"Life Insurers Face ‘Unprecedented Stress,’ S&P Says (Update3)
By Andrew Frye
April 15 (Bloomberg) -- U.S. life insurers, a group led by MetLife Inc. and Prudential Financial Inc., face “unprecedented stress” on holdings in bonds and commercial mortgages in the next 18 months, Standard & Poor’s said.
“The U.S. is in the midst of perhaps its longest recession in a generation, and our economists believe it is just entering its most difficult phase,” the ratings firm said today in a statement.
Life insurance stocks have lost more than half their market value in the past 12 months as declines in fixed-income holdings drained capital. Losses and profit declines have discouraged investors in the industry’s stocks and bonds and left life insurers waiting for a response from the Treasury on requests for federal bailout funds.
MetLife, the biggest U.S. life insurer, has dropped 53 percent in the last 12 months of New York Stock Exchange composite trading, while No. 2 Prudential is down 64 percent over the same period. The 11-company S&P Supercomposite Life & Health Insurance Index has fallen 60 percent.
“Insurers have been prevented from accessing the debt markets for additional liquidity,” S&P said.
North American insurers posted more than $190 billion of writedowns and unrealized losses tied to the collapse of the housing market since the beginning of 2007. The industry lost $32 billion in surplus last year, according to Moody’s Investors Service. This year, carriers including New York-based MetLife, Prudential and Hartford Financial Services Group Inc. have been buffeted by ratings downgrades.
MetLife’s unrealized losses on corporate debt surged 71 percent to $14 billion in the last three months of 2008 as the recession hurt firms’ ability to repay or refinance their bonds. Corporate defaults are poised for a “significant” increase this year and may end up costing life insurers more than losses on securities linked to subprime, Alt-A and commercial mortgages, according to Barclays Plc.
Christopher Breslin, a spokesman for MetLife, had no immediate comment on the report. MetLife said on April 13 its capital position was “strong” and the company won’t seek aid from the government’s Troubled Asset Relief Program.
Prudential posted a net loss of $1.57 billion in the fourth quarter amid investment declines and costs to prop up minimum- return guarantees on slumping retirement products called variable annuities. Prudential, which has a greater portion of its holdings in below investment-grade securities than the industry average, “is well positioned from a capital standpoint” to absorb further declines, Kevin Ahern, a credit analyst for S&P, said on Feb. 27.
Bob DeFillippo, a spokesman for Prudential, referred to S&P’s statement on the Newark, New Jersey-based insurer in February and had no further comment.
The ratings firm downgraded the insurance subsidiaries at Prudential, MetLife and others on Feb. 26.