MetLife Sinks as U.S. Stock Rout Raises Capital Need (Update1)

By Andrew Frye
Bloomberg News
March 3, 2009

March 3 (Bloomberg) -- MetLife Inc. and Lincoln National Corp. led life insurers lower in New York trading as the U.S. stock rout increased the amount of capital carriers need to back retirement products with guaranteed returns.

MetLife, the biggest U.S. life insurer, dropped $2.53, or 15 percent, to $13.98 at 2:29 p.m. in New York Stock Exchange composite trading. Philadelphia-based Lincoln fell 67 cents, or 8.7 percent, to $7.04, while No. 2 Prudential Financial Inc. slid 6.4 percent. The Standard & Poor's 500 Index, which has plummeted 49 percent in the last month, reversed earlier declines and rose 0.6 percent to 705.17.

Life insurers are setting aside more funds to cover potential payouts to customers who were granted minimum-return guarantees on variable annuities linked to the performance of equity indexes. With the S&P 500 below 700, those guarantees absorb nearly all of the excess capital at Prudential and Hartford Financial Services Group Inc., according to Randy Binner, an analyst at Friedman, Billings, Ramsey Group Inc.

"At this point, most of the companies are at least at risk of having to raise capital," Binner said. "Investors are increasingly uncomfortable with the space."

Life insurers have cut jobs, slashed dividends and applied for government aid to stave off rating downgrades and bolster capital after losses and profit declines. Prudential Chief Financial Officer Richard Carbone said on Feb. 5 that a decline in the S&P 500 to 700 from the end of the 2008 level of 903 could cost the insurer about $2 billion in capital.

"I'm working with some of the companies now to find out what happens now below 700" for the S&P 500, Binner said.

S&P Downgrade

MetLife was downgraded by S&P on Feb. 26, one of 10 life insurers cut by the rating firm on concern that the recession will pressure the value of corporate bonds and mortgage-related investments held to back policies. New York-based MetLife may fare worse than Prudential if the economic slump deepens, S&P said.

"Our capital position is strong," MetLife Treasurer Eric Steigerwalt told today analysts at a conference in Scottsdale, Arizona. "The investment portfolio is fairly defensively positioned."

MetLife has a little more than $5 billion in excess capital, based on a calculation using results from the end of 2008, Steigerwalt said.

Bob DeFillippo, a spokesman for Prudential, and Shannon Lapierre, a spokeswoman for Hartford, had no immediate comment.

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