinsurance, the
reinsurer indemnifies the primary insurer against all or a specific portion of
losses on underlying insurance policies in excess of a specified dollar amount
known as the "retention" or "attachment point," subject to a negotiated limit.
Premiums payable to the reinsurer by the primary insurer for excess of loss
coverage are not directly proportional to the premiums the primary insurer
receives because the reinsurer does not assume a proportionate risk.
Reinsurers that provide financial reinsurance enter into contracts with
insurance companies pursuant to which the primary insurer enhances its
statutory surplus by utilizing excess statutory surplus of the reinsurer. The
insurer pays the reinsurer a fee for this service.
Reinsurers may purchase reinsurance to cover some or all of their own risk
exposure, subject to market availability. Reinsurance of reinsurance is called
retrocession. Reinsurance companies cede risks under retrocessional agreements
to other reinsurers, commonly referred to as retrocessionaires, for reasons
similar to those that cause primary insurers to purchase reinsurance, namely
to reduce net liability on individual risks, to protect against catastrophic
losses, to stabilize financial ratios and to obtain additional underwriting
capacity. See "Risk Management and Retrocession Program" below.
Revenues of reinsurers principally consist of premiums assumed from ceding
companies, net of the cost of reinsurance purchased from retrocessionaires,
plus investment income. In general, premiums are included in revenues ratably
over the period of the Company's exposure to loss.
Lines of Business
The Company's two business segments are (1) property and casualty
insurance/reinsurance and (2) life reinsurance. The Company's principal
product lines under the property and casualty segment are traditional property
and casualty reinsurance, healthcare reinsurance and specialty insurance
(generally primary property and casualty insurance) and its principal product
lines under the life reinsurance segment are traditional life reinsurance and
financial reinsurance. The Company also provides primary insurance products to
hospitals, health maintenance organizations and medical professionals as part
of its healthcare product line and to niche customers as part of its specialty
insurance product line.
The Company's strategy for expanding its property and casualty business
includes increasing its offerings of sophisticated liability products,
including errors and omissions, directors and officers, products, and
transportation liability coverages. The Company is also expanding its
liability business in Europe, as the shift from a manufacturing to service
economy is expected to increase demand for liability reinsurance products in
this market. The Company also plans to expand its healthcare business to take
advantage of the continued healthcare industry consolidation into integrated
healthcare systems by offering new products such as its complete healthcare
excess liability package (which includes medical professional, errors and
omissions, directors and officers and other liability coverages) to hospitals,
managed care organizations and other healthcare providers. The Company also
intends to continue to focus on its specialty product line by taking advantage
of new product opportunities evolving in the communications industry. The
Company's strategy for expanding its life segment includes increasing its
presence in the international markets by developing new products for the aging
population and taking advantage of improved regulatory environments in Europe
and Asia.
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Unless otherwise indicated, the Company's domestic results include business
written in the United States (including business written in the United States
where the reinsured is outside the United States) and Canada, and the
international results include all other business written by the Company. The
following table shows the geographic breakdown, based on net premiums written,
of the Company's principal product lines.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1992 1993 1994
----------------- ----------------- -----------------------------------
Actual Pro Forma(1)
----------------- -----------------
Inter- Inter- Inter- Inter-
Domestic national Domestic national Domestic national Domestic national
-------- -------- -------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property and Casualty
Segment
Property and
Casualty............. $ 825 $250 $1,250 $310 $1,276 $405 $1,397 $2,455
Healthcare............ 521 --- 605 --- 532 --- 532 ---
Specialty............. 134 --- 153 --- 167 --- 167 ---
Life Segment............ 72 30 53 42 59 134 96 307
------ ---- ------ ---- ------ ---- ------ ------
Total............... $1,552 $280 $2,061 $352 $2,034 $539 $2,192 $2,762
====== ==== ====== ==== ====== ==== ====== ======
</TABLE>
- --------
(1) The pro forma data included in the above table reflect the acquisitions of
Frankona Re and the Aachen Re Business as if they occurred on January 1,
1994.
The following table presents the types of risks reinsured and insured by
the Company, based on net premiums written, for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1992 1993 1994
------ ------ -------------------
Actual Pro Forma(1)
------ ------------
(in millions)
<S> <C> <C> <C> <C>
Property and Casualty Segment
Fire, Wind, and Allied Lines................ $ 279 $ 476 $ 492 $1,054
General Liability........................... 347 390 442 619
Accident & Health........................... 328 417 360 464
Multiple Peril.............................. 116 265 278 290
Auto........................................ 183 222 229 731
Medical Malpractice......................... 158 169 154 156
Workers' Compensation....................... 140 146 131 131
Ocean Marine................................ 62 94 130 241
Fidelity, Surety & Other Financial.......... 71 63 72 172
Aviation.................................... 30 57 69 479
Other....................................... 16 19 23 214
Life Segment.................................. 102 95 193 403
------ ------ ------ ------
Total..................................... $1,832 $2,413 $2,573 $4,954
====== ====== ====== ======
</TABLE>
- --------
(1) The pro forma data included in the above table reflect the acquisitions of
Frankona Re and the Aachen Re Business as if they occurred on January 1,
1994.
The following is a summary description of the Company's domestic and
international business. For a description of the Company's recent
international acquisitions, see "International Expansion" below.
Property and Casualty Insurance/Reinsurance Segment
Property and Casualty Reinsurance. The Company's largest product line,
measured by net premiums written, consists of traditional property and
casualty reinsurance. See "Lines of Business." Based on net premiums written,
property and casualty reinsurance accounted for approximately 65% of the
Company's
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worldwide business in 1994. On a pro forma basis, assuming the acquisitions of
Frankona Re and the Aachen Re Business had occurred on January 1, 1994, based
on net premiums written, property and casualty reinsurance would have
accounted for 78% of the Company's worldwide business in 1994.
The Company's domestic property and casualty business which, based on 1994
net premiums written, accounted for 54% of its property and casualty business
segment (or 31% on a pro forma basis, assuming the acquisitions of Frankona Re
and the Aachen Re Business had occurred on January 1, 1994), is conducted
throughout the United States and Canada. For the year ended December 31, 1994,
approximately 44% of the Company's domestic net premiums written from the
property and casualty segment were derived from property reinsurance,
approximately 36% from casualty reinsurance, approximately 11% from aviation
and marine reinsurance and approximately 9% from other lines of reinsurance.
The Company's international property and casualty business which, based on
1994 net premiums written, accounted for 17% of its property and casualty
business segment (or 54% on a pro forma basis assuming the acquisitions of
Frankona Re and the Aachen Re Business had occurred on January 1, 1994),
services worldwide markets, including Germany, Scandinavia, the United
Kingdom, France, Italy, Spain and countries in the Middle East and Far East.
For the year ended December 31, 1994, approximately 62% of the Company's
international net premiums written from property and casualty reinsurance were
derived from property reinsurance, approximately 26% from casualty reinsurance
and approximately 12% from marine and aviation reinsurance.
Assuming the acquisitions of Frankona Re and the Aachen Re Business had
occurred on January 1, 1994, for the year ended December 31, 1994,
approximately 45% of the Company's international net premiums written from
property and casualty reinsurance would have been derived from casualty,
reinsurance, approximately 32% from property reinsurance, approximately 17%
from aviation reinsurance and approximately 6% from marine reinsurance, and
the Company would have derived approximately 95% of its international property
and casualty net premiums written from European markets and approximately 5%
from other international markets.
Based on 1994 net premiums written and assuming the acquisitions of
Frankona Re and the Aachen Re Business had occurred on January 1, 1994,
approximately 68% of the Company's domestic property and casualty reinsurance
and approximately 63% of the Company's international property and casualty
reinsurance was written on a direct basis. Based on data published by the
Reinsurance Association of America ("RAA"), ERC is the second largest of the
six major professional direct underwriters of reinsurance in the United
states. Direct writers provide reinsurance directly to primary insurance
companies without the assistance of reinsurance brokers. Over the past five
years, direct writers of property and casualty reinsurance in the United
States have reported results to the RAA that were consistently superior to
those of United States broker reinsurers on a statutory combined ratio basis.
See "Domestic Statutory Property and Casualty Ratios" below. The Company
writes the remaining property and casualty reinsurance business through
reinsurance brokers.
The Company's premium volume in the property and casualty segment is
derived principally from treaty agreements, which enable the Company to
maintain lower operating costs because fewer personnel are required to
administer treaty business than facultative business. The following table
shows the Company's breakdown between treaty and facultative property and
casualty reinsurance, based on net premiums written.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1992 1993 1994
---------------------- ---------------------- ----------------------
Domestic International Domestic International Domestic International
-------- ------------- -------- ------------- -------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Treaty.................. $742 $239 $1,131 $296 $1,130 $383
Facultative............. 83 11 119 14 146 22
---- ---- ------ ---- ------ ----
Total................. $825 $250 $1,250 $310 $1,276 $405
==== ==== ====== ==== ====== ====
</TABLE>
Most of the Company's casualty business is written on an excess of loss
basis because it better enables the Company to control its exposure on
business that has a relatively longer "tail". The Company's property business
is written on both an excess of loss and a proportional basis.
