Hartford Financial Services Group ( HIG) shares were losing more than 50% Thursday as the insurer's third-quarter earnings revealed that its variable annuity business has suffered tremendously and further market deterioration, even since the quarter's close, continues to drive concerns about capital adequacy.

Hartford's shares were sinking $10.78 Thursday afternoon to trade around $9.08 on fears that the company may need to raise more capital following its mid-October $2.5 billion capital infusion from Allianz ( AZ) further diluting shares.

Following Wednesday's market close, Hartford reported a $2.6 billion net loss for the quarter with $834 million attributed to the individual annuity business alone. Variable annuity deposits for the quarter were down to $1.9 billion, compared to $3.3 million in the third quarter of 2007 due to decreased sales. Assets under management decreased to $92 billion, from $123 billion a year ago due to the decline in equity markets.

The biggest hit for the line of business was a $1 billion acceleration of the amortized deferred acquisition costs. This is insurance jargon for recognizing the cost of acquiring new business much faster than it otherwise would have been recognized had investment returns been consistent with expectations. It also took a hit of $483 million on net realized losses on investments for those assigned specifically to individual variable annuity contracts. Fees earned on variable annuities were also down $94 million for the quarter compared to 2007.

Analysts on the earnings call repeatedly tried to get the company's CFO Lizabeth Zlatkus to provide specifics on estimated statutory capital through the end of the year. After repeated questions, Zlatkus finally revealed that she expected statutory capital in the life insurance sector (which includes annuities) to hit a risk-based capital level in the 300% range. This was based on an estimated 30% decline in the S&P 500 from Oct. 1 to the end of the year.

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