Shares of Hartford Financial fell US$2.76 (S$4.22), or 29 per cent, to US$6.88, after hitting a multiyear low of US$6.77 earlier in the session. The stock is down 92 per cent so far this year.

Already hit hard by severe losses on their investment portfolios, insurance companies nationwide continue to face challenges as they attempt to convince investors that their capital reserves are safe.

For some, including Hartford, that means buying up thrifts as a means to qualify for receiving funds under the Treasury Department's Troubled Asset Relief Program - the US$700 billion bailout fund.

'We have a frozen credit market, and in a frozen credit market when these companies are denied access to the liquidity that they need to refinance their short-term debt, they are dead in a matter of hours', said Prof Tony Plath, a finance professor at the University of North Carolina at Charlotte. 'They are running out of money, that's the big picture'.

Within the past year, insurers have been under pressure to maintain solid capital positions to avoid damaging downgrades by ratings agencies.

Keeping high ratings is key for insurers because lower ratings can mean higher costs, and in some cases, even a loss of business.

'One of the things that is characteristic of the environment we are in now is there seems to be a lot of extreme reaction in terms of opinions about whether some company is properly capitalised and if not, how close to the edge it is', said Mr Steven Weisbart, chief economist at the Insurance Information Institute, a New York-based industry group.

'Most companies are in stronger shape than a few that tend to be in the headlines'.

Life insurers make money by collecting premiums on policies.

In the past, companies have been able to pile up big returns by investing that cash flow in the market before they eventually have to pay out money after policyholders die or begin collecting on annuities.

However, plunging stock prices and credit market disruptions are putting stress on that business model, leaving investors and analysts worried that insurers will have to dip into reserves to help meet minimum payment obligations of their policyholders.

'The very things that are causing (insurers) concern now are the things that were beneficial to the bottom line before', Mr Weisbart said.

In recent days, several analysts have cut ratings on insurers in light of potential losses on variable annuities, or policies that have guaranteed minimum payouts or monthly withdrawal benefits.

To improve their capital positions, several insurers - including Hartford, Genworth Financial, Lincoln National, and Aegon NV, a Dutch company that owns US insurer Transamerica - each have asked the Office of Thrift Supervision for permission to acquire an existing savings and loan.

By making such an acquisition, the firms become thrift holding companies. Thrift holding companies, which are federally regulated, are eligible to apply for a piece of the US$250 billion the government is spending to buy shares in banks and other financial companies.

On Tuesday, Principal Financial Group said it also applied to take part in the federal lending program.

The Des Moines, Iowa-based insurer made the application as a savings and loan holding company, given its ownership of Principal Bank.

It isn't clear yet whether insurers, other than American International Group - which has received about US$150 billion in government assistance - have received any federal aid.

Regulators do, however, have an interest in shoring up the insurance industry, one of the biggest providers of capital to US businesses through its purchases of bonds.

The life insurance industry is a consistent buyer of US corporate debt, and the industry holds more than US$1.6 trillion of US corporate bonds. The industry is also an important provider of financing in the residential and commercial mortgage market and consumer loans.

Any additional drop in the value of these exposures adds to already intense capital pressure.

'We would view capital injections from the Treasury as a positive', wrote Deutsche Bank analyst Darin Arita in a recent note to clients.

'But we believe insurers that have little excess capital and large exposures to variable annuity equity market guarantees might still need to raise additional capital'.

And it's that fear, Mr Weisbart said, that continues to put a strain on insurers' stock prices.

'With TARP money, one might argue that a particular company is stronger than they would have otherwise have been', Mr Weisbart said.

'But remember, the whole credit crunch started because people lost confidence'. -- AP