Thursday, May 6, 2010

When looking at Europe's banks, keep a close eye on US Insurance firms (MET)

SOOO much bad stuff is lurking on balance sheets.  As the market has raced higher over the past 14months, many holes have been plugged, but probably not as securely as people think.  That said, one sector should be subject to extra scrutiny - insurers.  If there's any industry that had to park money in "income securities" while also trusting the ratings agencies, the insurance industry is it.  No doubt there are some fabulous portfolio managers making these decisions, but the leverage can be damaging.  MET for instance, trades at 1x book value.  Yet a 1% drop in the fixed income portfolio alone will shave off 7% of the company's $33billion in book value....

From Metlife's recent quarterly supplemental (p41):

Copyright 2010 AlphaNinja

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