SecProbe.io

CORRESP
1
filename1.htm

      GECS Comment Letter December 12 2005

                    Philip
                      D. Ameen

                    Senior
                      Vice President and Controller

                    General
                      Electric Capital Services, Inc.

                    3135
                      Easton Turnpike

                    Fairfield,
                      CT 06828

                    USA

                    T
                      203 373 2458

                    F
                      203 373 3005

                    pameen@ge.com

    Via Hand
      Delivery and EDGAR

    December
      14, 2005

    Mr.
      Paul Cline

    Senior
      Accountant

    United
      States Securities and Exchange Commission

    100 F.
      Street, N.E.

    Washington,
      D.C. 20549

                Re:

                General
                  Electric Capital Services, Inc.

                Form
                  10-K/A for Fiscal Year Ended December 31, 2004

                Filed
                  May 6, 2005

                File
                  No. 0-14804

    Dear
      Mr. Cline:

    We
      are responding to your comment letter dated November 30, 2005, to James A.
      Parke, Chief Financial Officer of General Electric Capital Services, Inc.
      (“GECS”) relating to the above documents. For ease of reference, we have
      repeated the Staff’s comments in bold text preceding each response.

    December
      31, 2004 Form 10-K/A

              1.

              Please
                provide us copies of the relevant sections of the agreement with
                Swiss Re
                covering the adjustment to your insurance
                reserves.

    Response

    The
      requested relevant sections of the Transaction Agreement by and between Swiss
      Reinsurance Company and General Electric Company, dated November 18, 2005 (the
      “Agreement”), are summarized and then presented below. We will supplementally
      provide the Staff with a copy of the full Agreement by hand
      delivery.

    For
      your convenience we have organized the Agreement excerpts in the following
      order.

    The
      first section, 3.1
      Purchase Price,
      sets forth the base purchase price amount ($6.8 billion) and how it will be
      adjusted for post-signing events, including any reserve adjustments
      pursuant to section 7.7.

    Section
      7.7
      Reserves,
      addresses GE’s contractual obligation to evaluate and adjust loss reserves by
      approximately $3.4 billion, or such other amount, in accordance with applicable
      requirements of GAAP, supported by appropriate actuarial analysis.

    Section
      7.18
      Closing Payments is
      the provision giving GE purchase price credit for future capital infusions
      into
      the insurance business, if required.

    Sections
      5.19
      and 11.1 Reserves
      are our representations and warranties relating to our reserve estimates.

                  December
                    14, 2005

                  Page 2

                  Mr.
                    Paul Cline

                  Senior
                    Accountant

    Section
      7.1
      Conduct of Business Pending the Closing
      addresses the required conduct of GE, with specific reference to our reserving
      practices.

    And
      the final section, Definitions,
      provides defined terms that appear in the sections set forth above.

    3.1
      Purchase Price

    The
      aggregate consideration for the Purchased Equity and the Transferred Assets
      shall be an amount equal to $6.8 billion (the “Base
      Purchase Price”)
      as adjusted for the following (as adjusted, the “Purchase
      Price”):

    ....

    (xv)
      in the event that the amount of the Net Reserves increases made in the United
      States after June 30, 2005 in respect of accident years prior to 2005 is less
      than $2 billion, minus
      (x) if such amount is less than $1 billion, (A) 35% of the difference between
      $1
      billion and such Net Reserves increases plus (B) $150 million, or (y) if such
      amount is $1 billion or more, but less than $2 billion, 15% of the difference
      between $2 billion and such Net Reserves increases; and

    (xvi)
      minus
      the sum of (A) $245 million, (B) 35% of the amount of the Net Reserves increases
      (in excess of $200 million) made in Bermuda after June 30, 2005 and prior to
      the
      Final Closing in respect of accident years prior to 2005 and (C) 35% of the
      amount of the Net Reserve increases (in excess of $500 million) made in Germany
      after June 30, 2005, and prior to the Initial Closing, in respect of accident
      years prior to 2005;

    provided,
      that, (x) in the case of clauses (xv) and (xvi) above, Net Reserves increases
      shall reflect only the adjustments made pursuant to Section
      7.7
      (in respect of Net Reserves increases of not more than $3.4 billion) and (y)
      subject to Section
      3.1(e)
      hereof, the net amount payable by Acquiror pursuant to the foregoing clauses
      (i)
      through (xvi) shall not exceed $800 million (the “Adjustment
      Ceiling”).

