GE Nuggets to Chew on From Its Annual Report

It might surprise you to learn that General Electric Co.’s mammoth 172-page annual report was actually on the shorter side, as far as these things go. The filing had the fewest number of pages since GE’s 10-K report for 2008, but what this year’s data dump lacked in sheer scale, it made up for in added transparency. Most notable were the added disclosures on GE’s insurance liabilities. The company once again avoided adding materially to the $15 billion reserve shortfall in its legacy long-term care insurance operations that it disclosed last January, but GE’s assumptions for that business look far from conservative and it may only be setting itself up for a string of negative surprises in the future. A more sober outlook for investment yields and the rate at which insurance claimants get healthier could force the company to put up as much as $12 billion in additional reserves.

Also of note, GE specifically called out an economic slowdown in China among the risk factors for its business, a change from the previous year. One of the troubling things about GE’s unraveling is that it’s occurred at a time when most industrial companies and the economy at large are doing quite well; that may soon change. GE also flagged increased costs in its health-care business due to U.S. tariffs on equipment and components imported from China and said it’s working to mitigate that by moving operations elsewhere. I point this out because after a series of industrial earnings rounds where nary a conference call passed without a mention of tariffs, GE hasn’t talked as much about the issue because it’s been so consumed with bigger problems. As a side note, a study by the Institute of International Finance found that the trade war has put the U.S. on pace for $40 billion a year in lost exports, with American exporters winding up harder hit than their Chinese counterparts.