General Electric is considering selling its commercial insurance business just as the industry is rebounding from heavy losses from the September terrorist attacks, people close to the company said on Friday.
Prices for coverage are soaring, and analysts are predicting a new era of profitability. A sale of the business, the Employers Reinsurance Co, would mean that GE could not share in any future insurance profits of the unit, which deals mainly in property-casualty. Analysts said, however, that GE would probably receive its best price for the unit while the outlook was rapidly improving.
SanfordWeill, the chief executive of Citigroup, announced a similar move last December, saying he planned to sell the property-casualty units of his company's Travelers Insurance subsidiary. Analysts said about 20 percent of Travelers stock was expected to be offered for sale on Thursday.
John Oliver, a spokesman for GE Capital, the financial services division of GE, would not comment on a possible sale of Employers Reinsurance.
But people close to the company said GE had begun discussions with investment bankers to determine how much money a sale might bring. GE, they said, is considering a stock offering, beginning with an initial offering of about 20 percent of the company. Such a transaction would be tax free for GE. In contrast, GE would face heavy capital gains taxes from a sale to a rival.
"GE would be stupid not to kick around the idea of a sale with all the money that is flowing into insurers right now," a person close to the company said. It could take months to reach a decision, he said. The possible sale was reported on Friday in the Wall Street Journal.
More than half a dozen new property-casualty insurance companies have been started since the September attacks to take advantage of higher prices for coverage, and several major insurers have issued new stock so they can expand their offerings. Altogether about US$20 billion in new capital has been raised.
Employers Reinsurance is the world's fourth-largest company in the business of providing insurance to insurance companies. Since its acquisition by GE in 1984, it has been a big money maker, often earning a return on investment of more than 20 percent. But like others in the field, it has suffered in recent years. Last year, Employers Reinsurance reported a loss of US$195 million; it had a profit of US$581 million in 2000 and of US$720 million in 1999.
The insurance industry lost an estimated US$50 billion in the September attacks. Employers Re alone lost US$600 million, analysts said. The losses have become a catalyst for price increases in some lines of coverage.