GE 2012 Annual Report Download - page 43

management’s discussion and analsis
GE 2012 ANNUAL REPORT 41
GE Capital manages all risks relevant to its business envi-
ronment, which if materialized, could prevent GE Capital from
achieving its risk objectives and/or result in losses. These risks
are defined as GE Capital’s Enterprise Risk Universe, which
includes the following risks: strategic, liquidity, credit and invest-
ment, market and operational (including financial, compliance,
information technology, human resources and legal). Reputational
risk is considered and managed across each of the categories. GE
Capital continues to make significant investments in resources to
enhance its evolving risk management infrastructure.
GE Capital’s Corporate Risk function, in consultation with the
ERMC, updates the Enterprise Risk Appetite Statement annually.
This document articulates the enterprise risk objectives, its key
universe of risks and the supporting limit structure. GE Capital’s
risk appetite is determined relative to its desired risk objectives,
including, but not limited to credit ratings, capital levels, liquid-
ity management, regulatory assessments, earnings, dividends
and compliance. GE Capital determines its risk appetite through
consideration of portfolio analytics, including stress testing and
economic capital measurement, experience and judgment of
senior risk officers, current portfolio levels, strategic planning,
and regulatory and rating agency expectations.
The Enterprise Risk Appetite is presented to the GECC Board
and the GE Risk Committee for review and approval at least annu-
ally. On a quarterly basis, the status of GE Capital’s performance
against these limits is reviewed by the GE Risk Committee.
GE Capital monitors its capital adequacy including through
economic capital, regulatory capital and enterprise stress testing
methodologies. GE Capital’s economic capital methodology uses
internal models to estimate potential unexpected losses across
different portfolios with a confidence interval equivalent to an
AA agency rating. Although GE Capital is not currently subject to
risk-based capital standards, GE Capital estimates capital ade-
quacy based on both the Basel 1 U.S. and Basel 3 International
frameworks. GE Capital uses stress testing for risk, liquidity and
capital adequacy assessment and management purposes, and
as an integral part of GE Capital’s overall planning processes.
Stress testing results inform key strategic portfolio decisions
such as capital allocation, assist in developing the risk appetite
and limits, and help in assessing product specific risk to guide
the development and modification of product structures. The GE
Risk Committee and the GECC Board review stress test results
and their expected impact on capital levels and metrics. The GE
Risk Committee and the GECC Board are responsible for oversee-
ing the overall capital adequacy process, as well as approving
GE Capital’s annual capital plan and capital actions. Operational
risks are inherent in GE Capital’s business activities and are
typical of any large enterprise. GE Capital’s operational risk man-
agement program seeks to effectively manage operational risk
to reduce the potential for significant unexpected losses, and to
minimize the impact of losses experienced in the normal course
of business.
Key risk management policies are approved by the GECC
Board and the GE Risk Committee at least annually. GE Capital, in
coordination with the GE CRO, meets with the GE Risk Committee
at least four times a year. At these meetings, GE Capital senior
management focuses on the risk issues, strategy and governance
of the business.
Additional information about our liquidity and how we man-
age this risk can be found in the Financial Resources and Liquidity
section. Additional information about our credit risk and our port-
folio can be found in the Financial Resources and Liquidity and
Critical Accounting Estimates sections. Additional information
about our market risk and how we manage this risk can be found
in the Financial Resources and Liquidity section.
Segment Operations
On February 22, 2012, we merged our wholly-owned subsidiary,
GECS, with and into GECS’ wholly-owned subsidiary, GECC. Our
financial services segment, GE Capital, continues to comprise
the continuing operations of GECC, which now include the
run-off insurance operations previously held and managed in
GECS. Unless otherwise indicated, references to GECC and
the GE Capital segment relate to the entity or segment as they
exist subsequent to the February 22, 2012 merger.
Effective October 1, 2012, we reorganized the former Energy
Infrastructure segment into three segments—Power & Water, Oil
& Gas and Energy Management. We also reorganized our Home
& Business Solutions segment by transferring our Intelligent
Platforms business to Energy Management. Results for 2012 and
prior periods are reported on this basis.
Results of our formerly consolidated subsidiary, NBCU, and
our current equity method investment in NBCU LLC are reported
in the Corporate items and eliminations line on the Summary of
Operating Segments.
Our eight segments are focused on the broad markets they
serve: Power & Water, Oil & Gas, Energy Management, Aviation,
Healthcare, Transportation, Home & Business Solutions and GE
Capital. In addition to providing information on segments in their
entirety, we have also provided supplemental information about
the businesses within GE Capital.
Segment profit is determined based on internal performance
measures used by the Chief Executive Officer to assess the per-
formance of each business in a given period. In connection with
that assessment, the Chief Executive Officer may exclude mat-
ters such as charges for restructuring; rationalization and other
similar expenses; acquisition costs and other related charges;
technology and product development costs; certain gains and
losses from acquisitions or dispositions; and litigation settle-
ments or other charges, responsibility for which preceded the
current management team.
Segment profit excludes results reported as discontinued
operations, earnings attributable to noncontrolling interests of
consolidated subsidiaries, GECC preferred stock dividends
declared and accounting changes. Segment profit excludes or