Prudential Financial Inc. (PRU) fell into the red in the fourth quarter on investment losses, reporting a $1.64 billion loss in its financial-services business.

"We are very disappointed in our current quarter results, reflecting recognition of unfavorable financial and economic conditions, which unfortunately overshadowed solid fundamentals in most of our businesses," Chairman and Chief Executive John Strangfeld said in a release. But he added he believes the company has ample liquidity and is "well positioned to manage through this challenging environment." He also reiterated Prudential's 2009 earnings guidance.

The company's earnings have been hurt by falling equity markets. In late October, Prudential reported a third-quarter loss amid the financial markets woes and withdrew its earnings guidance. That helped stoke concerns about life insurers' commercial real estate and annuities portfolios, and whether they may force the companies to raise new capital.

Unlike several other life insurers that have subsequently signed deals to buy small thrifts in a bid to gain cheap capital from the Treasury Department's rescue fund, Prudential already has bank-holding status. As such, the company said in December that it was applying for funds under the Troubled Asset Relief Program. The company hasn't yet received word about the application.

The life insurance and annuity company reported a net loss of $1.57 billion compared with year-earlier net income of $871 million. The figures include Prudential's closed-block business, made up of life-insurance and annuity policies that it sold while it was a mutual company but no longer offers.

Prudential's financial-services business swung to a loss of $1.64 billion, or $3.85 a share, from a profit of $792 million, or $1.75 a share, a year earlier. The latest results included $511 million in pretax net realized investment losses and related charges and adjustments, including $1.19 billion of write-downs, partially offset by $894 million in derivatives gains. Year-ago results included $91 million of pretax investment losses and related items. Excluding those items, the financial-services loss was $2.04 a share, compared with earnings of $1.74 a year earlier.

Its individual annuity segment racket up the biggest adjusted operating loss of its businesses, at $1.04 billion. The loss was mostly driven by a $498 million charge from an increase in the amortization of deferred policy acquisition charges and a $409 million charge due to an increase in costs associated with the guaranteed minimum death and income benefits many of its annuities carry.

In a January report, Moody's Investors Service said the falling equity market would test the risk-management strategies that insurers use to hedge against the cost of variable annuity guarantees.

Moody's said the guarantees "are likely to place moderate strain on the economic capital of most life insurers" that sell variable annuities, but that the impact would vary by insurer. The rating agency said that overall it expects only a few ratings will be affected by a company's exposure to the guarantees.

On Tuesday, rival MetLife Inc. (MET) reported a much smaller $106 million operating loss in its individual fixed annuity business, partly driven by $665 million in amortization of deferred acquisition costs..

Prudential's financial-services revenue declined 12% to $5.9 billion.

Analysts polled by Thomson Reuters projected a per-share loss of $1.19 on revenue of $6.36 billion.

The U.S. retirement solutions business had a loss of $975 million on an adjusted operating basis, compared with a $500 million profit a year earlier. The individual annuities business had an adjusted operating loss of $1.04 billion, compared with a $171 million profit a year earlier.

The closed-block business reported a 6.3% decline in net income to $74 million. Revenue declined 4.4%.

Assets under management fell 14% to $558 billion.

Looking ahead, Prudential reiterated its projection for 2009 earnings of $5.25 to $5.65 a share. When it issued its original forecast in December, the estimate was well below Wall Street expectations.

Prudential shares rose 1.56% to $26.75 in late trading. The company lost more than two-thirds of its value since mid-September.

-By Shara Tibken, Dow Jones Newswires; 201-938-2168; shara.tibken@dowjones.com; and Lavonne Kuykendall, 312-750-4141; lavonne.kuykendall@dowjones.com