Life Insurance Stocks Fall On Rating Worries

by Lilla Zuill
February 10, 2009

NEW YORK (Reuters) - U.S. life insurer shares fell sharply on Tuesday as investment losses triggered rating agency concerns.

Late Monday, Fitch downgraded the insurer financial strength rating for Hartford Financial Services Group Inc's (HIG.N) primary life insurance subsidiary, citing the company's "exposure to the currently volatile credit and investment market conditions."

Standard & Poor's downgraded Hartford's counterparty credit rating one notch to "A-," earlier Monday, citing similar concerns.

Shares fell 7.1 percent to $13.96 on Tuesday on the New York Stock Exchange. Last week, Hartford reported a fourth-quarter net loss of $806 million.

Rating agencies took action Tuesday on Principal Financial Group Inc (PFG.N) and Lincoln National Corp (LNC.N).

Moody's Investors Service put the financial strength ratings for Principal's life insurance subsidiary on "negative" outlook, citing "continuing investment losses and weakening earnings capacity."

A negative outlook indicates the ratings are at risk of downgrade in the next year or two.

Principal shares fell 25 percent to $12.72 a share on the NYSE after the company reported a $7.5 million fourth-quarter net loss late Monday, reflecting realized capital losses of $188.9 million.

Principal was the biggest percentage loser on the Dow Jones U.S. Life Insurance Index .DJUSIL, which was down 6 percent. The index has fallen about 60 percent in the last 12 months.

Moody's put Lincoln's financial strength ratings under review for possible downgrade a day after the insurer posted a $506 million net loss, including realized capital losses on investments of $283 million.

Moody's said its review will focus on how much Lincoln's earnings capacity and capitalization could be hurt by additional investment losses and its ability to meet its obligations for $500 million in senior debt coming due in April.

Lincoln shares fell 14 percent to $15.26 on the Big Board.

Life insurance stocks have been battered in recent months as investors grew worried that investment and annuities losses would continue to erode capital.

It also became more expensive to insure debt issued by some life insurers, reflecting investor nervousness.

Five-year credit default swaps (CDS) for MetLife Inc (MET.N), the No. 1 U.S. life insurer, widened to about 503 basis points, or $503,000 a year to protect $10 million of debt, versus about 461 basis points on Monday. MetLife shares fell 5.7 percent to $29.51 on the NYSE.

Hartford's CDS rose to 640 basis points from 579 basis points, according to Markit Intraday.

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