The Company is continuing to decentralize underwriting decisions and
consumer service. The Company believes that writing and servicing business on
a localized basis enables it to render better service to its
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customers. Generally, the Company is the lead reinsurer for any domestic
program in which it participates, enabling it to negotiate the terms of the
reinsurance. The Company also acts as the lead reinsurer on a portion of its
international business.
In recent years insurance companies have directed more business to the
better-capitalized, more highly-rated reinsurers, which has led to a
consolidation in the reinsurance industry. Although this consolidation has
decreased the number of reinsurers, it has increased the number of companies
that are competitive with the Company. In competing with a smaller number of
global reinsurers, the Company has found that a number of its global customers
are increasingly demanding that reinsurers provide a broad range of coverages.
In response to this trend, the Company has expanded the property and casualty
risks it reinsures beyond it more traditional property and casualty
reinsurance business to include risks such as errors and omissions, directors
and officers, and long-haul trucking liability. Management believes that the
Company is well positioned to compete on a global basis in these markets.
The property and casualty reinsurance industry has experienced a
significant increase in catastrophic exposure and loss in recent years.
Increased population density, particularly in regions susceptible to tropical
storms or earthquakes, and the higher incidence and greater severity of
catastrophes, has increased the losses incurred in many recent catastrophes.
As a result of these developments, the Company has taken steps to limit its
exposure to catastrophic property and casualty losses by carefully monitoring
and allocating its property and casualty exposure to specific geographic
zones, both domestically and internationally.
Healthcare. As part of the Company's property and casualty business
segment, the Company provides insurance and reinsurance for the healthcare
industry. Coverages include primary insurance and reinsurance for medical
professional liability and reinsurance protecting primary insurers (including
self-insurers) in the healthcare market (i.e., reinsurance of major medical,
long-term disability and critical illness coverages). In 1994, the Company's
healthcare business was written entirely in the domestic market and accounted
for approximately 21% of the Company's worldwide net premiums written.
Traditionally, the Company has provided facultative reinsurance coverage on
an excess of loss basis for medical malpractice policies purchased by
hospitals and nursing homes and treaty reinsurance on both an excess of loss
and a proportional basis to health carriers that insure both individuals and
groups. The development of new methods to deliver healthcare, along with the
concomitant limits imposed on fees recoverable by hospitals and managed care
organizations, has produced new business opportunities in this product line.
In addition to the coverages described above, the Company now writes
reinsurance covering multiple types of risks for hospitals, managed care
organizations and other healthcare providers, including physicians. These
coverages are usually written on an excess of loss basis. The Company also
provides primary stop loss insurance coverage, which protects an employer from
catastrophic loss on self-insured health benefits for its employees, and
primary provider excess coverage, which protects healthcare providers from
losses under capitated healthcare plans and specific and aggregate excess
workers' compensation coverage for self-insured workers' compensation
programs.
The changes in the healthcare delivery systems have led to increased
competition in the healthcare insurance market. Companies that historically
specialized in physician business are now expanding their scope to write
hospital professional liability and companies that specialized in hospital
liability are aggressively competing for physician business to serve the needs
of their hospital clients that are purchasing physician practices. The Company
believes that it is well positioned to compete in the healthcare market
because of its wide range of experience in providing healthcare liability
coverage.
Specialty Insurance. An additional component of the Company's domestic
property and casualty business is its specialty insurance product line, which
generally consists of commercial property and casualty policies written on a
primary basis in niche markets. The Company's specialty business concentrates
on providing commercial insurance products for target markets, usually
professional associations and homogeneous groups. These products include
professional liability programs, communications/media liability coverages and
some niche programs in the general casualty area. This coverage provides
insurance for errors and omissions ("E&O")
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arising out of the professional activities of the insureds. Professional
classes underwritten include property and casualty insurance agents and
brokers, life and health insurance agents and brokers, real estate
professionals, educators and school board members, directors and officers
(not-for-profit), and a few miscellaneous classes such as travel agents,
computer consultants, and marketing consultants. The majority of this business
provides coverage to property and casualty and life insurance agents and
brokers. The Company's specialty business accounted for approximately 6% of
the Company's worldwide net premiums written in 1994.
Competition for the classes of business underwritten by the Company's
specialty product line has recently increased as more companies have
redirected their resources to the specialty niche business. In order to
compete for this business the Company has provided value-added services,
including enhanced underwriting services, to its specialty line customers.
Life Reinsurance Segment
Life Reinsurance. The Company is engaged in the reinsurance of traditional
life insurance products, including term, whole and universal life annuities,
group long term health and health products and the provision of financial
reinsurance to life insurers. Based on net premiums written, life reinsurance
accounted for approximately 8% of the Company's worldwide business in 1994 and
would have accounted for the same percentage of such business on a pro forma
basis, assuming the acquisitions of Frankona Re and the Aachen Re Business had
occurred as of January 1, 1994.
With respect to life reinsurance, the Company writes mostly on a direct
basis with primary insurers. The Company's traditional life reinsurance
business consists principally of treaty business and is written generally on
an excess of loss basis. Pricing and other underwriting decisions are
generally made at the Company's headquarters; however, the Company's largest
international branches retain the authority to make these decisions.
The Company's domestic life reinsurance business is comprised exclusively
of traditional life reinsurance contracts and is written in every state in the
United States. The Company's international life reinsurance business services
worldwide markets, including the United Kingdom, France, Spain, Scandinavia,
Italy, Singapore, Mexico, Israel and Greece. For the year ended December 31,
1994, the Company derived approximately 70% of its international life
reinsurance net premiums written from the United Kingdom and approximately 30%
from the rest of its international operations. For the year ended December 31,
1994, 51% of the Company's international life reinsurance net premiums written
were for healthcare reinsurance with the balance for traditional life
reinsurance contracts. If the acquisitions of Frankona Re and the Aachen Re
Business had occurred as of January 1, 1994, the Company expects that
approximately 56% of its 1994 international life reinsurance net premiums
written would have been derived from Germany with the United Kingdom providing
slightly less than 31%.
The company believes that increases in life expectancy, decreases in public
funding for social programs in Europe and deregulation of the life reinsurance
markets in Europe and Japan present increased opportunities for the Company's
life reinsurance business line. In response to these trends, the Company has
expanded its presence in the international life reinsurance market by
increasing its presence in the market for reinsurance of annuity providers.
Financial Reinsurance. Financial reinsurance is primarily designed to
enhance the current statutory surplus of the ceding company while reducing
future statutory earnings as amounts are repaid to the reinsurer. This
financial transaction is effectively collateralized by anticipated future
income streams from selected insurance policies. The Company writes financial
reinsurance through brokers and generally only for companies with credit
ratings of not less than "A" at the inception of the policy and that have a
minimum capital and surplus of $15 million. Financial reinsurance typically
has a duration of three to five years. Historically, fees generated by the
Company's financial reinsurance business have not been a significant
contributor to the Company's consolidated revenues or net income.
12
<PAGE>
International Expansion
The Company has expanded its international business in part through the
extension of its branch office network. The Company opened new branches in
Madrid, Munich and the United Kingdom (life branch) in 1989, Turin in 1990,
Paris in 1991, Singapore in 1992, Hong Kong in 1994 and Tokyo and Mexico City
in 1995.
The Company has also pursued acquisitions of non-United States based
reinsurance companies as part of its growth strategy. In July 1994, the
Company acquired $1.5 billion in assets related to a block of life and health
reinsurance business form NRG Victory Reinsurance Limited (the "NRG Business")
in the United Kingdom. In addition, in July 1995, the Company consummated its
purchase of certain assets comprising a majority of the reinsurance business
of Aachen Re for approximately $143 million and its purchase of over 92% of
the outstanding shares of Frankona Re for approximately $879 million. The
Company believes that these acquisitions will significantly increase its
presence in the expanding European markets.
Frankona Re was founded in 1886 and, according to Business Insurance, is
the ninth largest reinsurer in the world and the fourth largest reinsurer in
Germany (based on Frankona Re's consolidated net premiums written of $1.8
billion in 1994). As of December 31, 1994, Frankona Re had total assets equal
to approximately $4.0 billion. Frankona Re operates primarily as a direct
reinsurer (except for aviation business, which is placed primarily through
brokers). In 1994, Frankona Re's Munich operations (which accounted for 89% of
Frankona Re's net premiums written) derived 22% of its net premiums written
from aviation reinsurance, 19% from automobile reinsurance, 14% from fire
reinsurance and 18% from life reinsurance (based on Frankona Re's German GAAP
reports to German regulators). Frankona Re is also engaged in general
liability, personal accident and marine reinsurance. In 1994, based on gross
premiums written, approximately 56% of Frankona Re's business originated
outside of Germany and approximately 26% of Frankona Re's non-German business
originated from the United States and Canada (based on Frankona Re's German
GAAP reports to German regulators). Frankona Re's premium volume is derived
principally from treaty agreements and it writes its business on both an
excess of loss and proportional basis. Frankona Re also acts as lead reinsurer
on several of the lines of business that it writes.
