An ERC Spinoff Good For GE Say Analysts
By Daniel Hays
NU Online News Service, March 15, 4:26 p.m. EST?Analysts that follow General Electric reacted positively today to a report that GE is investigating a possible spinoff of its huge Employers Reinsurance Corp. unit based in Overland Park, Kansas.
A successful public offering of the global property-casualty operation, which has 3,200 employees and listed net written premium of $7.4 billion in 2001, would mean GE was "getting out at the top," said Cathy Seifert, an insurance analyst with Standard and Poor's in New York.
Robert Friedman, the S&P analyst who tracks GE, said he thinks, "the company would like to capitalize on the current exuberance for P and C stocks."
Mr. Friedman noted that a vocal minority thinks property-casualty insurance stocks in the long term are "not so terrific" and that there is a disconnect between current prices and longterm economics.
Ms. Seifert said the market for property-casualty insurance is currently "robust." So GE would be exiting at a high point.
ERC spokesperson Dean Davidson called the spinoff report "highly speculative." S&P said if the plans became tangible it would drop Employers Reinsurance Corp. and subsidiaries ratings a notch and put it on CreditWatch negative because of uncertainty about management changes.
Ms. Seifert said it was possible that the news of a possible IPO, reported by The Wall Street Journal, could bring about the possibility of an acquisition move.
Rob Plaza, an analyst for MorningStar in New York said he couldn't think of a concern that would be interested in acquiring ERC outright. He said the spinoff could be a positive on GE's stock "especially if the underwriting business is volatile."
In his view ERC could manage well "on its own without any problems."
Mr. Davison said the report of spinoff plans did not affect morale. While profits have been off, he said the company believes it is on a path to achieve results.
He said the company has made significant changes over the past 18 to 30 months including management changes and a reorganization into four global business units combined with a focus on "strategic customers and improving underwriting performance and process."
ERC, he said has a "great business that has a long and solid history, a great history of responding to the market and weathering market challenges."
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