U.S. Eyeing Troubles Of Insurers

Several big insurance companies this week reported big losses on investments in the last quarter, raising fresh questions about the financial stability of the firms as the U.S. government considers investing in them.

Hartford Financial Services Group, a Connecticut insurer, lost $2.63 billion in the third quarter. Prudential Financial, the New Jersey insurer, lost $108 million. Assurant, a New York provider of specialty insurance, lost $111.4 million.

The companies saw their investments in mortgage-related securities and other assets suffer with the market downturn. Some analysts have warned that several firms are treading on increasingly weak ground and will have difficulty raising needed cash to continue operations. The companies' shares plunged this week before a modest rally yesterday.

The poor financial results came after insurance executives met with Treasury Secretary Henry M. Paulson Jr. to ask for access to a government capital injection program that has already provided $164 billion to the nation's largest banks.

Several insurance companies have publicly stated that they are likely to seek government funding should it become available. "We feel very well capitalized," Hartford chief financial officer Lizabeth Zlatkus told analysts on a conference call earlier this week. "But in terms of would we access the [Capital Purchase Program] if that's available? We certainly think there are favorable terms as we see it, and we would look to do that."

In the case of banks, a prerequisite for such funding is that the institutions be on firm financial footing in order to ensure that the taxpayer investment is not wasted. But judging the health of insurers may be trickier.

Banks are regulated by an extensive and mature network of federal agencies, some of which have examiners working inside banks. By contrast, many insurers are regulated by state authorities, though some are registered as thrift-holding companies and therefore subject to oversight by the Treasury's Office of Thrift Supervision.

If an insurer faltered, the direct impact on most consumers would probably be minimal. Most policies, such as car and home insurance, would be transferred to another company. But in many states, the cash value of life insurance policies and a widely held retirement insurance product called a fixed annuity is guaranteed only up to $100,000.

Insurance firms not only provide financial security and guarantees to many consumers and businesses, but they also use premiums collected to buy and hold vast amounts of securities, helping foster liquidity in the financial markets.

The near collapse of the big insurer American International Group in September -- before being saved through a Federal Reserve loan package that now totals $144 billion -- sent a chill through the insurance industry. Some analysts warn that other firms could be on as weak ground, though they're not as big as AIG and therefore don't pose as much of a risk.

Some of the closest scrutiny has fallen on Hartford. The company, which offers auto, homeowner's and life insurance, as well as annuities and other products, has written down the value of some of its bad investments on mortgage securities and derivatives. But it still has $11.5 billion in unrealized losses, leaving the company with little cushion to absorb further losses.

Barclays Capital analyst Eric N. Berg wrote in a research note that "there are precious few options available to Hartford to raise the capital it needs to avoid a rating-agency downgrade." A rating-agency downgrade might scare away customers and could make it difficult for the company to fund itself.

Hartford and other financial firms say that despite their troubles, they are well capitalized and can meet their commitments.