Immelt Says Insurance Too Tough For GE

General Electric's chief executive said the company decided to get out of the insurance business because it was eating too much capital and was too tough to handle.

GE Chairman and Chief Executive Officer Jeffrey Immelt's comments came Friday night during an hour-long interview with Charlie Rose on PBS's “The Charlie Rose Show.”

In response to Mr. Rose's question on GE's divestiture of its insurance company, Mr. Immelt said there were two reasons for the move.

First, the insurance business used up too much of GE's capital, he said. The company needs a return on equity of its businesses of 20-to-25 percent, he pointed out, and the insurance businesses only returned 8-to-10 percent.

“In 2002, 25 percent of our company's equity was in insurance; it was just ridiculous,” he remarked.

The second reason for its divestiture was the volatility of the business, especially reinsurance.

“I would sit at my desk in September watching the Weather Channel, watching hurricanes and worrying about what it would do to our earnings,” he revealed.

“There are companies that do that,” he continued. “There's nothing wrong with that business, but it is not what GE investors want. For those two reasons, it was just a tough business for us to be in.”

In November GE and Swiss Re announced an agreement where Swiss Re would acquire GE Insurance Solutions for $6.8 billion in a cash and stock transaction. The closing of the deal is expected in the middle of this year.

GE still retains the life and health business.

In 2004, the company spun-off its benefit, retirement, investment and mortgage insurance operations into Genworth Financial Inc., where it has steadily reduced its stake in the company to less than 30 percent.

Mr. Immelt said GE has become more of an industrial-based company than a financial services company over the past five years. He took over as the company's chief executive after the company's legendary chief executive, John F. Welch, retired in 2001.

The biggest single issue facing GE and corporations throughout the world will be the issue of health care and how to pay for it, said Mr. Immelt. He would like to see government do more to help solve this issue, but “I wouldn't count on it.”

He said employees need to be better consumers of health care, and GE is doing its part with its employees to that end.

Government, he said, should be driving incentives that improve the quality of health care and control payments to ultimately work to lower the costs of health care. The development of new technologies that lower costs also need to be advanced, Mr. Immelt said.

Five or six other issues, said Mr. Immelt, need to be addressed to manage this issue, including solving the problem of the uninsured, which he said everyone pays for, and malpractice litigation reform.