    7.7
      Reserves

    (a)
      Not later than the Initial Closing Date, the GE Insurance Subsidiaries shall
      cause Net Reserves to be increased (including all such increases since June
      30,
      2005 other than adjustments as a result of premiums received for prior periods
      and accretion of any discount) from the aggregate Net Reserves reflected on
      the
      Balance Sheet by a net amount equal to approximately $3.4 billion or such
      different amount that, in the good faith judgment of the GE Insurance
      Subsidiaries, is supported by appropriate actuarial analysis. Notwithstanding
      the foregoing, and for the avoidance of doubt, no GE Insurance Subsidiary shall
      be required to cause such Net Reserves to be increased unless, in its good
      faith
      judgment, any such increase is in accordance with the applicable requirements
      of
      Law, GAAP and SAP and is supported by appropriate actuarial analysis. The GE
      Insurance Subsidiaries shall, from time to time as Acquiror shall reasonably
      request, review with Acquiror the allocation of the amount of such increase
      among the GE Insurance Subsidiaries by legal entity and line of
      business.

    (b)
      Between the Initial Closing and the Final Closing, no GE Insurance Subsidiary
      that remains within GE’s control shall reevaluate any of such GE Insurance
      Subsidiary’s Reserves.

    7.18
      Closing Payments

    (a)
      In the event that GE or any of its Affiliates (i) provides capital to any of
      the
      Polaris Companies in response to (A) a general increase in any rating agency’s
      capital requirements for the insurance or reinsurance industry or (B) a rating
      agency or Governmental Authority as a result of any reserve increase that may
      occur as described in Section
      7.7,
      or (ii) otherwise provides capital to the Business after the date hereof,
      Acquiror or the applicable Equity Buyer or Asset Buyer, on the Initial Closing
      or Final Closing, shall pay to the applicable Equity Seller or Asset Seller
      by

                  December
                    14, 2005

                  Page 3

                  Mr.
                    Paul Cline

                  Senior
                    Accountant

    wire
      transfer to an account designated in writing by GE pursuant to Section
      4.4,
      an amount equal to the amount of the capital increase attributable to the
      Purchased Equity or Transferred Assets sold by such Equity Seller or Asset
      Seller, as certified by GE (it being understood that the aggregate payment
      shall
      equal the sum of the amounts set forth in clauses (i) and (ii) above). GE shall,
      from time to time as Acquiror shall reasonably request, review with Acquiror
      the
      capital contributions made or proposed to be made to the Business by legal
      entity and line of business.

    5.19
      Reserves

    Except
      as may be required as a result of a change in Law, GAAP or SAP, the reserves
      for
      payment of benefits, losses, claims and expenses pursuant to all insurance,
      reinsurance and retrocession policies and contracts of each GE Insurance
      Subsidiary reflected in or included with the consolidated financial statements
      of “GE ISC and Consolidated Subsidiaries” and the quarterly statements of the GE
      Insurance Subsidiaries for the period ended September 30, 2005 have been
      calculated in all material respects in accordance with the reserving practices
      and policies employed in connection with the preparation of the Unaudited
      Business Financial Statements and the Business SAP Statements as of, and for
      the
      period ended, June 30, 2005.

    11.1
      Reserves

    NOTWITHSTANDING
      ANY OTHER PROVISION OF THIS AGREEMENT (INCLUDING ANY PROVISION OF ARTICLE
      V
      OR ARTICLE VII HEREOF, EXCEPT FOR THE MATTERS SPECIFICALLY ADDRESSED IN
SECTIONS
      5.19,
      SECTION
      7.1
      AND SECTION
      7.7),
      NEITHER GE NOR ANY OF ITS AFFILIATES IS MAKING ANY EXPRESS OR IMPLIED
      REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT, IN OR PURSUANT TO THIS
      AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT (A) CONCERNING THE RESERVES, FUNDS
      OR PROVISIONS FOR LOSSES, CLAIMS, PREMIUMS, POLICY BENEFITS AND EXPENSES,
      INCLUDING UNEARNED PREMIUM RESERVES, RESERVES FOR INCURRED LOSSES, TECHNICAL
      RESERVES, INCURRED LOSS ADJUSTMENT EXPENSES, INCURRED BUT NOT REPORTED LOSSES
      AND LOSS ADJUSTMENT EXPENSES WITH RESPECT TO INSURANCE AND REINSURANCE CONTRACTS
      ISSUED, REISSUED OR ASSUMED, OR RESERVES WITH RESPECT TO UNCOLLECTIBLE
      REINSURANCE OF ANY OF THE POLARIS COMPANIES, INDIVIDUALLY OR IN THE AGGREGATE,
      INCLUDING (I) WHETHER SUCH RESERVES ARE ADEQUATE OR SUFFICIENT OR WHETHER SUCH
      ASSET IS COLLECTIBLE OR (II) WHETHER SUCH RESERVES WERE DETERMINED IN ACCORDANCE
      WITH ANY ACTUARIAL, STATUTORY OR OTHER STANDARD, (B) THE COLLECTIBILITY OF
      ANY
      AMOUNTS FROM ANY REINSURERS OR RETROCESSIONARIES OF ANY OF THE POLARIS COMPANIES
      OR (C) CONCERNING ANY FINANCIAL STATEMENT “LINE ITEM” OR ASSET, LIABILITY OR
      EQUITY AMOUNT TO THE EXTENT AFFECTED BY ANY OF THE MATTERS REFERRED TO IN THE
      PRECEDING CLAUSES (A) OR (B).