For the year ended December 31, 1993, Frankona Re had an approximately 15%
share of the global aviation reinsurance market, based on net premiums
written. Underwriting results for the aviation business tend to be more
volatile than some of the Company's other business lines and are subject to
the low frequency/high severity nature of aviation accidents. Although the
maximum assumed risk per exposure permitted under Frankona Re's aviation
reinsurance underwriting guidelines is $100 million for treaty business and
$150 million for facultative business, the use of retrocession by Frankona Re
reduces the net exposure to $3.3 million per event.
Aachen Re was founded in 1853. Net premiums written for the Aachen Re
Business totaled $606 million in 1994. The Aachen Re Business is written
primarily in Europe (approximately 55% in Germany) on a direct basis and
principally consists of automobile, fire and life reinsurance. The Aachen Re
Business also consists of reinsurance of German and non-German businesses in
the following lines of insurance: property, automobile, life and health,
general liability and marine.
13
<PAGE>
Geographic Distribution of Business
The following table presents information regarding the Company with respect
to net premiums written by the location of the insured or ceding company.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1992 1993 1994
------ ------ -------------------
Actual Pro forma(1)
------ ------------
(in millions)
<S> <C> <C> <C> <C>
United States................................. $1,428 $1,909 $1,861 $2,019
Canada........................................ 44 62 79 92
Europe........................................ 246 313 472 2,626
Latin America................................. 28 30 34 34
Asia/Australia................................ 69 77 106 162
All Others.................................... 17 22 21 21
------ ------ ------ ------
Total..................................... $1,832 $2,413 $2,573 $4,954
====== ====== ====== ======
</TABLE>
- --------
(1) The pro forma data included in the above table reflect the acquisitions of
Frankona Re and the Aachen Re Business as if they occurred on January 1,
1994.
Ratings
ERC is rated "A++ (Superior)" by A.M. Best, the highest of A.M. Best's 15
ratings. "A++ (Superior)" is assigned by A.M. Best to those companies that, in
its opinion, have demonstrated superior overall performance when compared to
the standards established by A.M. Best and have demonstrated a very strong
ability to meet obligations to policyholders over a long period of time.
According to A.M. Best, the objectives of its rating system are to evaluate
the factors affecting overall performance of an insurance company in order to
provide A.M. Best's opinion of the company's financial strength, operating
performance and ability to meet its obligations to policyholders. A.M. Best's
ratings are based on factors relevant to policyholders, ceding companies,
agents, brokers, and other intermediaries and are not directed to the
protection of investors.
ERC is rated "AAA" by S&P for its claims-paying ability. An "AAA" rating
represents the highest of S&P's 22 ratings. A claims-paying rating of "AAA" is
assigned by S&P to those companies that, in its opinion, have superior
financial security on an absolute and relative basis where the capacity to
meet policyholder obligations is overwhelming under a variety of economic and
underwriting conditions.
ERC is rated "Aaa" by Moody's for its claims-paying ability, the highest of
Moody's nineteen qualitative ratings. A rating of "Aaa" is assigned by Moody's
to insurance companies which offer exceptional financial security.
Claims-paying ability ratings do not reflect an insurer's ability to meet
non-policy obligations (such as the repayment of indebtedness).
Frankona Re and the subsidiary holding the Aachen Re Business have recently
received "AAA" claims-paying ability ratings from S&P. ERAC, GE Global's
principal domestic life reinsurance subsidiary, is rated "A+ (Superior)" by
A.M. Best. Some of GE Global's other subsidiaries are also rated by certain
domestic and foreign rating agencies. There can be no assurance that the
ratings for ERC or any of GE Global's other subsidiaries will be maintained.
14
<PAGE>
Domestic Statutory Property and Casualty Ratios
Although a reinsurer may have a combined ratio in excess of 100%, it may
still be profitable due to investment income earned on the reinsurer's
investment portfolio. The following table sets forth the statutory property
and casualty loss and LAE ratios, underwriting expense ratios and combined
ratios of ERC's domestic operations for the years 1992 through 1994 and
compares them to those of the five other major direct writers of reinsurance
in the United States and to the United States property and casualty
reinsurance industry as a whole for the same periods. These ratios are
calculated on a statutory, rather than GAAP, basis in accordance with industry
practice.
<TABLE>
<CAPTION>
December 31,
-------------------
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Statutory ratios(1)
ERC's domestic operations:
Loss and LAE ratio....................................... 78.2% 82.0% 80.4%
Underwriting expense ratio............................... 26.4 22.9 24.2
----- ----- -----
Combined ratio........................................... 104.6% 104.9% 104.6%
===== ===== =====
The five other major direct reinsurers(2):
Loss and LAE ratio....................................... 80.8% 70.6% 73.2%
Underwriting expense ratio............................... 32.3 33.4 32.1
----- ----- -----
Combined ratio........................................... 113.1% 104.0% 105.3%
===== ===== =====
Property and casualty reinsurance industry(3):
Loss and LAE ratio....................................... 85.8% 76.5% 76.9%
Underwriting expense ratio............................... 31.6 30.8 29.8
----- ----- -----
Combined ratio........................................... 117.4% 107.3% 106.7%
===== ===== =====
</TABLE>
- --------
(1) Represents statutory data for the applicable periods. Loss and LAE ratio
represents the sum of statutory losses and LAE (loss adjustment expenses)
as a percentage of statutory net premiums earned. Underwriting expense
ratio represents underwriting expenses as a percentage of statutory net
premiums written. Combined ratio represents the sum of the statutory loss
and LAE ratio and the statutory underwriting expense ratio.
(2) Weighted average of the five other major direct reinsurers in the U.S.
(General Reinsurance Corporation, American Re-Insurance Company, Munich
American Reinsurance Company, National Reinsurance Corporation and North
American Reinsurance Corporation). Source: RAA.
(3) Source: RAA.
Property and Casualty Reserves for Unpaid Losses and Loss Adjustment Expenses
Domestic. GE Global's domestic subsidiaries maintain reserves to cover
their estimated ultimate liability for unpaid losses and LAE with respect to
reported and unreported claims incurred as of the end of each accounting
period (net of estimated related salvage and subrogation claims). These
reserves are estimates that involve actuarial and statistical projections of
the expected cost of the ultimate settlement and administration of unpaid
claims based on facts and circumstances then known, estimates of future trends
in claims severity and other variable factors such as inflation and new
concepts of liability. The inherent uncertainties of estimating loss reserves
are exacerbated for reinsurers by the significant periods of time that often
elapse between the occurrence of an insured loss, the reporting of the loss to
the primary insurer and, ultimately, to the reinsurer, and the primary
insurer's payment of that loss and subsequent indemnification by the reinsurer
(the "tail"). As a consequence, actual losses and LAE paid may deviate,
perhaps substantially, from estimates reflected in the insurance companies'
reserves in their financial statements. Adjustments to previously reported
reserves for net losses and LAE are reflected in the financial statements in
the period in which the adjustment occurs.
When a claim is reported to a ceding company, the ceding company's claims
personnel establish a "case reserve" for the estimated amount of the ultimate
payment. The estimate reflects the informed judgment of such personnel based
on general insurance reserving practices and on the experience and knowledge
of such personnel
15
<PAGE>
regarding the nature and value of the specific type of claim. The Company, in
turn, typically establishes a case reserve when it receives notice of a claim
from the ceding Company. Such reserves are based on an independent evaluation
by the Company's claims departments, taking into consideration coverage,
liability, severity of injury or damage, jurisdiction, an assessment of the
ceding company's ability to evaluate and handle the claim, and the amount of
reserves recommended by the ceding company. Case reserves are adjusted
periodically by the claims departments of the Company based on subsequent
developments and audits of ceding companies.
In accordance with industry practice, the Company maintains loss reserves
for claims incurred but not reported ("IBNR"). Such reserves are established
to provide for future case reserves and loss payments on incurred claims that
have not yet been reported to an insurer or reinsurer. In calculating IBNR
reserves, the Company uses generally accepted actuarial reserving techniques
that take into account quantitative loss experience data, together with, where
appropriate, qualitative factors. IBNR reserves are based on loss experience
and are grouped both by class of business and by accident year. IBNR reserves
are also adjusted to take into account certain additional factors, such as
changes in the volume of business written, reinsurance contract terms and
conditions, the mix of business, claims processing and inflation, that can be
expected to affect the Company's liability for losses over time.
