Life Insurers Lost $32 Billion in Capital in 2008 (Update2)

By Andrew Frye
Bloomberg News
March 17, 2009

March 16 (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., reported a $32 billion decline in statutory capital in 2008 as investments fell, Moody's Investors Service said.

Capital and surplus declined 13 percent to $208.6 billion from $240.6 billion, Scott Robinson, a vice president at Moody's, said in a research note today. Most carriers face "quite limited" options for replacing capital, and some may stop selling certain types of policies to conserve funds, Robinson said, without identifying the firms.

Life insurers have turned to the government with requests for capital injections after losses on corporate debt, commercial mortgages and subprime securities sapped funds. No. 1 MetLife said this month it may be selected for a Treasury capital infusion, while No. 2 Prudential and Hartford Financial Services Group Inc. await replies from the U.S. on aid applications filed last year.

"Managements struggling to maintain capital ratios and fight the perception of financial weakness may face an erosion of their brands and market presences," Robinson said. The dip in capital "would have been much deeper" if not for a loosening of reserve requirements by state regulators and injections at the life insurance subsidiaries of American International Group Inc., which was bailed out by the U.S. government, Robinson said.

MetLife has dropped 66 percent in six months of New York trading, while Newark, New Jersey-based Prudential has fallen 76 percent and Hartford has plummeted 89 percent. New York-based AIG, once the world's biggest insurer, is down 78 percent.

Dividend Cuts

Life insurers have cut dividends, curbed share buybacks and slashed jobs to conserve funds. Prudential and Hartford, based in the Connecticut city of the same name, reported losses of more than $1.5 billion each in the second half. MetLife posted a profit $1.6 billion in the same period as hedges cushioned against asset declines.

MetLife and Prudential had their credit ratings downgraded by Standard & Poor's last month, while Hartford was cut by the firm three times since Feb. 9.

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