Sector Snap: Insurance companies

CHARLOTTE, N.C. - Shares of insurers fluctuated Monday afternoon, starting what may turn out to be a volatile week as investors digested some positive news in the sector, which has seen third-quarter results plagued with investment and catastrophe losses.

A handful of insurers posted large gains as Hartford Financial Services Group Inc. said that its capital position should be sufficient to maintain "AA" ratings levels at the end of the year even if there were further deterioration in the markets.

Mortgage insurer PMI Group Inc. also provided signs that defaults are starting to slow.

Hartford Financial's shares jumped more than 50 percent Monday as the insurer tried to end speculation about its capital position after its share price tumbled last week amid concerns it did not have enough spare cash to handle the current downturn in the credit markets.

Hartford Financial shares plummeted 58 percent last week to close at $10.32. Shares fell as low as $8.23 during the week. The share plunge came as the company reported a loss of $2.6 billion during the third quarter.

On Monday, shares gained $5.67, or 55 percent, to $15.99 in afternoon trading, after trading as high as $16.14 during the session.

Despite the announcement, Moody's Investors Service cut the insurer's rating, citing weakness at the company's life insurance business following the recent turmoil in financial markets.

The agency cut the company's senior unsecured debt rating by one notch to "A3," but affirmed its "Aa3" insurance financial strength ratings for the company's main property and casualty units and life insurance operations.

Insurers have been under pressure to maintain solid capital positions in order to avoid damaging downgrades by ratings agencies. Keeping high ratings is key for insurers because lower ratings can mean higher costs, and in some cases, even a loss of business.

Earlier this month, MetLife Inc. raised $2.3 billion in capital by selling 75 million shares at a discount. The New York-based insurer's shares rose $3.44 Monday afternoon, or 10 percent, to $36.66.

Mortgage insurers have also been hit hard since the middle of 2007, and PMI Group said Monday its third-quarter loss widened as claims payments and loss reserves grew, and new business declined — all in part due to rising defaults.

As more mortgages default, insurers are forced to pay out claims to cover interest and principal payments to cover those losses.

But in a sign the mortgage insurer expects the pace at which defaults are rising to slow, PMI Group on Monday lowered its 2008 outlook for expected paid claims in the U.S.

PMI shares rose 20 cents, or 8 percent, to $2.69.

Shares of mortgage insurer Genworth Financial Inc. also advanced, climbing 37 cents, or 7.6 percent, to $5.21.

But there may be some pain ahead.

Results for American International Group Inc., once one of the world's largest insurers, are expected soon, though the company hasn't announced when it will report. Analysts polled by Thomson Reuters, on average, expect the New York-based insurer to post a loss of 90 cents a share in the most recent quarter.

In mid-September, the Federal Reserve bailed out the insurer, saying it would provide it with a two-year, $85 billion loan. The Fed then said it would loan the company an additional $37.8 billion, and last week AIG tapped $20.9 billion more in an additional Fed credit line. AIG continues to face a liquidity crunch greater than was anticipated.

AIG shares advanced 21 cents, or 11 percent, to $2.12 Monday.

Other insurer's gaining ground included Prudential Financial Inc., up $3.89 or 13 percent, to $33.89; Lincoln National Corp., up $2.29, or 13 percent, to $19.53; and Allstate Corp., up $2.29, or 8.7 percent, to $28.68.

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