ii

Awareness

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I rst bec ame aware of GE’s suspect accounng aending educaonal program luncheons at the CFA ® Society of Boston in the late 90’s. Chief investment ocers, porolio managers, analysts, and directors of research would all comment on how they believed GE’s earnings numbers couldn’t be true because they always met or beat consensus earnings esmates every quar ter , year aer year, no maer what the economy was doing. The queson around the lunch table was always, “

as an investment manager charge d with beang the S&P 500 , how much GE stock should you put into your po rolios

?” When GE had a 3% weight in the S&P 500, if you only had a 1% allocaon to GE, your porolio was eecvely shor t GE by a 2% por olio weight. Most agreed that the proper thing to do was to be neutral on GE and invest a 3% benchmark weight of your porolio in GE shares so that it would neither hurt nor help your performance.

GE Is Hiding $29 Billion in Long-T erm Care Losses

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There are three key risks to GE’ s survival. First, a s  recession aer ten years of domesc economic growth, will see that the next chapter in GE’s history is Chapter 11. Second, in 2021 there isn’t going to be any posive cash ow, which is the fairy t ale that GE’s new management team is pitching because an acc ounng rule change for insurance liabilies and signicant under-reserving is going to cause GE to take $29 Billion in addional reserve hits for its Long-Term Care (LT C) liabilies. Third, assumin g GE c an avoid a recession and somehow borrow enough to fund it s LTC liabilies, it will next face repaying its $107 Billion in debt and also covering its $27 Billion in pension liabilies. How is GE, a company that has almost no cash and which earned a total of only $14.9 Billion over the last seven years, going to out-earn over $160 Billion in liabilies with the operang business units it hasn’t already sold to stay aoat? As you go through our presentaon you’ll see that our “edge” was having two members of my team with extensive insurance fraud experse. They own a forensic accounng and consulng rm in Balmore that specializes in this eld. The GE LTC story is very similar to AIG’s Financial Products Corporaon (AIGFP) and how that ill-fated unit destroyed AIG’s share price and resulted in a $189 Billion government bailout to keep AIG alive. For many years AIGFP sold credit default swaps, took the premiums as “earnings” and never set aside proper reser ves unl the 2007-2009 Global Financial Crises revealed that the underlying securies AIGFP was guaranteeing were anything but the solid credits AI G thought they were. AIG’s stock price enjoyed those “earnings” for many ye ars unl the risks became apparent too late for AIG to survive without government assistance. GE’ s LTC reinsurance units are part of GE Capital (GEC), and GEC was ver y happy to imprudently account for LTC insurance premiums as “earnings” in the 1980’s, 1990’s and 200 0’s while policy-holders were s ll young and weren’t ling claims. GE connuously failed to fund adequate reser ves to oset its LTC liabilies, allowin g itself to book billions in “earnings” over a period of dec ades and pay dividends to the holding company and then to shareholders. We include a 2018 LTC industry age c hart in our presentaon showing at what ages LTC claims are led. Industr y data shows that 86.2% of the GE-ERAC’s claims are ahead of them so, if less than 14% of these claims have already led to a $15 Billion reser ve hit, simple math tells you what the other 86% will do to GE’ s balance sheet. GE’s LT C losses will connue rising at an exponenal rate unl it either les for bankruptcy protec on or nds some way to out-earn its LT C liabilies. You’l l note that GE’s 7 March 2019 Teach-In failed to show you any of the industry comparave data that we’ve included in our slide deck. When you see the data we’re providing that compares GE’s L TC loss raos to the rest of the industry’s, you’ll know why they’re hiding their true nancial pic ture from you. Insurance companies keep GAAP books if they ’re publi c companies, but State Insurance Departments also require them to le Statutory Financial Statements using a completely dierent set of st atutory accounng rules, which we’ll call SAP going forward. These are longer, more complex lings than the 10-K’s that analysts use and it takes special training to know what you’re looking for . But once you know how, it’s easy to model the dierences between GAAP and SAP accounng. Simply accessing and analyzing the SAP lings from the Long-Term Care (LT C) insurers who were reinsuring with GE-ERAC showed us how much GE was losing each year. What we saw were exponenally growing losses that are going to bleed GE of addional cash such that GE is unlikely to become cash-ow posive in 2021 and beyond. GE twice went out of it s way to inmidate analysts on pages 5 and 12 of their 7 March 2019 insurance “ T each-In” where they blow smoke by saying, “

we are dependent on accurate and mely reporng from over 200 ceding companies covered by more than 1,0 00 reinsur ance treaes