International. The Company's international property and casualty
reinsurance operations establish their reserves using analytical techniques
similar to those utilized by GE Global's domestic subsidiaries. They also
maintain IBNR reserves using actuarial and statistical projections. The
potential for adverse development of the Company's reserves for its
international business, as compared to that of its domestic business, is
reduced because the international operations have a relatively low proportion
of longer tail exposures. As of December 31, 1994, approximately 16% of the
Company's international reserves ($76 million) related to business acquired
by the Company from Assurance Compagniet Baltica Aktiesellskab ("Baltica") in
1988. At the time of the acquisition, the Company obtained from Baltica a 90%
loss development guarantee, pursuant to which Baltica is obligated to pay the
Company, at December 31, 1997, 90% of the amount of loss reserve development
(adjusted for certain income and expenses) from 1988 to such date. Baltica has
recently been acquired by Tryg Insurance Group of Denmark.
Management of the Company believes that its aggregate reserves for losses
and LAE are adequate. To the extent reserves prove to be inadequate in any
period after taking into account available retrocessional coverage, the
Company would have to augment such reserves and incur a charge to earnings in
such period.
Reserve Development. The table that follows presents the development of net
balance sheet liabilities of ERC and subsidiaries for unpaid claims and claims
expenses for 1984 through 1994.
Net Liability. The first row of data shows the estimated net liability for
unpaid claims and claims expenses at December 31 for each year from 1984 to
1994. The liability includes both case and IBNR reserves as of each year-end
date. The rows immediately following the first row of data show cumulative
paid data at December 31, as of one year, two years, etc., through up to 10
years of subsequent payments.
Net Liability Re-estimated. The middle rows of data show the re-estimated
amount for previously reported net liability based on experience as of the end
of each subsequent calendar year's results. This estimate is changed as more
information becomes known about underlying claims for individual years. The
amount in the line titled "Redundancy (Deficiency) at December 31, 1994",
represents for each calendar year reflected at the top of a particular column
(the "Base Year") the aggregate change in (i) GE Global's original estimate of
net liability for unpaid losses and LAE for all years prior to and including
the Base Year compared to (ii) GE Global's reestimate as of December 31, 1994
of net liability for unpaid losses and LAE for all years prior to and
including the Base Year. A redundancy means that the original estimate was
greater than the reestimate and a deficiency means that the original estimate
was less than the reestimate. By way of example, the deficiency for the year
1993, calculated as of December 31, 1994, represents a deficiency in GE
Global's original estimate of unpaid losses and LAE for 1993 and prior years.
16
<PAGE>
The last seven lines of data present the development of reserves on a
"gross of reinsurance" basis, reconciled to the "net of reinsurance basis"
shown in the immediately preceding tables. See "Risk Management and
Retrocession Program"below.
Changes in Historical Reserves for Unpaid Losses and LAE
For the Last Ten Years--GAAP Basis as of December 31, 1994
Year Ended December 31,
<TABLE>
<CAPTION>
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid
losses and LAE......... $ 1,263 $ 1,561 $2,083 $2,620 $3,087 $3,338 $3,579 $3,596 $3,991 $4,525 $5,071
Paid (cumulative ) as
of: --
One year later.......... 360 538 554 615 681 706 747 665 802 949 --
Two years later......... 612 807 899 1,006 1,064 1,125 1,119 1,103 1,274 -- --
Three years later....... 783 1,050 1,202 1,314 1,432 1,469 1,524 1,499 -- -- --
Four years later........ 940 1,281 1,429 1,553 1,687 1,746 1,772 -- -- -- --
Five years later........ 1,102 1,472 1,612 1,754 1,919 1,929 -- -- -- -- --
Six years later......... 1,241 1,603 1,764 1,945 2,065 -- -- -- -- -- --
Seven years later....... 1,337 1,720 1,901 2,063 -- -- -- -- -- -- --
Eight years later....... 1,428 1,829 1,998 -- -- -- -- -- -- -- --
Nine years later........ 1,514 1,908 -- -- -- -- -- -- -- -- --
Ten years later......... 1,580 -- -- -- -- -- -- -- -- -- --
Net liability re-
estimated as of:
One year later.......... $ 1,250 $ 1,672 $2,177 $2,746 $3,134 $3,390 $3,616 $3,625 $3,919 $4,612 --
Two years later......... 1,407 1,899 2,385 2,861 3,220 3,482 3,583 3,587 4,066 -- --
Three years later....... 1,572 2,108 2,541 2,941 3,346 3,462 3,564 3,701 -- -- --
Four years later........ 1,737 2,315 2,672 3,057 3,360 3,472 3,654 -- -- -- --
Five years later........ 1,890 2,465 2,807 3,094 3,406 3,357 -- -- -- -- --
Six years later......... 2,035 2,569 2,848 3,151 3,470 -- -- -- -- -- --
Seven years later....... 2,122 2,619 2,916 3,210 -- -- -- -- -- -- --
Eight years later....... 2,181 2,696 2,979 -- -- -- -- -- -- -- --
Nine years later........ 2,238 2,756 -- -- -- -- -- -- -- -- --
Ten years later......... 2,315 -- -- -- -- -- -- -- -- -- --
Redundancy (Deficiency)
at December 31, 1994... $(1,052) $(1,195) $ (896) $ (590) $ (383) $ (199) $ (75) $ (105) $ (75) $ (87)
<CAPTION>
1992 1993 1994
------ ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross liability--end of
year $4,815 $5,312 $6,020
Reinsurance recoverables
on unpaid losses....... 824 787 949
------ ------ ------
Net liability--end of
year................... 3,991 4,525 $5,071
Gross re-estimated
liability--latest...... 5,240 5,685 --
Re-estimated reinsurance
recoverables on latest
unpaid losses.......... 1,174 1,073 --
------ ------ ------
Net re-estimated
liability--latest...... 4,066 4,612 --
Gross cumulative
redundancy
(deficiency)........... $ (425) $ (373) --
</TABLE>
- --------
Note: For a description of the purpose of the above table and the various
table sections, please refer to the bottom of the preceding page entitled
"Reserve Development."
A number of major trends that occurred within the insurance industry, the
economy in general and several Company-specific factors have had a significant
effect on the Company's liabilities for unpaid claims and claims expenses
during the period covered by the preceding table. The loss reserve
deficiencies developed to December 31, 1994, as reflected in the preceding
table, included reserve deficiencies of approximately $425 million in 1984,
$461 million in 1985, $336 million in 1986, $226 million in 1987, $150 million
in 1988 and $99 million in 1989
17
<PAGE>
related to the general liability business on the books of Puritan Excess and
Surplus Lines Insurance Company ("PESLIC") before the Company's acquisition of
PESLIC in 1994. Prior to 1994, PESLIC was owned by GE Capital. Additionally,
beginning in 1985 the Company strengthened the reserves for its excess
liability and workers' compensation business for qualified self-insured
employers. Loss reserve development in the mid 1980's in these businesses
reflected the inadequate premium rates which resulted from intense competition
in the market during that period. In the late 1980's the reinsurance market,
in general, reacted to the rate deficiencies and the resulting loss reserve
development by increasing rates and strengthening loss reserves. This is
reflected, with respect to the Company, in the significant reductions in the
reserve deficiencies in recent years.
To a lesser degree, development of asbestos and environmental claims has
affected the Company's results. Inflation in certain lines of reinsurance
business has also had an adverse effect on liabilities for claims and claim
expenses, particularly in excess of loss reinsurance. Also affecting the
reserve structure has been an increase in both frequency and severity of
claims, especially after 1985. Partially offsetting the above factors is
favorable development in recent years in medical professional liability and
facultative casualty businesses as well as an increase in net retentions by
ceding companies.
The liabilities for claims and claim expenses in the preceding table
include long-term disability claims that are discounted at a 6% rate. As a
result of discounting the Company's long-term disability claims, the Company's
total liabilities for claims and claims expenses have been reduced by an
estimated 5% and 7% at December 31, 1993 and 1994, respectively. The
amortization of discount is included in current operating results as part of
the development of prior year liabilities. For the years ended December 31,
1992, 1993 and 1994, long-term disability discounts accrued as a percentage of
claims, claim expenses and policy benefits were approximately 4%, 5% and 8%,
respectively and discounts amortized were approximately 1% in all years.
The reconciliation of reserves for unpaid losses and LAE on a GAAP basis
for each of the years indicated is shown below.
