Nov. 11 (Bloomberg) -- Prudential Financial Inc., the second-biggest U.S. life insurer, cut its dividend for the first time, halving the payout, after posting a third-quarter loss.

The dividend of 58 cents a share will be payable Dec. 19 to stockholders of record on Nov. 24, the Newark, New Jersey-based company said today in a statement. The company, which paid $1.15 last year, had increased its dividend every year since its initial public offering in 2001, according to Bloomberg data.

Prudential joins life insurers including Principal Financial Group Inc. and Genworth Financial Inc. in cutting payments to shareholders as declines in investment holdings erode capital. Prudential last month halted share buybacks and posted a third- quarter net loss of $166 million.

``The next 12 to 18 months will bring continued asset deterioration'' for U.S. life insurers, said Christopher Neczypor, an analyst with Goldman Sachs Group Inc., as he downgraded companies including Prudential before the dividend cut was announced.

The insurer declined $3.34, or 11 percent, to $27.61 in New York Stock Exchange composite trading today, and has plunged 70 percent this year.

Prudential is bracing for potential declines in the value of commercial real estate holdings, Chief Financial Officer Richard Carbone said on Oct. 30. Prudential last month raised its forecast for subprime-related losses for a fourth time.

Volatility

``Given the market volatility, being able to have a dividend is a good thing,'' Bob DeFillippo, a spokesman for Prudential, said in an interview.

Fitch Ratings cut its outlook on the life insurance industry to ``negative'' on Sept. 29 and Standard & Poor's followed last month. Analysts including Morgan Stanley's Nigel Dally have said rating firms may require insurance companies to hold more capital given the volatility in stock and bond markets.

Excess capital -- the cushion insurers hold beyond what they think rating firms require -- declined in the third quarter from the $4 billion that Chief Executive Officer John Strangfeld said Prudential held at the end of June. The company declined to put a value on its excess capital in an Oct. 30 conference call.

Prudential's gross unrealized losses on commercial mortgage- backed securities widened to $853 million at the end of the quarter from about $317 million on June 30. The unrealized loss on asset-backed securities climbed to $2.5 billion from $1.8 billion.

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

Last Updated: November 11, 2008 17:27 EST