April 13 (Bloomberg) -- Genworth Financial Inc., the seller of life insurance and mortgage coverage, fell the most of any company in the Standard & Poor’s 500 Index after failing to qualify for a capital injection from the U.S. Treasury.

The insurer slipped 49 cents, or 18 percent, to $2.26 at 4:15 p.m. in New York Stock Exchange composite trading. Genworth, which has reported three straight quarterly losses, has plummeted 90 percent in 12 months.

Genworth abandoned its request for capital from the Troubled Asset Relief Program on April 9, a day after Treasury said some life insurers were eligible for U.S. funds. The Richmond, Virginia-based insurer has canceled the dividend and cut 1,000 jobs, or about 14 percent of the workforce, after declining investments and a spike in claims tied to mortgage defaults drained capital.

The government’s refusal to grant aid “signals a lack of confidence, and I think people are going to see this and realize that they don’t have many options left,” said Alan Rambaldini, an equity analyst at Morningstar Inc. in Chicago.

Genworth’s request for TARP aid failed after the Office of Thrift Supervision didn’t approve the insurer’s planned acquisition of a Maple Grove, Minnesota, lender and bid to become a savings and loan holding company. The OTS approved plans from competing life insurers including Hartford Financial Services Group Inc. to gain status as lenders, a requirement for TARP funds.

Surplus Drained

U.S. life insurers, which as a group lost $32 billion in surplus in 2008, were instructed by Treasury last year to buy banks or savings-and-loan institutions to qualify for TARP funds. Genworth agreed in November to purchase InterBank Fsb. The insurer said it won’t complete the acquisition.

Downgrades and the 12-month stock slide squeezed Genworth’s access to private capital, and in November the insurer said it was ousted from the U.S. program that provides short-term financing.

“TARP would have aided capital flexibility, but Genworth’s viability does not hinge on TARP,” Andrew Kligerman, an analyst with UBS AG in New York, said in a research note today. Kligerman recommends investors buy Genworth stock and says the shares may rise fivefold in 12 months to $10.

TARP was “only one of the strategic levers” Genworth has considered to generate capital, Chief Executive Officer Michael Fraizer said in a statement on April 9.

Long-Term Care

Fraizer is scaling back money-losing businesses to focus on profitable operations such as long-term care coverage and said in February he will consider “selective asset sales” to build capital. Genworth’s plans, announced in September, to consider a spinoff of the mortgage-insurance unit stalled as the housing slump deepened.

Protective Life Corp. abandoned plans to get TARP funds after its deal to buy The Bank of Bonifay fell apart this month. Protective, unlike Genworth, had already received regulatory approval to proceed.

Prudential Financial Inc., the second-biggest U.S. life insurer, applied for government capital last year, and No. 1 MetLife Inc. said in March it may get an injection; both already had banking units. Hartford struck a deal to acquire Sanford, Florida-based Federal Trust.

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

Last Updated: April 13, 2009 16:39 EDT