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1992 1993 1994
------ ------ ------
(in millions)
<S> <C> <C> <C>
Reserves at beginning of period......................... $4,170 $4,815 $5,312
Reinsurance recoverable on unpaid losses................ 574 824 787
------ ------ ------
Net reserves at beginning of period..................... 3,596 3,991 4,525
Net incurred related to:
Current period........................................ 1,290 1,751 1,657
Prior periods......................................... 29 (72) 87
------ ------ ------
Total net incurred...................................... 1,319 1,679 1,744
------ ------ ------
Net paid related to:
Current period........................................ 229 301 374
Prior periods......................................... 665 802 949
------ ------ ------
Total net paid.......................................... 894 1,103 1,323
------ ------ ------
Foreign exchange and other.............................. (30) (42) 125
------ ------ ------
Subtotal................................................ 3,991 4,525 5,071
Reinsurance recoverables on unpaid losses............... 824 787 949
------ ------ ------
Reserves at end of year................................. $4,815 $5,312 $6,020
====== ====== ======
</TABLE>
18
<PAGE>
The reconciliation of reserves for unpaid losses and LAE between statutory
basis and GAAP basis for each of the years indicated is shown below.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1992 1993 1994
------- ------- -------
(in millions)
<S> <C> <C> <C>
Statutory Basis U.S. Reserves........................ $ 3,714 $ 4,397 $ 4,966
Adjustments to GAAP Basis(1)......................... (30) (193) (383)
------- ------- -------
Net GAAP Reserves for U.S. Companies................. 3,684 4,204 4,583
Net GAAP Reserves for Non-U.S. Companies............. 307 321 488
------- ------- -------
Net GAAP Reserves.................................... 3,991 4,525 5,071
Reinsurance Recoverables............................. 824 787 949
------- ------- -------
Gross Reserves on a GAAP Basis....................... $ 4,815 $ 5,312 $ 6,020
======= ======= =======
</TABLE>
- --------
(1) Statutory basis reserves reclassified to other liabilities based on risk
transfer provisions of FAS No. 113 (as defined below).
Environmental and Asbestos Exposure. Prior to 1986, the Company wrote
domestic property and casualty reinsurance principally for small to medium-
sized primary insurers that did not generally have environmental and asbestos
exposures. Although the Company has in the last few years increased its
marketing efforts with medium to larger-sized primary insurers, since 1986
primary policies have tended to explicitly exclude environmental and asbestos
risks from coverage.
In establishing the liability for unpaid claims and claim expenses related
to asbestos-related illnesses and toxic waste cleanup, management considers
facts currently known and the current state of the law and coverage
litigation. Liabilities are recognized for known claims (including the cost of
related litigation) when sufficient information has been developed to indicate
the involvement of specific insurance or reinsurance contracts and when
management can reasonably estimate the liability. In addition, liabilities are
also recognized with respect to exposures on unasserted claims and potential
additional exposures on known claims, and estimates of the liabilities are
reviewed and updated continually.
The gross liability for asbestos-related illnesses, toxic waste cleanup
claims and claim expenses and the related reinsurance recoverable was $317
million and $178 million, respectively, at December 31, 1994. These amounts
are management's best estimate, based on currently available information, of
claims and claim expense payments and recoveries that are expected to develop
in future years. The Company monitors evolving case law and its effect on
asbestos-related illness and toxic waste cleanup claims. Changing domestic and
foreign government regulations and legislation, including continuing
congressional consideration of federal Superfund law, newly reported claims,
new contract interpretations and other factors could significantly affect
future claim development. While the Company has recorded its best estimate of
its liabilities for asbestos-related illness and toxic waste cleanup claims
based on currently available information, it is possible that additional
liabilities may arise in the future. It is not possible to estimate with any
certainty the amount of additional net loss, or the range of net loss, if any,
that is reasonably possible; therefore there can be no assurance that future
liabilities will not materially affect the Company's results of operations,
cash flows and financial position.
19
<PAGE>
The following table presents three calender years of development of losses
and LAE reserves associated with the Company's asbestos and environmental
claims, including case and IBNR reserves.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1992 1993 1994
------- ------- -------
(In millions)
<S> <C> <C> <C>
Group basis:
Beginning net reserve balance........................ $ 279 $ 292 $ 309
Incurred loss and LAE................................ 38 36 25
Loss and LAE paid.................................... 25 19 17
Ending reserve balance............................... $292 $309 $317
Net Basis:
Beginning net reserve balance........................ $ 112 $ 125 $ 138
Incurred loss and LAE................................ 20 25 9
Loss and LAE paid.................................... 7 12 8
Ending reserve balance............................... $ 125 $ 138 $ 139
</TABLE>
Breast Implant Exposure. The Company has minimal exposure to products
liability claims involving silicone breast implants. The Company has, in the
past, generally avoided the products liability reinsurance business,
specifically pharmaceutical and chemical exposures.
Life and Health Reserves for Future Policy Benefits and Accumulated Contract
Values
Future policy benefits for life and health reinsurance contracts are the
present value of such benefits based on mortality and other assumptions which
were appropriate at the time the policies were issued or, in the event the
policies were acquired by the Company from another insurer, at the date of
acquisition. Interest rate assumptions used in calculating the present value
range from 2% to 8% per annum. Payments received from sales of investment
contracts are recognized by providing labilities equal to the accumulated
contract values of the policyholders' contracts. Interest rates credited to
such investment contracts are guaranteed for the policy terms with renewal
rates determined by the Company. Such crediting interest rates ranged from
4.25% to 12.80% per annum in 1994.
Risk Management and Retrocession Program
The following risk management and retrocession discussion excludes the
recently acquired operations of Frankona Re and Aachen Re which are discussed
separately below.
General. The Company purchases reinsurance to cover some or all of its own
risk exposures. Reinsurance of reinsurance is called retrocession, and a
reinsurer of a reinsurer is called a retrocessionaire. Reinsurance companies
enter into retrocessional agreements for reasons similar to those that cause
primary insurers to purchase reinsurance, namely to reduce net liability on
individual risks, to protect against catastrophic losses, to stabilize their
financial ratios and to obtain additional underwriting capacity. Retrocession
agreements generally are continuous contracts that have no fixed termination
date, but that may be terminated by either party upon notice stated in the
agreement. Retrocession agreements rarely provide the reinsurer with an
opportunity to opt out of an agreement due to downgrading of the credit rating
of the retrocessionaire, but retrocession agreements generally provide for
termination upon notice. A retrocession does not discharge a reinsurer from
liability to its clients.
The Company attempts to minimize the credit risk with respect to its
retrocessions by monitoring its retrocessionaires, diversifying its
retrocessions and collateralizing obligations from foreign retrocessionaires.
Potential deterioration of the financial condition of retrocessional markets
is carefully monitored and appropriate actions are taken to eliminate or
minimize exposures. As a general rule, the Company requires that unpaid losses
and LAE for certain reinsurers (unregulated by any United States insurance
regulatory authorities) be collateralized by letters of credit, funds withheld
or trust agreements.
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Set forth below is a description of the Company's retrocession policies and
programs and those of Frankona Re and the Aachen Re Business, which are
discussed separately below, for 1995. For 1996, such policies and programs
have been continued or renewed, in each case on substantially similar terms,
except as noted under "Property and Casualty" and "Life Reinsurance" below.
The Company monitors its retrocession requirements on a regular basis.
Property and Casualty. In conformity with the Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts ("FAS No 113"), the Company has
reported reinsurance recoverables (including amounts on unpaid losses) and
prepaid reinsurance premiums as assets. The Company charges earnings for
expected unrecoverable receivables from retrocessionaires based on historical
experience. At December 31, 1994, the Company maintained a reserve for
uncollectible reinsurance and premiums and other receivables of $18.6 million.
Management believes that this reserve is adequate based on its historical
experience.
The Company adheres to specified limits on the amount of exposure to single
risks that it will accept and purchases retrocessions to reduce its per risk
exposure for treaty and facultative property and casualty business. The
Company's maximum assumed per risk exposure permitted under its treaty and
facultative underwriting policies is $10 million and $35 million,
respectively. For property business, the maximum assumed exposure per risk is
generally $10 million for treaty and $25 million for facultative. After
retrocession; the Company generally retains $2 million per risk on treaty
property catastrophe business and $7.5 million per risk on all other treaty
property business. On facultative property business the Company generally
retains $7.5 million per risk. The maximum exposure per risk retained by the
Company on casualty business is $12.5 million for facultative and $7.5 million
for treaty.
For 1995, the Company purchased two layers of excess of loss retrocession
coverage ($7.5 million excess of $7.5 million and $15.0 million excess of
$15.0 million, subject, in each case, to certain aggregate limits). These
layers apply to all property and casualty business written. In addition, there
were specific retrocession covers applicable to treaty catastrophe reinsurance
and excess workers' compensation business. The Company was also protected in
1995 by an annual aggregate or stop loss cover that generally attached after
the Company's loss ratio (calculated on an accident year basis) exceeded 77%
(after credit for the above cited retrocession covers). This cover applied to
all property and casualty business written. The gross amount recoverable by
the Company under this cover is limited to the lower of $500 million or 25% of
the Company's net earned premiums in the 1995 accident year. Any recovery is
reduced by a premium equal to 49.85% of such recovery. For 1996, the Company
has purchased a second annual aggregate cover attaching above (and with the
same gross amount recoverable as) the annual aggregate cover described above
due to the growth in the Company's business as a result of the acquisitions of
Frankona Re and the Aachen Re Business.
The Company's property and casualty retrocession security committee
evaluates the financial responsibility and stability of assuming companies. In
making its ceding decisions, the committee analyzes the assuming companies'
financial statements, annual statements and other financial information
provided by A.M. Best, S&P, Moody's and other industry-related publications.
