Prudential Shares Plunge After Moody's Downgrade (Update2)

By Andrew Frye
Bloomberg News
March 19, 2009

March 19 (Bloomberg) -- Prudential Financial Inc., the second-biggest U.S. life insurer, led decliners in the Standard and Poor's 500 Index after a downgrade by Moody's Investors Service on costs tied to retirement products.

Prudential fell $6.16, or 25 percent, to $18.76 at 4:15 p.m. in New York Stock Exchange composite trading, the most since the company went public in 2001. The insurer has plunged by more than 70 percent in the past 12 months.

Life insurers, which often guarantee minimum returns on retirement products called variable annuities, have suffered as declines in stocks backing the policies forced them to set aside more capital to fund potential future payouts. Assets in U.S. variable annuities fell 13 percent industrywide in the three months ended Dec. 31, a trade group said yesterday.

Prudential "has greater sensitivity to further declines in the equity markets, which have significantly dropped since year- end 2008, compared with the exposures of many peers," Moody's said late yesterday. Variable annuity costs contributed to Prudential's fourth-quarter net loss of $1.6 billion.

Prudential's credit rating at Moody's slipped below that of competitors Hartford Financial Services Group Inc. and Genworth Financial Inc. with the two-grade cut. Newark, New Jersey-based Prudential's Baa2 senior unsecured debt rating is now three grades below that of No. 1 MetLife Inc. at Moody's.

‘Strong Position'

"We remain comfortable with our risk profile," said Bob DeFillippo, a spokesman for Prudential. "We believe we're in a strong position to manage through the current environment."

MetLife dropped $3.17, or 12 percent, to $22.39. Hartford, based in the Connecticut city of the same name, fell 9.6 percent, and Genworth slipped 6.8 percent.

Credit-default swaps protecting against default by Prudential widened. Traders demanded 13.5 percentage points up front in addition to five percentage points a year, according to CMA Datavision. That means it would cost $1.35 million initially and $500,000 a year to protect $10 million of bonds from default for five years. Yesterday the up-front payment was 12.7 percent.

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