NEW YORK, Oct 13 (Reuters) - Principal Financial Group Inc cut its dividend and suspended its stock buyback program on Monday, but the insurer forecast quarterly profit in line with expectations and said it was not planning to raise capital, sending its shares up more than 21 percent.
The stock had fallen almost 40 percent last week amid fears of capital needs.
The company said it had improved its capital position to about $375 million in excess of levels needed to maintain a 'AA' rating, and it ended the third quarter with net cash flows of about $1.5 billion.
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. Higher ratings lower the cost of borrowing.
'The market is telling you they're comfortable with these moves, and it is certainly prudent at this point to take that type of action,' said Michael Nix, portfolio manager of Greenwood Capital Associates, in reference to the dividend cut and the suspension of the buyback program.
Des Moines, Iowa-based Principal said it expected to report third-quarter operating earnings of 92 cents to 97 cents per share, down from $1.17 a year earlier, but in line with the average forecast of 94 cents from analysts polled by Reuters Estimates.
Principal also estimated net income of 30 cents to 40 cents per share for the quarter, down from 94 cents a year earlier. Analysts on average were expecting 35 cents.
The forecast includes after-tax capital losses of $140 million to $170 million, Principal said.
'Our results for third quarter were very solid, particularly in light of weakness in the economy and extreme market conditions,' Chief Executive Larry Zimpleman said in a statement.
Principal's announcement followed recent profit warnings at rivals such as MetLife Inc -- the largest life insurer in the United States -- and Prudential Financial Inc.
Last week, MetLife raised $2 billion by issuing new stock, while Hartford Financial Services Group Inc received a capital injection of $2.5 billion from Allianz SE, Europe's biggest insurer.
Principal shares were up $3.90, or 21.4 percent, at $22.10 in morning New York Stock Exchange trade.
(Reporting by Juan Lagorio, editing by Lisa Von Ahn) Keywords: PRINCIPAL/ Juan Lagorio vj COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
The stock had fallen almost 40 percent last week amid fears of capital needs.
The company said it had improved its capital position to about $375 million in excess of levels needed to maintain a 'AA' rating, and it ended the third quarter with net cash flows of about $1.5 billion.
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. Higher ratings lower the cost of borrowing.
'The market is telling you they're comfortable with these moves, and it is certainly prudent at this point to take that type of action,' said Michael Nix, portfolio manager of Greenwood Capital Associates, in reference to the dividend cut and the suspension of the buyback program.
Des Moines, Iowa-based Principal said it expected to report third-quarter operating earnings of 92 cents to 97 cents per share, down from $1.17 a year earlier, but in line with the average forecast of 94 cents from analysts polled by Reuters Estimates.
Principal also estimated net income of 30 cents to 40 cents per share for the quarter, down from 94 cents a year earlier. Analysts on average were expecting 35 cents.
The forecast includes after-tax capital losses of $140 million to $170 million, Principal said.
'Our results for third quarter were very solid, particularly in light of weakness in the economy and extreme market conditions,' Chief Executive Larry Zimpleman said in a statement.
Principal's announcement followed recent profit warnings at rivals such as MetLife Inc -- the largest life insurer in the United States -- and Prudential Financial Inc.
Last week, MetLife raised $2 billion by issuing new stock, while Hartford Financial Services Group Inc received a capital injection of $2.5 billion from Allianz SE, Europe's biggest insurer.
Principal shares were up $3.90, or 21.4 percent, at $22.10 in morning New York Stock Exchange trade.
(Reporting by Juan Lagorio, editing by Lisa Von Ahn) Keywords: PRINCIPAL/ Juan Lagorio vj COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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