The committee also reviews the assuming companies' retrocession practices,
experience, business reputation, management and licensing status and other
individualized factors in making its ceding decisions. Security (i.e., letters
of credit, trust arrangements, etc.) is obtained from the assuming companies
when deemed necessary by the committee.
Life Reinsurance. For 1995, the Company retained up to the first $1 million
of each domestic life insurance risk and retroceded up to the next $9 million
of risk per life, in each case on a per life basis, to a pool of
retrocessionaires, each of which was selected by management after a review of
the credit factors described above under "Property and Casualty" at the time
of the retrocession. For 1996, the Company will retain up to the first $2.5
million of each domestic life insurance risk and retrocede up to the next $15
million of risk per life, in each case on a per life basis, to such a pool.
The Company requires security from the assuming companies
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with respect to its life reinsurance retrocession arrangements when deemed
necessary by management. The Company's domestic life reinsurance business also
retrocedes a portion of its catastrophic risk. The international division has
a comparable retrocession program.
Frankona Re. Frankona Re adheres to specific limits by class of business to
limit exposure to both individual risks and catastrophic events and purchases
retrocessions to reduce its per risk exposure for treaty and facultative
business. Although the maximum assumed per risk exposure permitted under
Frankona Re's aviation reinsurance underwriting guidelines is $100 million for
treaty business and $150 million for facultative business, the use of
retrocession reduces Frankona Re's net exposure to $3.3 million per event, as
set forth below. The maximum marine and casualty per risk exposures are $37
million and $34 million, respectively. Maximum property per risk exposures are
limited to $83 million. The use of retrocession reduces the net exposure to
$3.3 million per risk or event for all classes of business.
The Aachen Re Business. The Aachen Re Business is also limited with respect
to exposure on both an individual risk and catastrophic event basis. For
general third-party liability the maximum exposure per risk is $10 million
which is reduced to $1.7 million after retrocession. With respect to property
business, the general maximum exposure per risk is $2 million for treaty
business and $12 million for facultative business, protected by retrocessions
limiting the assumed exposure to $3.3 million per risk or event. Similar
retrocession programs are in place for other classifications of the Aachen Re
Business.
Regulatory Matters
GE Global and its domestic subsidiaries are subject to regulation under the
insurance statutes, including insurance holding company statutes, of various
states, including Missouri and Kansas, the domiciliary states of GE Global's
principal domestic insurance company subsidiaries. GE Global's international
subsidiaries are subject to regulation under insurance statutes of various
foreign countries.
General. U.S. domestic property and casualty and life insurers, including
reinsurers, are subject to regulation by their states of domicile and by those
states in which they are licensed. The rates and policy terms of primary
insurance policies generally are closely regulated by state insurance
departments. While reinsurance is not regulated as closely as primary
insurance, some states do impose control over certain terms and conditions of
reinsurance agreements by virtue of their authority to grant or deny credit
for ceded reinsurance by its domiciled primary insurers. In addition, as a
practical matter, the rates permitted to be charged by primary insurers can
have an effect on the rates that are charged by reinsurers.
The regulation and supervision to which GE Global's subsidiaries are
subject relate primarily to licensing requirements of reinsurers, the
standards of solvency that must be met and maintained, the amount of dividends
that may be paid by such subsidiaries, the nature of and limitations on
investments, restrictions on the size of risks that may be insured, deposits
of securities for the benefit of ceding companies, methods of accounting,
periodic examinations of the financial condition and affairs of reinsurers,
the form and content of financial statements required to be filed with state
insurance regulators, and reserves for unearned premiums, losses and other
purposes. In general, such regulation is for the protection of the ceding
companies and, ultimately, their policyholders, rather than securityholders of
the regulated reinsurer. GE Global believes it is, and that its subsidiaries
are, in material compliance with all applicable laws and regulations
pertaining to their business and operations.
Licenses. A primary insurer will ordinarily only enter into reinsurance
agreements if the primary insurer can obtain credit for the reinsurance on its
statutory financial statements. Credit is allowed when the reinsurer is
licensed or accredited in a state where the primary insurer is domiciled. In
addition, many states allow credit for reinsurance ceded to a reinsurer that
is licensed in another state and that meets certain financial requirements,
provided in some instances that the state in which the reinsurer is domiciled
has substantially similar reinsurance credit law requirements or the primary
insurer is provided with collateral to secure the reinsurer's obligations.
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GE Global and its subsidiaries are licensed to transact insurance or
reinsurance business in each state in which a license is required for the
businesses they conduct in such state.
Risk-Based Capital. The National Association of Insurance Commissioners
("NAIC") has adopted risk-based capital requirements to evaluate the adequacy
of statutory capital and surplus in relation to an insurance company's risks.
The risk-based capital ("RBC") formula is used by state insurance departments
as an early warning tool to identify companies with possible weak
capitalization for the purpose of initiating regulatory action. In addition,
the formula defines a new minimum capital standard, which will supplement the
prevailing system of low, fixed minimum capital and surplus requirements on a
state-by-state basis.
The RBC formula provides a mechanism for the calculation of an insurance
company's Authorized Control Level RBC and its total adjusted capital. The
formula sets forth the points at which a commissioner of insurance is
authorized and expected to take regulatory action. The first level is known as
the Company Action Level RBC, which is set at twice the Authorized Control
Level RBC. The second level is the Regulatory Action Level RBC, set at 1.5
times the Authorized Control Level RBC. The third is the Authorized Control
Level RBC, and the fourth is the Mandatory Control Level RBC, set at 70
percent of the Authorized Control Level RBC.
If any insurance company's adjusted capital is higher than or equal to the
Regulatory Action Level RBC but below the Company Action Level RBC, the
insurance company must submit to its commissioner of insurance an RBC plan
which shall contain, among other things, proposals of corrective action. If an
insurance company's adjusted capital is higher than or equal to the Authorized
Control Level RBC but lower that the Regulatory Action Level RBC, the
commissioner of insurance shall perform any examination or analysis deemed
necessary of the insurer's business and operations and issue any appropriate
corrective orders to address the insurance company's financial problems. If
any insurer's adjusted capital is higher than or equal to the Mandatory
Control Level RBC but lower than the Authorized Control Level RBC, the
commissioner may place the insurer under regulatory control. If the insurance
company's adjusted capital falls below the Mandatory Control Level RBC, the
commissioner will be required to place the insurer under regulatory control.
At December 31, 1995 each of GE Global's insurance subsidiaries had adjusted
capital higher than the Company Action Level RBC, and as a result no
regulatory action was required. GE Global believes that each of its insurance
subsidiaries is adequately capitalized.
Insurance Holding Company Regulations. The insurance holding company laws
and regulations vary from state to state, but generally require an insurance
holding company to register with its domiciliary state insurance regulatory
agency and file certain reports that include current information concerning
the capital structure, ownership, management, financial condition and general
business operations of the insurance holding company and its subsidiary
insurers that are licensed in the state. State insurance holding company laws
and regulations, with respect to domestic insurers, also require prior notice
or regulatory approval of changes in control of an insurer or its holding
company and of material inter-affiliate transactions within the holding
company structure.
Under the insurance laws of Kansas and Missouri and regulations thereunder,
no person, corporation or other entity may acquire a controlling interest in
GE Global or any parent company of GE Global unless such corporation or entity
has obtained the prior approval of the Kansas Insurance Commissioner and the
Missouri Director of Insurance for such acquisition. For the purposes of the
insurance laws of Kansas and Missouri, any person acquiring, directly or
indirectly, 10% or more of the voting securities of an insurance holding
company is presumed to have acquired "control" of such company.
Dividends by ERC. Because the operations of GE Global are conducted
primarily through ERC, GE Global is dependent upon dividends and tax
allocation and other payments primarily from ERC to service its debt and meet
its other obligations. The payment of dividends and other payments to GE
Global by ERC is subject to limitations imposed by the Missouri Insurance
Code. The payment of dividends to ERC by its principal life reinsurance
subsidiary, ERAC, is subject to limitations imposed by the Kansas Insurance
Code.
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Under the insurance laws of Missouri, no insurance company domiciled (i.e.,
incorporated) in the state may pay any extraordinary dividend or distribution
to its shareholders (i) except out of earned surplus and (ii) until (a) 30
days after the Missouri Department of Insurance has received notice of the
declaration thereof and has not within such period disapproved such payment or
(b) the Missouri Department of Insurance has approved such payment within such
30-day period. An extraordinary dividend or distribution includes any dividend
or distribution of cash or other property, the fair market value of which,
together with that of other dividends or distributions made within the
preceding 12 months, exceeds a certain threshold level. Under Missouri
insurance law, the threshold level is the lesser of: (i) 10% of such insurer's
policyholders' surplus as of the end of the prior calendar year or (ii) such
insurer's net investment income for the prior calendar year. The Kansas
insurance law, which governs the payment of dividends by ERAC, regulates the
payment of extraordinary dividends in a manner similar to that of Missouri
law, except that a dividend paid out of funds other than earned surplus is
permissible as an extraordinary dividend under the Kansas Insurance Holding
Company Act. For purposes of determining whether a dividend is extraordinary
under Kansas insurance law, the threshold level is the greater of: (i) 10% of
such insurer's policyholders' surplus as of the end of the prior calendar year
or (ii) the net gain from operations of such insurer (not including realized
capital gains) for the prior calendar year. In addition, no insurance company
domiciled in Missouri or Kansas may pay any ordinary dividends except from the
earned surplus arising from its business.
