With slumping stock markets bruising their profits and credit-related investment losses for more than one year, the U.S life insurance sector’s total market capitalisation has dropped in a massive way.

As a result, some firms are finding it more difficult to access money through their own stocks, especially in a downturn when they are saving as much cash as they can by postponing share buyback plans.

Huge losses

Steven Weisbart, chief economist of the Insurance Information Institute said:  “In this environment, raising capital will be difficult and, when it is available, probably costly.” However, life insurers can increase their capacity by increasing the amount of risk they surrender to reinsurers, he pointed out.

 19 life insurance companies lost $216.1 billion, or 83.6% in total market capitalisation, from January 1st through to March 06 2009. Market cap is a prediction of a public firm by multiplying the number outstanding by the present price of a share.

It is thought that MetLife Inc.'s stock price has dropped 79.7% and its market cap decreased by nearly $35.8 billion; Prudential Financials stock price has plummeted 87.5% and its market cap plunged by nearly $37.3 billion. Lincoln National Corp.'s stock price has sunk 91.4% and its market cap fell by about $14.5 billion.

A firm can normally use its stock to raise money if it needs to, but during these volatile times, some firms are now unable to rely on such stock or market capitalisation.

Due to continuous drops in the market, life insurance companies and their financial options, which include the use of its stock, have become limited because it is worth less.

A fight for survival

In an attempt to gain power again, life insurance companies who believe their stock can be ‘unfairly beaten’ by the market normally engage in a share buyback, in hope to support their stock prices.  

However, such techniques stopped when the Lehman Bros. went into bankruptcy last September. Soon after, questions were asked where money was going down the drain quicker: “The stock buybacks are the obvious choice to stop the bleeding right away,” said Peter Miralles, CEO of Atlanta Wealth Consultants.

Bleak outlook

Cynthia Jamison, a partner in a financial firm said that there is great negativity around financial choices currently: “There's paranoia around liquidity. Everyone is just hoarding right now because they are worried about how long and how deep this is going to go.”

As the credit has worsened this negativity has greatend and companies have suspended optional spending. And share buybacks have fallen victim to this, as it is seen as a “luxury purchase”

One cannot help but hold a grim outlook on the insurance sector. The life industry indeed, needs life injected into it.