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UPDATE 2-Goldman bearish on US life insurers

Tue, Nov 11 2008, 17:51 GMT
http://www.afxnews.com

(Recasts, updates share movement and adds background)

Nov 11 (Reuters) - Shares of all major U.S. life insurers fell sharply in afternoon trade, after Goldman Sachs analyst Chris Neczypor assumed coverage of the sector with a bearish view, saying the segment will see asset deterioration in the next 12 to 18 months and needs to raise more capital.

Hartford Financial Services Group Inc was down more than 26 percent at $10.72, while other major life insurers were down at least 9 percent on the New York Stock Exchange.

Neczypor said weak equity markets will decrease fee income, dislocated credit markets will hurt spread business and heightened scrutiny by rating agencies and regulators may result in increased capital requirements.

Neczypor assumed the coverage of major U.S. life insurers with a "cautious" view from Tom Cholnoky, who had a "neutral" view on the sector.

He recommended selling the shares of Hartford Financial Services Group Inc, Lincoln National Corp, Prudential Financial Inc and Principal Financial Group Inc.

Principal Financial appears most at risk from continued asset deterioration, as it has the highest leverage to problematic asset classes, he said.

"With more institutional funding contracts due in the next two years and a slowing of incoming business from which to roll the funds, we believe capital raises are imminent," Neczypor said about the sector.

The analyst rated MetLife Inc "neutral" on a relative basis, "given the less pressing near-term need to raise capital."

Insurers are feeling the pinch as falling stock markets and freezing credit markets cause a decline in the value of their investments.

Earlier this month, however, Hartford Financial had said its property and casualty insurance units were well capitalized, while late last month both Prudential and Principal had said they have sufficient capital and will not need to raise more to maintain key credit ratings.

Neczypor said in the longer term, the sector's landscape will be dramatically different, as the industry's problems may force some of the smaller institutions to exit the business.

"Those who survive will be able to consolidate distribution, invest in appropriate capital markets infrastructure and eventually lead the industry in capturing the opportunities associated with the baby-boomer retirement," he said.

(Reporting by Santosh Nadgir in Bangalore; Editing by Anil D'Silva) Keywords: USINSURERS/RESEARCH GOLDMAN

(santosh.nadgir@thomsonreuters.com; within U.S +1 646 223 8780; Outside U.S +91 080 4135 5800; Reuters messaging: santosh.nadgir.reuters.com@reuters.net)

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