Cramer makes room in the Sell Block today for a whole gang of misfits, based on analysis that Goldman Sachs released on Tuesday. Today's Sell Block detainees: life insurance companies like Lincoln, Hartford, Prudential and Principal. To put it simply, they're in "big trouble," according to Goldman's piece.
According to the report, these insurance firms sold too many annuities that guaranteed a minimum level of income for the buyers. Now they have to "make good" on these promises while suffering HUGE losses in the stock market in recent weeks. These "variable annuity" products contributed about 35% of these companies' income in 2007. But now it's time to pay up -- where will they get the money?
The guarantees were under-priced to begin with, and to make matters worse, these companies then bet big on commercial real estate -- and we all know how THAT sector is doing. Cramer says expect huge write-downs, as well as plummeting ratings from credit rating agencies, which will come at a time they'll be trying to raise capital -- not good.
Cramer shares a personal experience with insurance:
"For years I've had this great term life insurance policy from American Mayflower. I recently got my bill and Genworth bought the company. Now I'd done a huge amount of research before choosing American Mayflower and it was the best. Then I hit up Genworth and I'm panicked because on November 11 it got cut out of the Federal program that buys short-term debt and the stock was cut in half and is now down 61%. I'm worried -- will Genworth be able to pay? I am personally freaking out about this. What happens to my family in the event that Genworth has to pay? I did, though, breathe a sigh of relief though when, late in the afternoon, Genworth got a credit line for almost a billion dollars! Phew, that was close!!"
Remember when Cramer caught flack for putting AmEx in the Sell Block at $32? It was $20.78 today. He also threw AIG in the Block at $43.46, and now, at about two bucks, you can't even buy a latte with an AIG share.
Bottom line: if you own stock in a life insurance company, the best insurance now is to sell.
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