Canada insurers bashed by fear, not fundamentals

Thu Oct 9, 2008 5:58pm EDT
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(In U.S. dollars unless noted)

By Lynne Olver

TORONTO Oct 9 (Reuters) - Shares of Canadian financial stocks, and life insurance companies in particular, took a severe drubbing on Thursday, dragged down by fears over the outlook for U.S. insurers and on irrational selling rather than business fundamentals, analysts said.

The Dow Jones U.S. life insurance index .DJUSIL slumped 18.5 percent, helping to send Canadian-based insurers lower.

Shares of Manulife Financial Corp (MFC.TO: Quote), North America's largest insurer by market value, plunged 11.3 percent to C$30.24, its lowest level in three years, while smaller rival Sun Life Financial (SLF.TO: Quote) fell 14 percent to C$27.55, its lowest level since mid-2003.

Jukka Lipponen, an analyst at Keefe, Bruyette & Woods who follows Manulife Financial, said capital raises at U.S. insurers Hartford Financial Services Group (HIG.N: Quote) and MetLife Inc (MET.N: Quote) had prompted concern that all insurance companies would have to take similar dilutive steps to shore up capital.

MetLife sold 75 million shares at a discount on Thursday to raise nearly $2 billion, while Europe's biggest insurer, Allianz SE, said this week it would invest $2.5 billion in Hartford Financial.

In addition, Newark, New Jersey-based insurer Prudential Financial Inc (PRU.N: Quote) warned late in the session that its third-quarter profit would be cut sharply by losses on annuities and investments, and a charge for a legal settlement.

Lipponen described the fall in North American insurance stocks as "unbelievable." Short-selling and perhaps some hedge funds liquidating positions may have added to the freefall, he said.   Continued...