Insurers shares sink amid concerns about capital needs

NEW YORK (Reuters) - Insurers' shares sank on Thursday as concern mounted about further capital needs in the middle of the worst credit crisis since the Great Depression.

Shares of Prudential Financial Inc , the second-largest U.S. life insurer, lost one-fourth of their value, while XL Capital Inc , a large Bermuda-based insurer, fell 58 percent to $3.63. Prudential shares were down 13 percent at $37.62.

Among other big losers were Principal Financial Group Inc , whose shares fell 11.4 percent to $19.26, and Lincoln National Corp and Protective Life Corp , whose shares fell 25 percent to $20.96 and 18.5 percent to $14.99, respectively.

"There's going to have to be some additional capital raises," said Michael Nix, portfolio manager of Greenwood Capital Associates.

Nix said it would become increasingly difficult to raise capital in the current credit environment, which has led a number of banks in the United States and abroad to seek bankruptcy protection or to put themselves up for sale at fire sale prices, and forced government bailouts worth close to $1 trillion.

"It's easy to say we're going to raise capital or we want to raise capital, but at the end of the day, who is going to provide you that capital?," Nix said. "You can get capital, but it's going to cost you. There is going to be a haircut" in the price.

On Thursday, shares of American International Group Inc fell 16 percent to $2.68, one day after the company said it would get more liquidity from the government.

AIG, once the world's largest insurer, got an $85 billion loan from the government three weeks ago when it was on the brink of collapse. Under the new plan, the Federal Reserve Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash.

"The government has effectively provided them support for $110 billion, I think they have exhausted that avenue and so I think as they move forward their options have diminished," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

Last week, AIG said it would sell businesses to repay the government loan.

Earlier this week, Allianz SE , Europe's biggest insurer, said it would invest $2.5 billion in U.S. life and property insurer Hartford Financial Services Group Inc , and MetLife Inc sold new shares at a discount, raising $2 billion. The secondary offering of shares was designed to bolster its balance sheet and potentially allow it to make acquisitions.

Hartford shares were down 8 percent at $22.87, while MetLife shares were up 5.7 percent at $28.54.

Insurers have been under pressure to keep solid capital positions to maintain their ratings after their investments lost value as financial markets sank in recent weeks.

Keeping high ratings is essential for insurers because lower ratings can mean higher costs and, in some cases, even a loss of business.

(Reporting by Juan Lagorio, editing by Gerald E. McCormick, Toni Reinhold)