Is the insurance industry next?

Months after the stocks of big Wall Street financial firms first came under attack, insurance companies are now being battered, suggesting that a similar round of consolidation and recapitalization may be in store for that industry.

Insurance stocks have plunged more than 30 percent in the last five days, with Prudential Financial the big loser on Thursday. Prudential's stock fell $10.02, to $33.27 a share, and it is now 42 percent lower than a week ago.

The group is suffering far more than the broader market. Investors are worried about falling earnings and the prospect that many in the sector may need additional capital, which would dilute their own shares.

MetLife, the largest American life insurer, which warned earnings would be sharply lower in the third quarter, raised $2 billion in a stock sale on Wednesday.

When the government bailed out American International Group, there was little talk of a widespread downturn in the insurance industry. AIG was seen as unique because it was a large issuer of a type of derivatives contracts that were far less prevalent at other insurers. Those derivatives brought AIG to the precipice.

But now a wave of losses is moving throughout the insurance industry, caused by the seize-up of the credit markets and declining investment values.

"Insurance companies tend to focus on high-quality investments," said Douglas L. Meyer, an insurance analyst at Fitch Ratings. When the declines were mainly in the lower-quality investments, he said, the industry was relatively sheltered from harm.

Now, though, Meyer said, "the depths of the current credit crunch is starting to affect the high-grade securities, so that's starting to affect the insurance companies more."

For now, analysts do not see insurers in precarious situations. But if investment losses keep mounting, they will eat away at insurers' capital. Even insurers with conservative investment portfolios, like MetLife, are not immune.

Investment losses will also pose a problem for insurers with big retirement divisions, especially life insurance companies. They deal in investment products that guarantee their customers a certain rate of return. Now the insurers will have to make those payments out of their diminished assets.

Insurers whose business models involve large amounts of short-term paper, or other obligations that are maturing soon, also risk being caught short if the credit markets stay frozen.

"If the distressed market conditions persist, this will negatively impact insurance company liquidity," Meyer said.