WASHINGTON--After Senate Majority Leader Harry Reid's remarks that "a major insurer was on the verge of bankruptcy," an industry official stated categorically today "that there are no insurers...that are in danger because of the current financial turmoil."

But insurance stocks, many of which had previously resisted downward pressure, plunged today in reaction to concerns about the declining economy, the possibility of having troubled investments, and the general anxiety about whether the House will pass legislation providing up to $700 billion in cash for the Treasury to buy trouble assets.

For example, at 3 p.m. MetLife was down $7.92 to $40.32 after hitting a new 52-week low for the year; Hartford Insurance Group dropped to $29.50, down $8.51 after a downgrade from Fitch; XL was down $1.44 to $15.83; Allstate was down $1.47 to $42.53; Prudential dropped $4.71 to $60.09; and the Principal was down $7.09 at $30.50.

In reaction, analysts said the concerns were exaggerated. In a statement released at 3 p.m., UBS insurance analyst Andrew Klingerman called the decline in MetLife stock because of concerns about liquidity "overblown."

Specifically, he said that MetLife insurance subsidiaries can generate up to $1 billion a week in cash if the inflows are not invested and that MetLife faces no ratings-triggered cash/collateral calls.

The insurance industry official, who declined to be named because of trade group policy, said his remarks were based on extensive talks with officials of the National Association of Insurance Commissioners and the Treasury Department last week, as well as with "a number of calls to our members."

Sen. Reid, D-Nev., after his comment that an insurer was on the brink of failure, issued a statement through an aide, Jim Manley, that said, "Senator Reid is not personally aware of any particular company being on the verge of bankruptcy."

But the retraction did not alleviate a sell-off of insurance industry stocks amid general investor anxiety about tightening credit conditions and a general decline in economic activity.

Another factor was a decision by Fitch Ratings to revise its rating outlook for Hartford Insurance Group from stable to negative.

Fitch cited potential troubled assets, like mortgage-backed securities in its portfolio, as well as the annual deferred acquisition cost analysis that HIG does in the third quarter.

Regarding companies in general, the industry official acknowledged that a few insurers "are having problems," like title insurers, and there are a "handful of small banks and small insurers [that] had significant but not overwhelming exposure to Fannie and Freddie."

The industry representative also noted that under the current version of the bailout bill as passed by the Senate last night, a special tax break is being offered to any depository institution or bank holding companies that lost money when Fannie and Freddie were placed in conservatorship, which made investments in Fannie and Freddie lose most of their value.

But, he noted, the tax break does not apply to insurers, "even though they have similar restrictions on how they can invest their capital."

Sen. Reid made his comments during a press conference yesterday. He did not name the insurer, but said it was brought up by another senator during recent meetings.

Specifically, Sen. Reid said that "one of the individuals in the caucus today talked about a major insurance company--a major insurance company, one with a name that everyone knows--that's on the verge of going bankrupt."

The retraction statement added that Sen. Reid "has no special knowledge about [a troubled insurance company], nor has he talked to any insurance company officials. Rather, his comments were meant to refer to the conditions in the financial sector generally. He regrets any confusion his comments may have caused."

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Insurance Stocks Tumble; Reid Recants Statement On Insurer

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