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Thursday, 21 November, 2002, 17:24 GMT
GE takes insurance hit
General Electric graphic
General Electric (GE), one of the world's largest companies, has lowered its profit expectations for next year after taking a larger-than-expected hit from insurance claims.

The group, which makes a range of products from jet engines to cookers, said it was taking a $1.4bn (890m) charge for its reinsurance company Employers Reinsurance Corporation (ERC).

This followed a review of the business last week which had revealed higher-than-feared claims following 11 September.

Chief financial officer Keith Sherin said losses at ERC had "blown away" previous estimates and revealed an extra $100m loss resulting from the World Trade Center attacks.

Nonetheless, the news was better than some analysts had been expecting, sending GE's shares up almost 7%.

Losses rise

Mr Sherin said ERC had seen an increase in both the size and the frequency of insurance claims.

These included claims relating to asbestos liability as well as the 11 September attacks.

Mr Sherin said GE had previously estimated the World Trade Center attacks would result in a $600m loss, but that new data had shown additional losses of about $100m.

As a result, the GE group has lowered its expectations for the year from earnings of $1.65 to $1.51.

Positive signs

However, analysts had been expecting the bad news and were cheered that GE was showing robust growth elsewhere.

The company said in a statement that all its businesses except for ERC were performing in line with expectations.

"Nobody was expecting anything wonderful, so anything that comes along is OK" said Larry Wachtel, a market analyst at Prudential Securities.

GE also assured investors that it would restore profitability at ERC as well as explore options including a possible sale of the business.

Coping with a downturn

GE also insisted it was protected against the possible bankruptcy at US Airways, which filed for bankruptcy protection in August.

Dave Calhoun, chief executive of GE's aircraft engines said the current down cycle was manageable.

"This industry is always in and around bankruptcy, in good times and bad," said Mr Calhoun.

Investors appeared reassured, with shares jumping $1.60, or 6.5%, in early trading to $26.40.

See also:

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