Prudential racks up bond losses

LONDON, England (CNN) -- Prudential, Britain's biggest insurer by market value, said on Wednesday first-half operating profit slid as it racked up bond and stock market losses.

Operating profits -- which excludes investment gains -- fell 15 percent to £543 million ($850 million) in the six months to June 30, from 642 million in the year earlier period. Analysts polled by Reuters had forecast profits to be in the range £535-611 million.

Prudential (PRU) now plans to pump £300 million into its U.S. business Jackson National Life to cover for bond losses, including those associated the collapse of telecom giant WorldCom.

Its European rivals, Dutch group Aegon and Dutch-Belgian Fortis, said this week they expected to miss profit targets as global markets continue to spiral downwards.

Prudential's stock, which has dived almost 50 percent this year as stock markets tumbled, rose 2.4 percent to 430 pence in early London trading.

Falling equity markets are proving a nightmare for insurers. They rely on their holdings of shares and bonds to help meet their financial obligations to both regulators and customers.

European insurers typically hold around a quarter of their portfolios in equities, and UK insurers hold considerably more, often around 60 percent.

Investors worry that if the market keeps falling, insurers in Europe will have to sell stocks to meet their payouts -- putting further pressure on the equity market.

"We have been affected by capital markets and our first-half results reflect the impact of falls in equity markets around the world and the difficulties and write-offs in the bond markets,'' Chief Executive Officer Jonathan Bloomer said in the statement.

But Bloomer said the company would ride out the current storm. "Our financial strength will enable us to continue to deliver growth in the future.''

Prudential's bond losses have included a $150 million exposure to WorldCom.