Wednesday, February 11, 2009

Insurers' Stocks Get Hammered

By LESLIE SCISM and LAVONNE KUYKENDALL Worse-than-expected earnings, deteriorating credit ratings and concerns about the adequacy of life insurers' capital bases hammered share prices on Tuesday amid a lower market overall. Principal Financial Group Inc. was one of the biggest losers, down 30%, or $5.04, at $11.99 a share at 4 p.m. in New York Stock Exchange composite trading. Principal Financial and Lincoln National Corp. became the latest insurers to say they are asking for regulatory help, seeking more-favorable treatment of certain tax assets than statutory accounting normally permits, as a way to boost their capital levels. Principal, which reported a net loss of $7.5 million for the fourth quarter, saw its book value per share drop more than 60% from the third quarter on higher-than-expected unrealized investment losses. Lincoln National posted a fourth-quarter loss, with higher-than-anticipated realized investment losses. Last week, Hartford Financial Services Group Inc. said it had asked Connecticut regulators for relief totaling $1 billion, through the easing of rules related to reserves for variable annuities and the accounting treatment of deferred-tax assets. Allstate Corp. also has requested relaxation of some regulatory requirements for its insurance units. Most of the big life insurers reported weak earnings and steep investment losses for the fourth quarter, putting a drag on capital levels for all. The fourth quarter was "a particularly unusual quarter," Larry Zimpleman, Principal's president, said during an analyst conference call on Tuesday. He said the company's relatively small book of guaranteed-minimum variable annuities meant the company didn't have a variable-annuity hedging program as big as some rivals'; hedging helped offset some rivals' investment losses. Moody's Investors Service affirmed the Aa2 financial-strength rating of Principal's main life-insurance unit but changed the outlook to negative because of continuing investment losses and weakening earnings capacity. On the heels of a downgrade last week of Hartford's life-insurance units, the credit rater put the ratings of Lincoln, Genworth Financial Inc. and Prudential Financial Inc. under review for possible downgrade. Genworth reported a fourth-quarter loss on Monday but reported risk-based-capital ratios above expectations. Deferred-tax assets are credits that a company aims to use to offset future taxes. They have value to the extent that a company generates a profit in future years and can put them to use. Most states sharply restrict the ability of insurers to count these credits as part of their capital bases. Loosening the accounting treatment was among the items sought by the American Council of Life Insurers when it approached the National Association of Insurance Commissioners in November seeking an easing of multiple rules. All of the ACLI proposals ultimately were nixed by the NAIC. Under state-based insurance regulation, states can adjust their own rules. Write to Leslie Scism at and Lavonne Kuykendall at

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