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Prudential becomes latest insurer to warn

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Redplanet

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By Juan Lagorio and Bill Rigby

 

NEW YORK (Reuters) - Prudential Financial Inc is the latest major insurer to warn its quarterly profits would miss forecasts, as the shares of rivals were pummeled on concern they would need to raise capital.

 

The second-largest U.S. life insurer said on Thursday that third-quarter profit would be cut sharply by losses on poorly performing annuity and investment products and a charge for a legal settlement.

 

That followed recent profit warnings at U.S. life and property insurer Hartford Financial Services Group Inc and MetLife Inc, the largest life insurer in the United States.

 

The latter sold new shares at a discount on Wednesday to bolster its capital, raising $2 billion, while Hartford earlier this week received a $2.5 billion capital injection from Allianz SE, Europe's biggest insurer.

 

"Insurers made big investments in mortgage-related securities and are also big holders of stocks and bonds in financial firms that have been wiped out or badly damaged by the credit crisis, such as Lehman Brothers and Washington Mutual, said Alan Rambaldini, a life insurance analyst at investment research firm Morningstar.

 

"On top of that, bigger life insurers like Prudential get fees on the size of stock investments behind annuity products they sell to customers, which will drop sharply as the broader market plummets," he said.

 

'TRADING ON FEAR'

 

Among other life insurers, Lincoln National Corp, fell 35 percent to $18.31, Principal Financial Group Inc lost 27 percent to $15.79 a share and Unum Group fell 30 percent to $14.77.

 

Life insurance, as measured by the sectoral S&P Life & Health Insurance index, was down 17 percent, making it the second-worst performing sector after automakers.

 

Even beyond life, XL Capital Inc, a large Bermuda-based reinsurer, fell 54 percent to $4.01.

 

"The group (insurers) are trading on fear right now," said Bret Howlett, Standard & Poor's life insurance analyst. "A lot of investors are worried about capital positions in this unfavorable operating environment.

 

"People are worried about whether these companies are going to need to raise additional capital. In this environment, it's going to be difficult to raise that capital."

 

American International Group Inc shares fell 25 percent to $2.39, one day after the company said it would get more liquidity from the government.

 

AIG, once the world's largest insurer, got an $85 billion loan from the government three weeks ago when it was on the brink of collapse. Under the new plan, the Federal Reserve Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash.

 

"The government has effectively provided them support for $110 billion. I think they have exhausted that avenue and so I think as they move forward their options have diminished," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

 

UNDER PRESSURE

 

Citing market volatility and extraordinary events affecting financial markets, Prudential has suspended all purchases of its own stock.

 

It said it has liquidity to meet requirements at the parent company and at all operating subsidiaries and, unless it enters into any strategic deals, its need to access the capital markets before the end of the year would be modest.

 

"We are comfortable with our risk profile and believe that we are in a strong position to manage through the current environment," said Prudential Chief Executive John Strangfeld, in a statement.

 

Prudential did not say when it would report third-quarter earnings.

 

Insurers have been under pressure to keep solid capital positions to maintain their ratings after their investments lost value as financial markets sank in recent weeks.

 

Keeping high ratings is essential for insurers because lower ratings can mean higher costs and, in some cases, even a loss of business.

 

(Editing by Toni Reinhold and Andre Grenon)

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Mivec9

Mivec9

1st Gear

I think you are correct. Prudential financial is not at all related to Prudential Insurance. If not wrong, Prudential insurance is an UK company?

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Scenic98

Scenic98

Clutched

Prudential is Prudential. All related. Just like AIA is related to parent AIG. But based on the report, Prudential is just missing profit targets, not in any liquidity issue....YET. Let's see.

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Guest Julio369

Guest Julio369

Neutral Newbie

hey! you make me drive to CBD, pay ERP, pay carpark, waste petrol,wear & tear, pollute the enviroment...just to queue at their office.

 

i want to sue you for transport cost & time!!!

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Silver_blade

Silver_blade

Turbocharged
(edited)

Actually during this difficult times...best is to keep yourself abreast of the latest news and looks for signs of any bank/insurance co., etc are in the blink of collapse...and act before everyone else's do.

 

My mum did just that in the 70's...went to a local bank and took all her savings out and bank it into anther bank. Shortly after, news of than bank was collapsing and loads of people queuing overnight to get their money out. Some were robbed near the bank....complete chaos. That bank eventually collapsed.

Edited by Silver_blade
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