Hartford Falls as Plea for Speedier Reform Rebuffed (Update3)

By Andrew Frye
Bloomberg News
January 12, 2009

Jan. 12 (Bloomberg) -- Hartford Financial Services Group Inc. and Prudential Financial Inc. led life insurers lower after regulators dismissed an industry plea to speed capital relief.

Hartford fell $3.08, or 17 percent, to $15.08 at 1:36 p.m. in New York Stock Exchange composite trading. Prudential, based in Newark, New Jersey, declined $3.33, or 10 percent, to $28.55.

Life insurers are pushing regulators to grant looser reserve standards after investment losses depleted capital. The National Association of Insurance Commissioners rejected an industry request to approve changes by Jan. 16 and plans to hold a hearing at the end of the month to seek input from consumer groups before taking a vote, Susan Voss, the vice president of the group, said late on Jan. 9.

"The continued turmoil in the credit and equity markets is taking a bigger toll on the U.S. life insurance sector," Standard & Poor's said today in a statement. "We expect to take negative rating or outlook actions on several life insurers in the next six months."

Life insurers lost $77 billion in surplus last year on investment declines and guarantees on slumping retirement products, according to consulting firm Conning & Co. Life insurance stocks lost about half their market value in 2008.

Goldman Sachs Group Inc. advised investors today to sell shares of life insurers including Hartford, Prudential, Lincoln National Corp. and Principal Financial Group Inc., reiterating the firm's recommendation on the companies. The industry may need more capital, Goldman's Christopher Neczypor said in a report.

Job Cuts

Hartford, Prudential and Genworth Financial Inc. have slashed their dividends, cut jobs and applied for relief from the U.S. Treasury program to bolster financial firms after unprofitable third quarters. Harford and Lincoln won approval Jan. 9 to acquire lenders, moving them a step closer to getting government relief.

Carriers including Prudential and MetLife Inc., the largest U.S. life insurer, were already regulated as lenders.

Genworth, based in Richmond, Virginia, slumped 9.5 percent. Philadelphia-based Lincoln plunged 11 percent. Protective Life Corp. dropped 7.7 percent. Principal fell 11 percent. New York- based MetLife slipped 8.5 percent.

MetLife got a benefit of $1.8 billion last year when New York regulators allowed insurers in the state to reduce some reserves, based on hedges they purchased against equity-market declines. Other states are waiting for the NAIC to vote before allowing insurers to reduce reserves.

$30 Billion

The American Council of Life Insurers has criticized current regulation as too conservative, and the group approached regulators to alter requirements in time to be applied to 2008 yearend financial statements. The council said its proposed rule changes would free up $25 billion to $30 billion in capital.

Passage of capital relief would benefit Hartford, Prudential and Lincoln, said Andrew Kligerman, an analyst at UBS AG, in a note Dec. 18. All three insurers' shares declined by at least two-thirds last year.

The possible revisions include changing rules on reinsurance accounting and the valuation of commercial mortgages, according to a Dec. 24 letter from the ACLI.

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