Oct. 8 (Bloomberg) -- MetLife Inc., the biggest U.S. life insurer, dropped the most in eight years in New York trading after saying it will raise capital and cut jobs following a third-quarter profit decline of 48 percent.

MetLife fell $9.87, or 27 percent, to $27 at 4:01 p.m. in New York Stock Exchange composite trading, pulling down insurers Principal Financial Group Inc., Allstate Corp. and Hartford Financial Services Group Inc. The company is selling 75 million shares, valued at $2.8 billion at yesterday's prices, the New York-based company said in a statement.

Chief Executive Officer Robert Henrikson withdrew his full- year earnings forecast after falling equity markets hurt returns in the company's annuity business and the housing slump pushed down the value of fixed-income investments. The insurer was stung in the quarter by losses on stakes in failed companies including Lehman Brothers Holdings Inc. and Washington Mutual Inc. It also said hedge-fund and private-equity returns performed worse than expected.

``We are obviously in an unprecedented environment with significant volatility,'' Henrikson said on a conference call today. MetLife said in the statement it has more than $4 billion in excess capital.

Operating earnings for the quarter that ended in September declined to $600 million to $675 million, or 83 cents to 93 cents a share, the company said. That compares with year-earlier profit of $1.16 billion, or $1.52 a share. The company will report full results on Oct. 29.

`Weak' Earnings

Earnings were ``weak,'' KBW Inc. analyst Jeffrey Schuman said yesterday in a note to investors.

The 9 percent decline in the Standard & Poor's 500 Index in the third quarter lowered variable annuity results by about $105 million net of tax, MetLife said. Variable-investment income, which includes hedge-fund and private-equity returns, was about $117 million below forecast.

Severance contributed to a charge of $48 million in the third quarter, MetLife said. The company said it expects to have $130 million in annual savings related to that charge. MetLife also signaled today in a regulatory filing that it will cut jobs this quarter.

``Those associates who will be directly impacted will be told beginning in late October and concluding by the end of this month,'' the company said. ``This is a turbulent time for the credit markets.''

Allstate dropped $8.05, or 21 percent, to $29.96, Glen Allen, Virginia-based Principal fell $5.37, or 20 percent, to $21.74 and Hartford slipped $3.77, or 13 percent, to $24.86. MetLife was the No. 2 decliner in the 24-stock KBW Insurance Index behind Bermuda-based XL Capital Ltd., which fell $3.32, or 28 percent, to $8.68.

Mortgages Sold

Chief Investment Officer Steve Kandarian, who oversees the insurer's $350 billion portfolio, predicted in June that more companies would default on their debt as the economy slows. MetLife cut its investments in airline, carmaker and homebuilder bonds, and in the second quarter sold commercial mortgages at a loss to reduce risk.

Gross unrealized losses on fixed-maturity securities jumped by $7 billion to $17 billion in the three months to the end of September, the company said. Gross unrealized gains fell $1 billion to $6 billion.

Net income will get a boost from realized investment gains of $400 million to $475 million, which aren't included in operating profit. The company had gains of $735 million on derivatives tied to the U.S. dollar and credit-default swaps, compared with $490 million in credit-related losses. MetLife uses derivatives to protect its variable annuities business from drops in equity investments.

Hartford's Plans

Hartford, the Connecticut-based life and property-casualty carrier, said on Oct. 6 it would raise $2.5 billion in capital. Insurers, which invest premiums before paying claims, plunged in New York trading last week on concern that losses on holdings could erode capital.

The largest insurers in the U.S. and Bermuda have posted more than $80 billion in writedowns on mortgage-related holdings as subprime home borrowers failed to repay their debts. That turmoil, which caused $40 billion in writedowns at American International Group Inc. alone, is creating ``tremendous opportunities'' for growth, Henrikson said.

AIG, the biggest U.S. insurer by assets, announced plans Oct. 3 to sell its life insurance and retirement businesses in the U.S., Europe, Latin America and Japan to help repay an $85 billion government loan. Last week, Atlantic Equities analyst Alan Devlin predicted MetLife could raise capital to bid for AIG assets and UBS AG analyst Andrew Klingerman asked on the call today which businesses the company may consider buying.

``There are several opportunities that are available to us,'' Henrikson said. ``We are enthusiastic.''

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: October 8, 2008 17:10 EDT