The maximum amount available for the payment of dividends by ERC during
1995 without prior approval of regulatory authorities was $248 million, of
which $93 million was paid as dividends on preferred stock issued by ERC to a
subsidiary of GE Capital Services and $63 million was paid to GE Global.
International Regulations. A portion of the Company's business is carried
on in foreign countries. The degree of regulation and supervision in foreign
jurisdictions varies from minimal in some to stringent in others. Licenses
issued by foreign authorities to GE Global's foreign subsidiaries are subject
to modification or revocation by such authorities, and such subsidiaries could
be prevented from conducting business in certain of the jurisdictions where
they currently operate. In the past, GE Global's foreign subsidiaries have
been allowed to modify their operations to conform with new licensing
requirements in all jurisdictions that are material to the Company's
international operations.
In addition to licensing requirements, the Company's international
operations are regulated in various jurisdictions with respect to, among other
things, currency, policy language and terms, methods of accounting and
auditing, amount and type of security deposits, amount and type of reserves,
amount and type of local investment and the share of profits to be returned to
policyholders on participating policies. Regulations governing constitution of
technical reserves (including equalization reserves required under German law)
and remittance balances in some countries could hinder the remittance of
profits and repatriation of assets and the payment of dividends; however, the
Company does not believe that these regulations will have a material impact on
the Company's international operations.
Legislative and Regulatory Proposals. From time to time, various regulatory
and legislative changes have been proposed in the insurance and reinsurance
industry that may affect reinsurers. A substantial number of states have
recently adopted, or are considering adopting, laws and regulations that,
among other things, limit the ability of primary insurance companies to effect
premium rate increases or to cancel or not renew existing policies. The
Company is unable to predict whether any of these laws and regulations will be
adopted in additional states, the form in which any such laws and regulations
might be adopted in additional states, or the effect, if any, these
developments will have on the Company.
In addition, some states have adopted, or are considering adopting, laws
and regulations that limit the right of offset by reinsurers. In general,
offset is the right of a debtor to set off and apply against any indebtedness
of such debtor to a creditor any indebtedness or such creditor to the debtor.
The right of offset may become important to a reinsurer when a ceding company,
which the reinsurer cedes business to and assumes business from, becomes
insolvent. The reinsurer may then set off the obligations it owes to the
insolvent insurer against obligations owed by the insolvent insurer to the
reinsurer. Under the common law, there are a variety of
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conditions to the exercise of the offset rights, including the requirement
that debts be "mutual" (that is to say, between the same parties, in the same
capacity and arising before the commencement of a liquidation proceeding).
Common law principles have, for the most part, been incorporated in Section 34
of the Insurers Rehabilitation and Liquidation Model Act, which was drafted by
the NAIC. The NAIC has revised this model liquidation act to limit offset
under certain circumstances, including obligations arising from business in
which the reinsurer cedes business to and assumes business from an insolvent
insurer. Several other states have adopted the more restrictive NAIC
provisions, but most states have adopted or retained legislation containing
the less restrictive provisions of the original NAIC model act. Several states
have not adopted any laws concerning this set off issue. The Company both
cedes and assumes business to and from individual insurers and reinsurers on
different risks, and offsets amounts it owes to such insurers and reinsurers
against amounts such insurers and reinsurers owe the Company in the ordinary
course of its business. Because of the variations in the law, the fact that
liquidation is governed by the state of domicile of the insolvent insurer and
the various time periods relating to the Company's treaties and facultative
certificates, and the effective dates of the legislation in the various
states, it is difficult to predict what impact, if any, these provisions will
have on the Company.
No prediction can be made as to whether any legislative proposals relating
to dividend rules in Kansas or Missouri will be made, whether any such
legislative proposal will be adopted in the future, or the effect, if any, any
such proposal would have on the Company.
USE OF PROCEEDS
Except as may be otherwise set forth in the Prospectus Supplement
accompanying this Prospectus, the net proceeds from the sale of the Debt
Securities to which such Prospectus Supplement relates will be added to the
general funds of GE Global and will be available for financing it operations.
Additional short- and long-term financing, as required, will be undertaken at
such times, and through such means, as may be appropriate.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
- ------------------------------------------------------------------- Nine Months Ended
1990 1991 1992 1993 1994 September 30, 1995
- ---- ---- ---- ---- ---- ------------------
5.11 5.04 4.08 4.33 4.59 5.46
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed
charges, earnings consist of net earnings adjusted for the provision for
income taxes, minority interest and fixed charges. Fixed charges consist of
interest and discount on all indebtedness, earnings from purchased affiliates
and dividends from preferred stock and one-third of annual rentals, which GE
Global believes is a reasonable approximation of the interest factor of such
rentals.
DESCRIPTION OF DEBT SECURITIES
General
The statements under this heading are subject to the detailed provisions of
an Indenture (the "Indenture"), between GE Global and The Chase Manhattan
Bank, National Association (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Wherever particular provisions on the Indenture or terms defined therein are
referred to, such provisions or definitions are incorporated by reference as a
part of the statements made and the statements are qualified in their entirety
by such reference.
The Debt Securities are to be issued in one or more series under the
Indenture. The Indenture does not limit the amount of Debt Securities or other
unsecured, senior debt which may be issued thereunder or limit the amount of
other debt, secured or unsecured, which may be issued by GE Global. The Debt
Securities will be
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obligations exclusively of GE Global. GE Global is a non-operating holding
company which conducts business through its subsidiaries and the Debt
Securities will be effectively subordinated to the liabilities of GE Global's
subsidiaries, including substantial claims for policy benefits under contracts
of reinsurance and insurance and debt and preferred stock obligations.
Currently the only direct wholly owned operating subsidiary of GE Global is
ERC. All of GE Global's other indirect subsidiaries are directly or indirectly
owned by ERC. Since substantially all of GE Global's subsidiaries are subject
to regulatory control by various state insurance departments and other foreign
insurance regulatory authorities, the ability of such subsidiaries to pay
dividends or make loans or advances to GE Global or any of GE Global's other
subsidiaries without prior regulatory approval is limited by applicable laws
and regulations. During 1995, the maximum amount available for the payment of
dividends by ERC without prior regulatory approval was $248 million, of which
$93 million was paid as dividends on preferred stock issued by ERC to an
affiliate and $63 million was paid to GE Global. See "The Company--Regulatory
Matters--Dividends by ERC."
Reference is made to the Prospectus Supplement accompanying this Prospectus
for the terms specified by GE Global pursuant to the Indenture of, and other
information with respect to, the Debt Securities being offered thereby,
including: (1) the designation, the aggregate principal amount and the
authorized denominations of such Debt Securities; (2) the percentage of their
principal amount at which such Debt Securities will be issued; (3) the date or
dates on which such Debt Securities will mature; (4) the currency, currencies
or currency units in which payments on such Debt Securities will be payable;
(5) the rate or rates at which such Debt Securities will bear interest, if
any, or the method of determination of such rate or rates; (6) the date or
dates from which such interest, if any, shall accrue, the dates on which such
interest, if any, will be payable and the method of determining holders to
whom any such interest shall be payable; (7) the prices, if any, at which, and
the dates at or after which, such Debt Securities may be listed. (Section
2.02.) Interest if any, is to be payable to the persons, and in the manner,
specified in the Prospectus Supplement accompanying this Prospectus and,
unless otherwise specified in such Prospectus Supplement, will be computed on
the basis of a 360-day year consisting of twelve 30-day months. (Section
2.10.)
The Debt Securities will be unsecured and will rank pari passu (equally and
ratably) with all other unsecured and unsubordinated indebtedness of GE
Global.
Some of the Debt Securities may be issued as discounted Debt Securities to
be sold at a substantial discount below their stated principal amount. Federal
income tax consequences and other special considerations applicable to any
such discounted Debt Securities will be described in the Prospectus Supplement
with respect to any such Debt Securities.
The Indenture does not contain any provisions that limit the ability of GE
Global to incur indebtedness or that afford holders of Debt Securities
protection in the event GE Company, as sole indirect stockholder of GE Global,
causes GE Global to engage in a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
Global Debt Securities, Delivery and Form
The Debt Securities may be issued in the form of one or more global
securities ( a "Global Security") that will be deposited with a depositary (a
"Depositary") or with a nominee for a Depositary identified in an appropriate
Prospectus Supplement and registered in the name of the Depositary or a
nominee thereof. In such case, one or more Global Securities will be issued in
a denomination or aggregate denominations equal to the portion of the
aggregate principal amount of outstanding Debt Securities to be represented by
such Global Security or Securities. Unless and until it is exchanged in whole
or in part for Debt Securities in definitive registered form, a Global
Security may not be transferred, except as a whole by the Depositary for such
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
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The specific terms of the depositary arrangement with respect to any Debt
Securities to be represented by a Global Security will be described in a
Prospectus Supplement relating thereto.
