Filed under: Allstate Corp (ALL), Financial Crisis, MetLife Inc. (MET)
As the U.S. market wraps up a wild day in which central banks cut rates in unison, one sector has no doubt at all about where it wants to go — down. Three leading insurance companies have lost as much as a 28% of their stock market value in today’s trading alone. How so? As I posted, insurers are the next part of the financial foundation to crumble due to mortgage-backed securities (MBS) gone sour.
Here’s the latest insurance industry carnage:
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XL Capital (NYSE: XL) -28%. The property-casualty insurer holds $29 billion in asset-backed securities such as MBSs and collateralized debt obligations (CDOs), 330% of its shareholders’ equity.
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Met Life (NYSE: MET) -27%. This life insurer announced plans to sell 75 million shares and to fire an unspecified number of employees. It also expects to earn between 83 cents and 93 cents per share — way below analysts’ $1.44 forecast.
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The Allstate Corp. (NYSE: ALL) -21%. This property-casualty insurer holds $83 billion in fixed income securities such as MBSs, 421% of its shareholders’ equity — and the $22 billion in Level 3 — difficult to value — fixed income securities exceed its $19.7 billion in capital.
I expect this problem to affect every insurance company to some extent. Will the $810 billion rescue plan relieve these institutions of their bad investment decisions? We might know in a year. Until then, look out below.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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