GE 2013 Annual Report Download - page 43

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GE 2013 ANNUAL REPORT 41
Capital continues to make signifi cant 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 offi cers, current portfolio levels, strategic planning,
and regulatory and rating agency expectations.
The Enterprise Risk Appetite Statement is presented to
the GECC Board and the GE Risk Committee for review and
approval at least annually. 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 confi dence level 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 the Basel 1 U.S. and Basel 3 International and U.S.
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
the amount of capital required to maintain minimum expected
regulatory capital levels in severe but plausible stresses, capital
allocation, assist in developing the risk appetite and limits, and
help in assessing product specifi c risk to guide the development
and modifi cation 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 overseeing the overall capital
adequacy process, as well as approving GE Capital’s annual capi-
tal plan and capital actions.
Key risk management policies are approved by the GECC
Board and the GE Risk Committee at least annually. GE Capital
senior management, in coordination with the GE CRO, meets with
the GE Risk Committee throughout the year. At these meetings,
GE Capital senior management focuses on the risk issues, strat-
egy and governance of the business.
Operational risks are inherent in GE Capital’s business
activities and are typical of any large enterprise. GE Capital’s
operational risk management program seeks to effectively
manage operational risk to reduce the potential for signifi cant
unexpected losses, and to minimize the impact of losses experi-
enced in the normal course of business. Additional information
about our liquidity and how we manage this risk can be found in
the Financial Resources and Liquidity section. Additional infor-
mation about our credit risk and our portfolio 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
Our eight segments are focused on the broad markets they
serve: Power & Water, Oil & Gas, Energy Management, Aviation,
Healthcare, Transportation, Appliances & Lighting and GE Capital.
In addition to providing information on segments in their entirety,
we have also provided supplemental information about the busi-
nesses within GE Capital.
Segment profi t is determined based on internal performance
measures used by the Chief Executive Offi cer to assess the per-
formance of each business in a given period. In connection with
that assessment, the Chief Executive Offi cer 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. See Corporate Items and Eliminations
for certain amounts not allocated to GE operating segments
because they are excluded from measurement of their operating
performance for external purposes.
Segment profi t excludes results reported as discontinued
operations, earnings attributable to noncontrolling interests
of consolidated subsidiaries, GECC preferred stock dividends
declared and accounting changes. Segment profi t excludes or
includes interest and other fi nancial charges and income taxes
according to how a particular segment’s management is mea-
sured. These costs are excluded in determining segment profi t,
which we sometimes refer to as “operating profi t,” for Power
& Water, Oil & Gas, Energy Management, Aviation, Healthcare,
Transportation, and Appliances & Lighting and are included in
determining segment profi t, which we sometimes refer to as
“net earnings,” for GE Capital. Certain corporate costs, such as
shared services, employee benefi ts and information technology,
are allocated to our segments based on usage. A portion of the
remaining corporate costs is allocated based on each segment’s
relative net cost of operations. Prior to January 1, 2011, segment
profi t excluded the effects of principal pension plans. Beginning
January 1, 2011, we began allocating service costs related to our
principal pension plans and no longer allocate the retiree costs
of our postretirement healthcare benefi ts to our segments. This
revised allocation methodology better aligns segment operat-
ing costs to the active employee costs, which are managed by
the segments. This change does not signifi cantly affect reported
segment results.
Results of our formerly consolidated subsidiary, NBCU, and
our equity method investment in NBCU LLC until we sold it in the
fi rst quarter of 2013, are reported in the Corporate items and
eliminations line on the Summary of Operating Segments.
We have reclassifi ed certain prior-period amounts to conform
to the current-period presentation. For additional information
about our segments, see Note 27.