    7.1
      Conduct of Business Pending the Closing

    Except
      as otherwise expressly contemplated by the Transaction Agreements, for matters
      identified in Section
      7.1
      of the GE Disclosure Letter or as required by Law, from the date of this
      Agreement through the Final Closing, unless Acquiror otherwise consents in
      writing in advance (which consent shall not be unreasonably withheld or
      delayed), GE will, and will cause the Polaris Companies to, (a) conduct the
      Business in the ordinary course consistent with past practice, (b) use
      reasonable best efforts to preserve intact the business organizations of the
      Polaris Companies, to retain the services of the executive officers and key
      employees of the Business and to preserve the current significant business
      relationships with its agents, producers, reinsurers, retrocessionaires and
      customers of the Business, (c) except as otherwise required by changes in GAAP
      or SAP, continue to reserve in all material respects in accordance with the
      reserving practices and policies employed in connection with the preparation
      of
      the Unaudited Business Financial Statements and the Business SAP Statements
      as
      of, and for the period ended, June 30, 2005, and (d) not do any of the
      following:

    ....

                  December
                    14, 2005

                  Page 4

                  Mr.
                    Paul Cline

                  Senior
                    Accountant

    (viii)
      permit a Polaris Company to make any material change in any financial,
      investment, accounting or underwriting methods, principles or practices in
      connection with the Business, including in the preparation of its financial
      statements and the establishment of Reserves, other than changes required by
      changes in SAP, GAAP or Law or changes in accounting principles or practices
      that affect GE Subsidiaries generally;

    ....

    DEFINITIONS

    “Net
      Reserves”
      means the gross Reserves in respect of accident years prior to 2005, net of
      net
      retrocession recoverables against such Reserves.

    “Polaris
      Companies”
      means, collectively, the Acquired Subsidiaries and the Asset
      Sellers.

    “Reserves”
      means the reserves, funds and provisions for insurance, reinsurance and
      retrocessional losses, claims and expenses, including reserves for incurred
      losses, technical reserves, reserves for incurred loss adjustment expenses,
      and
      reserves for incurred but not reported losses and loss adjustment expenses
      and
      reserves with respect to uncollectible reinsurance and retrocession, in each
      case with respect to insurance, reinsurance and retrocession contracts written,
      issued, reissued, renewed or assumed with respect to the Business, other than
      any such reserve items attributable to the Excluded Business.

              2.

              Please
                tell us how you have considered the effect of the potential adjustment
                to
                your insurance reserves on your financial statements filed with the
                Commission.

    Response

    We
      continually update reserve estimates using both quantitative information from
      our reserving actuaries and qualitative information derived from other sources.
      In addition to the detailed analysis performed each quarter to assess the
      overall adequacy of recorded reserves, we, like others in the property and
      casualty industry, conduct annual comprehensive evaluations for each of our
      different lines of business. Those actuarial conclusions for the year-end
      reserves are reached through a thorough process, subject to actuarial
      discipline of accumulating and analyzing information for each book of business.
      Consequently, while we routinely make adjustments to our reserve estimates
      in
      interim periods, our final actuarial conclusions are reached on a schedule
      that
      is completed only at the end of the fourth quarter. Given the significant
      reserve levels involved, $23 billion in total, and the long tails on
      much
      of this business, adjustments are made routinely and are, considering the length
      of the coverage in question, based on very early loss projections. Our most
      problematic insurance was long-tailed business written in the 1997 - 2001
      period. The reserves for that insurance were originally set at our best estimate
      and, like all other reserves, are reviewed and updated continuously. The
      casualty portion of that insurance is long-tailed and paid over as much as
      30
      years, so estimates of those ultimate losses are uncertain. More uncertainty
      arises where we have assumed significant exposures under excess-of-loss
      reinsurance arrangements in which we have liability only if underlying losses
      exceed contractual “attachment points.” Under these arrangements, relatively
      small increases in estimates of underlying losses can lead to sharp percentage
      increases in our losses. An example of excess-of-loss coverage with considerable