Lights Out: Pride, Delusion, and the Fall of General Electric

by Thomas Gryta

As he tells it, Immelt asked for a review of the holding and the potential need to increase reserves as the portfolio showed that premiums were going to cover expected payouts. The preliminary estimate of the needed reserve fund, he said, was $2 billion to $3 billion. That was a lot of money, but not in Immelt’s GE, with its persistent view that such small developments were almost irrelevant because of GE’s size and ability to offset such pressures. Remember, $1 billion can be either a great deal of money or immaterial depending on whether it’s a sales contract or a noncash adjustment. In actuality, no one had looked closely at the policy details for years and no one knew what assumptions were used. When auditors took them apart and rebuilt models with more conservative assumptions, the outcome was disastrous. GE needed $15 billion in cash to cover its liability.