MetLife ( MET) cut its third-quarter earnings guidance late Tuesday, saying the downturn in the equity markets is hurting fee revenue in the variable annuity business and that variable investment income is declining.

Shares of the insurer were dropping $6.35, or 17.2%, to $30.52 Wednesday morning. MetLife's stock has now fallen nearly 50% in 2008.

The New York-based company said it expects third-quarter income from continuing operations to be in a range of $1 billion to $1.15 billion, or $1.38 to $1.58 a share. MetLife will report its full third-quarter results on Oct. 29.

MetLife predicts variable investment income will miss its goal by about $117 million, or 16 cents a share, mostly because of negative hedge fund and private equity returns.

Additionally, the drop in the S&P 500 during the quarter will likely contribute to a reduction of around $105 million, or 14 cents a share, in fee revenue from the variable annuity line.

Premiums, fees and other revenue should total $8.6 billion, the company said, an increase of 16% from the same quarter a year ago. However, MetLife said operating earnings for the third quarter are expected to be in a range of $600 million to $675 million, or 83 cents to 93 cents a share. In the same quarter a year earlier, MetLife reported an operating profit of $1.16 billion, or $1.52 a share.

Because of the volatility in the market, MetLife withdrew its full-year earnings projections. In its second-quarter earnings report, MetLife reduced its 2008 operating earnings forecast to a range of $5.70 to $5.90 a share from the previous target of $5.90 to $6.20 a share.

The company estimates its excess capital position is more than $4 billion and says that its sources of liquidity include cash and cash equivalents of approximately $21 billion as of Sept. 30, compared with $14 billion June 30.

Despite the profit warning, the company made an effort to reassure investors. "MetLife is a well capitalized company with a strong balance sheet and financial strength ratings that are among the highest in the industry," said C. Robert Henrikson, chairman, president and chief executive of the company.

MetLife and other insurers have come under considerable pressure since Senate Majority Leader Harry Reid (D, Nev.) said a major insurance company was "on the verge of going bankrupt" last week when Congress was working on passing the $700-billion financial rescue plan. His comments were later retracted, but they nonetheless forced already skittish traders to ponder the worst-case scenarios for the group.

Following Reid's comments, MetLife issued a statement saying it was "financially sound and has high ratings from all of the major insurance ratings agencies. MetLife is fully able to meet all its obligations."

At the same time, MetLife said it was planning to offer 75 million common shares to the public. The proceeds will be used for both general corporate purposes and potential strategic initiatives.

Earlier this week, fellow insurer Hartford Financial ( HIG) bolstered its capital position with a $2.5 billion investment from German financial firm Allianz ( AZ).

Lately, Hartford was down 3.4%, and Allianz was off 1.3%, while AIG ( AIG) was rising 3.7%.