Certain Covenants of GE Global
GE Global shall not merge or consolidate with any other Person or sell,
convey, transfer or otherwise dispose of all or substantially all of its
assets unless either GE Global shall be the continuing corporation or the
successor Person shall be a corporation organized under the laws of the United
States or any state thereof and such other Person shall expressly assume the
obligations of GE Global under the Indenture. (Section 11.01.)
Modification of the Indenture
The Indenture permits GE Global and the Trustee, with the consent of the
holders of not less than 66 2/3% in aggregate principal amount of the Debt
Securities of each series affected outstanding, to add any provisions to or
change in any manner or eliminate any of the provisions of the Indenture or
modify in any manner the rights of the holders of Debt Securities of each such
series, provided that no such addition or modification shall (i) among other
things, extend the fixed maturity of any Debt Securities or reduce the
principal amount thereof (including in the case of a discounted Debt Security
the amount payable upon acceleration of the maturity thereof), reduce the
redemption premium thereon or reduce the rate or extend the time of payment of
interest, if any, thereon, or (ii) reduce the percentage of principal amount
of such Debt Securities of any series, the consent of the holders of which is
required for any addition or modification or any waiver of any past default,
without in each case the consent of the holder of each such Debt Security so
affected. (Section 10.02.)
Events of Default
An Event of Default with respect to any series of Debt Securities is
defined in the Indenture as being: (a) default in any payment of principal or
premium, if any, on any Debt Security of such series; (b) default for 30 days
in the payment of any interest on any Debt Security of such series; (c)
default in the making or satisfaction of any sinking fund payment or analogous
obligation on the Debt Securities of such series; (d) default for 60 days
after written notice to GE Global by the Trustee or the holders of at least
25% in aggregate principal amount of the Debt Securities of such series in the
performance of any other covenant in respect of the Debt Securities of such
series contained in the Indenture; (e) a default, as defined, with respect to
any other series of Debt Securities outstanding under the Indenture or as
defined in any other indenture or instrument evidencing or under which GE
Global has outstanding any indebtedness for borrowed money, as a result of
which such other series or such other indebtedness of GE Global shall have
been accelerated and such acceleration shall not have been annulled within 10
days after written notice thereof by the Trustee or the holders of at least
25% in aggregate principal amount of the Debt Securities of such series
(provided, that the resulting Event of Default with respect to such series of
Debt Securities may be remedied, cured or waived by the remedying, curing or
waiving of such other default under such other series or such other
indebtedness); or (f) certain events in bankruptcy, insolvency or
reorganization. (Section 6.01.) The Indenture requires GE Global to deliver to
the Trustee annually a written statement as to the presence or absence of any
default under the terms thereof. (Section 4.05.) No Event of Default with
respect to a particular series of Debt Securities under the Indenture
necessarily constitutes an Event of Default with respect to any other series
of Debt Securities issued thereunder. The Indenture provides that the Trustee
may withhold notice to the holders of any series of Debt Securities issued
thereunder of any default (except in the payment of principal, premium, if
any, or interest, if any, on any of the Debt Securities of such series or in
the making of any sinking fund instalment or analogous obligation with respect
to such series) if the Trustee considers it in the interest of such
securityholders to do so. (Section 6.08.)
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<PAGE>
The Indenture provides that during the continuance of an Event of Default
with respect to any series of Debt Securities, either the Trustee or the
holders of 25% in aggregate principal amount of the outstanding Debt
Securities of such series may declare the principal, or in the case of
discounted Debt Securities, such portion thereof as may be described in the
Prospectus Supplement accompanying this Prospectus, of all such Debt
Securities to be due and payable immediately, but under certain conditions
such declaration may be annulled by the holders of a majority in principal
amount of such Debt Securities then outstanding. The Indenture provides that
past defaults with respect to a particular series of Debt Securities (except,
unless theretofore cured, a default in the payment of principal of, premium,
if any, or interest, if any, on any of the Debt Securities of such series, or
the payment of any sinking fund instalment or analogous obligation on the Debt
Securities of such series or in respect of a covenant or provision which
cannot be modified without the consent of the holder of each Debt Security
affected) may be waived on behalf of the holders of all Debt Securities of
such series by the holders of a majority in principal amount of such Debt
Securities then outstanding. (Sections 6.01 and 6.07.)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default with respect to any series of Debt
Securities shall occur and be continuing, the Trustee shall be under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any holders of Debt Securities of any series
issued thereunder unless such holders shall have offered to the Trustee
reasonable indemnity. (Sections 7.01 and 7.02.) Subject to such
indemnification provision, the Indenture provides that the holders of a
majority in principal amount of the Debt Securities of any series issued
thereunder at the time outstanding shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee with
respect to the Debt Securities of such series, provided that the Trustee may
decline to follow any such direction if it has not been offered reasonable
indemnity therefor or if it determines that the proceedings so directed would
be illegal or involve it in any personal liability. (Section 6.07.)
Concerning the Trustee
The Chase Manhattan Bank, National Association, acts as trustee under
several indentures with affiliates of GE Global and other subsidiaries of GE
Company.
Any material business and other relationships (including additional
trusteeships), other than the present and prospective trusteeships referred to
in the foregoing paragraph, between, on the one hand, GE Global, GE Company or
other affiliates of GE Company and, on the other hand, the Trustee are
described in the Prospectus Supplement accompanying this Prospectus.
PLAN OF DISTRIBUTION
GE Global may sell any issue of the Debt Securities in any one or more of
the following ways: (i) through one or more underwriters or dealers; (ii)
directly to one or more purchasers; or (iii) through one or more agents.
From time to time, GE Global may receive, and may solicit, offers from
underwriters to purchase all or a part of the Debt Securities, to be reoffered
to the public through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone or otherwise.
The managing underwriter or underwriters, if any, with respect to the offer
and sale of the Debt Securities to which the Prospectus Supplement
accompanying this Prospectus relates are set forth in such Prospectus
Supplement and the members of the underwriting syndicate, if any, are named in
such Prospectus Supplement. GE Global will execute an underwriting agreement
(the "Underwriting Agreement") with any such underwriters and the names of the
underwriters and the terms of the transaction will be set forth in the
Prospectus Supplement, which will be used by the underwriters to make resales
of the Debt Securities in respect of which this Prospectus is delivered to the
public. Such Prospectus Supplement also states the discounts and commissions,
if any, to be allowed or paid to the underwriters by GE Global, and describes
all other items, if any, constituting underwriting compensation and the
discounts and commissions to be allowed or paid to dealers, if any. If
underwriters or dealers are used in the
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sale, the Debt Securities will be acquired by the underwriters or dealers for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined by the underwriter or dealer at the time
of sale. The relevant Underwriting Agreement will provide that the obligations
of the underwriters are subject to certain conditions precedent, and GE Global
will agree, under the Underwriting Agreement, to indemnify the underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933. With respect to the first offering of Debt Securities hereunder,
the underwriters may sell such Debt Securities to accounts over which they
exercise discretionary authority, but any such sales are not expected to
exceed 5% of the principal amount of the Debt Securities being offered.
Any agent involved in the offer or sale of the Debt Securities in respect
of which this Prospectus is delivered will be named, and any commissions
payable by GE Global to such agent will be set forth, in the Prospectus
Supplement accompanying this Prospectus. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis
for the period of its appointment. Agents and dealers may be entitled under
agreements entered into with GE Global to indemnification by GE Global against
certain civil liabilities, including liabilities under the Securities Act of
1933.
For further information with respect to the terms of the offering of Debt
Securities in respect of which this Prospectus is being delivered, see the
Prospectus Supplement accompanying this Prospectus.
LEGAL MATTERS
Except as may be otherwise specified in the Prospectus Supplement
accompanying this Prospectus, certain legal matters in connection with the
Debt Securities will be passed upon for GE Global by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York,
New York, and for the underwriters, agents or dealers by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of GE Global Insurance
Holding Corporation at December 31, 1993 and 1994 and for each of the three
years in the period ended December 31, 1994 included in GE Global's
Registration Statement on Form 10, as filed with the Commission pursuant to
Section 12(g) of the 1934 Act have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon incorporated by
reference herein which, as to the years 1992, 1993 and 1994, are based in part
on the report of KPMG Peat Marwick LLP, independent auditors. The financial
statements referred to above are included in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
The financial statements and schedules of Frankona Re included in GE
Global's Registration Statement on Form 10, as filed with the Commission
pursuant to Section 12(g) of the 1934 Act have been incorporated herein in
reliance upon the report of C&L Treuhand-Vereingung Deutsche Revision,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
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