Life Insurers Fall On Worry Over Investment Losses

by Lilla Zuill
November 19, 2008

NEW YORK, Nov 19 (Reuters) - Shares of U.S. life insurers, led by Hartford Financial Services Group Inc (HIG.N: ), fell on Wednesday as investors grew more concerned about the sector's large exposure to commercial mortgage investments.

Life insurers have seen their capital eroded in recent months by heavy investment losses. Several have raised capital, and still others are trying to see if they can obtain federal funds under the government's $700 billion bailout.

Eric Berg, an analyst with Barclays Capital, said in a research note to clients on that only two insurers -- Hartford and American International Group Inc (AIG.N: ) -- have written down the value of commercial mortgage-backed securities (CMBS) held since December 2007.

Hartford has recorded other-than-temporary impairments of 3 percent, while AIG has recorded 9 percent. Other-than-temporary impairment accounts for assets that have lost value and are not expected to recover in the short term.

This means that most insurers are carrying these securities at their original value, despite growing concerns that losses on commercial mortgages will mount.

The Dow Jones U.S. life insurance index .DJUSIL, down more than 60 percent so far this year, fell nearly 8 percent on Wednesday.

UBS analyst Andrew Kligerman, in a research note, said Hartford and Principal Financial Group Inc (PFG.N: ), a provider of retirement plans, life and health insurance, were most vulnerable to CMBS-related losses since they have larger exposure to "A-" or lower rated securities than peers.

In addition to worries about further investment losses, investors have also been spooked by growing costs from variable annuities, a popular investment-linked retirement product that accounts for a large portion of the industry's sales.

Hartford, which sells both life and property insurance and is not a component in the Dow life index, fell 26 percent to $7.12 in trading on the New York Stock Exchange.

Other large U.S. life insurers also fell, with MetLife Inc (MET.N: ) shares falling 7.7 percent to $19.12 and Prudential (PRU.N: ) lost 12.8 percent, falling to $17.36. Both have very large commercial mortgage investments. Principal Financial dropped 14.5 percent to $12.23 a share.

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