NEW YORK (CNN/Money) - General Electric Co. said Thursday it will take a $1.4 billion charge in 2002 to account for declining business in its struggling Employers Reinsurance Corp. and reduced earnings forecasts for the year as it raised the reserves for the unit.

Investors appreciated GE's (GE: Research, Estimates) frankness, sending the shares up $1.62 to $26.42 in midday New York Stock Exchange trading Thursday. Wall Street widely expected the charge, which shaves 14 cents a share off 2002 earnings, based on the company's previous announcements about difficulty in the reinsurance business. GE said it will contribute $1.8 billion to ERC's reserves.

The ERC unit provides insurance to other insurers to help them spread their risk.

GE also said it will contribute $4.5 billion to boost reserves at GE Capital Services.

GE now expects 2002 earnings of $1.51 a share, down from the $1.65 consensus forecast of analysts surveyed by earnings tracker First Call. The company also lowered the bar on 2003 earnings, saying it now expects a profit of $1.55-$1.70 a share. Wall Street was looking for $1.70 a share, according to First Call.

"Reinsurance is an industry that has had a difficult time over the past few years, and we're disappointed in our results," CEO Jeff Immelt said. "We are committed to running ERC effectively for our investors. This includes profitability and exploring strategic options."

GE's announcement came less than an hour before a scheduled meeting with analysts in New York City. Wall Street had widely expected the conglomerate, which produces such diverse products as light bulbs and jet engines, to disclose a charge of up to $2 billion during the meeting.

During the meeting Thursday morning, Immelt said the ERC business is set to report a fourth-quarter loss of $1.6 billion, much wider than the previously forecast $150 million loss. For the year, GE expects the reinsurance unit to post a $1.8 billion loss, compared with previous forecasts for a $450 million loss

"ERC doesn't really fit the GE that I want to have," Immelt told analysts Thursday. "The return on equity is too low and there's too many commodity segments. I hate having to give this message to you, but my responsibility to you is to manage it, and that's what I'm doing."

Immelt is trying to reposition the company by shifting away from less profitable businesses as reinsurance and equipment management and focusing more on services and solutions that support medical and retail systems, an airline services.

The company said 2003 earnings will be hurt by nonrecurring gains and option expenses. Yet 11 of GE's 13 businesses are expected to deliver double-digit profit growth next year, including units that support the troubled airline industry.

Immelt told analysts that the company is poised for future growth, particularly in its service solutions businesses and in expansion in China.

"We're positioned to win in this environment. We've got the company so we can have good operating growth in 2003," Immelt said. "We're executing on a very strong leadership agenda, transforming the portfolio and building sustainable growth."

GE's aircraft engine and services business also has suffered from an industry-wide downturn in business since Sept. 11. David Calhoun, CEO of the division, told analysts Thursday that with 20 percent of the U.S. commercial fleet in or near bankruptcy through 2004, the company is shifting to smaller regional and low-cost carriers, which are gaining share.

The company also increased its quarterly dividend 6 percent to 19 cents a share.