Colonial Penn Group, whose life insurance subsidiary lost out to Prudential in a fight to provide health coverage for millions of senior citizens, suffered a loss of $23.4 million last year compared with a profit of $52.6 million ($3.26 a share) in 1980.

For 20 years, Colonial Penn Franklin Insurance Co. had exclusive contracts with the American Association of Retired Persons and the National Retired Teachers Association. Then, as a result of conflict-of-interest lawsuits, the associations decided to solicit bids for the group health contracts. Prudential won.

Colonial Penn staged an $18 million campaign to keep as many as possible of its customers because 40 percent of its $665 million in premium dollars came from those 1.7 million contracts covering 2.5 million individuals.

In the end, Colonial Penn retained just 26 percent of its former business. Moreover, those who did chose to stay with Colonial Penn insurance tended to be in poorer health. As a result, the company's claims shot up. The campaign, the claims, and increased loss reserves plus other expenses related to the termination of those contracts decreased the company's earnings by $56.1 million. It also lost $200 million in health premiums on an annualized basis.

Fourth-quarter results, also announced yesterday by the Philadelphia firm, showed a loss of $29.8 million compared with a profit of $12.9 million during the same period in 1980..

Colonial Penn stock, selling at a 12-month low of 15, is among the insurance stocks recommended by Bache Halsey Stuart Shields..