Goldman Sachs Group Inc. today changed its view on the life insurance sector – including The Hartford and Lincoln National, which have major operations in the Hartford area – to “cautious” from “neutral” because it expects asset deterioration to continue.
Analyst Chris Neczypor, who is assuming coverage of the sector from Tom Cholnoky, wrote in a research note that over the next 12 to 18 months, life insurers will face further deterioration in assets and increased losses from guarantees embedded in annuity products.
Neczypor also said as equity markets remain weak during the current credit crisis and slowdown in the economy, fee income will decrease and insurers will likely face increasing scrutiny about capital reserves from ratings agencies and regulators.
Life insurers will likely face further write-downs on investments in the coming quarters and raise fresh capital to cover losses, Neczypor wrote in a research note.
Hartford Financial Services Group Inc., Lincoln National Corp., Prudential Financial Inc. and Principal Financial Group Inc. are all likely to need to raise capital and face the possibility of ratings downgrades, possibly as early as the end of this year, Neczypor wrote in the note.
All four companies are rated “sell” by Goldman Sachs.
Among the group, Principal Financial is at the greatest risk because it has the highest leverage to problem assets, making a capital raise “imminent,” Neczypor wrote in the note.
MetLife Inc., which also has major operations in the Hartford region, is rated “neutral” based on its strength relative to the other companies and it not needing to raise capital in the coming months, Neczypor said.
At 11 a.m., shares of The Hartford traded at $10.94, down $3.61, or 24.8 percent ; Lincoln was at $16.67, down $2.58, or 13.4 percent; and MetLife was at $30.90, down $2.21, or 6.7 percent. (AP)
