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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