Calling Uncle Sam: Insurers’ stocks dive on capital worries
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The U.S. Treasury’s financial-system firefighters may have to turn their attention from the blaze in the banking business to a new one in the insurance industry.
Shares of insurance titans Hartford Financial Services Group, CIGNA Corp. and Prudential Financial Inc. all tumbled to multiyear lows today on dismal third-quarter earnings reports, after plunging markets slashed the value of the companies’ huge investment portfolios.
Hartford was hit the hardest: Its stock dived $10.24, or 51%, to $9.62 after the company late Wednesday reported a $2.63-billion net loss for the quarter, reflecting writedowns in its portfolios.
From Bloomberg News:
The majority of the writedowns were related to the company’s investments in financial firms. Last month the insurer said it held $511 million in preferred stock of mortgage lenders Fannie Mae and Freddie Mac and more than $260 million of stock and debt in bankrupt Lehman Bros. Holdings Inc. and American International Group Inc., which ceded majority control to the government in September. Separately, Hartford took a $932-million accounting charge to reflect the underperformance of securities that back retirement products the firm sold in previous quarters. Life insurers guarantee minimum returns for some customers -- such as annuity holders -- and adjust their profit assumptions when investment returns fail to meet the company’s targets.
CIGNA’s shares slumped $4.27, or 21.5%, to $15.58 today after the company said quarterly profit fell 53% because of falling health-plan enrollments and losses on stock holdings that back its annuity business.
Prudential dropped $6.38, or 18.1%, to $28.87 after reporting a $166-million loss. Prudential and Hartford also spooked analysts by saying it was difficult for them to detail the size of their capital cushions, given the turmoil in markets.
Wall Street is betting that many insurance companies will have to raise fresh capital to bolster their finances. Uncle Sam to the rescue, again?
From Bloomberg:
Prudential is ‘evaluating’ opportunities to participate in federal programs that could boost the insurer’s capital, a company executive said. Hartford would consider selling a stake to the Treasury if a U.S. program to inject capital into financial firms were extended to insurers, said Chief Financial Officer Lizabeth Zlatkus. U.S. life insurers reached out to Treasury officials last week in hopes of securing some of the $250 billion set aside to prop up ailing financial companies. Some of the firms asked the government to make participation mandatory because they don’t want to identify themselves as needing government intervention, said an industry official with knowledge of the discussion.