The loss at the No. 2 U.S. life insurer was equal to $3.85 a share, compared with profit of $1.75 a share, or net profit of $792 million in the year-earlier quarter.

On an adjusted operating basis, Prudential lost $878 million, or $2.04 a share, widely missing the average analyst expectation for a loss of $1.19, according to Reuters Estimates.

The latest results included $511 million in net realized investment losses and related charges. Prudential recorded $1.19 billion in writedowns on investments that declined in value, and were partially offset by hedging gains.

The results were also marred by higher costs for annuities, a popular retirement product that often guarantees a stream of income, even when stock markets decline.

"While it looks like Prudential's underlying business results were strong ... the market is going to focus on some risk management issues," said Eric Berg, an analyst with Barclays Capital, referring to the investment losses as well as losses from annuity guarantees.

However, investor concerns will be partly assuaged by the insurer's affirmed 2009 profit forecast, Berg added.

Based on current market conditions, Prudential looks for adjusted operating income between $5.25 and $5.65 a share for 2009, consistent with its forecast in December. The outlook is in line with Wall Street expectations, according to Reuters Estimates.

"We are very disappointed in our current quarter results," said Chief Executive John Strangfeld.

In spite of "fourth-quarter setbacks," Strangfeld said he believed the insurer could maintain risk-based capital levels and solvency margins, consistent with its "double-A" ratings. The capital levels are used by regulators to measure the ability to pay claims.

Shares of the Newark, New Jersey-based insurer fell less than 1 percent in postmarket trading, after closing down 1 percent in the regular session at $26.34.

(Reporting by Lilla Zuill; editing by Jeffrey Benkoe)