Although two life insurers jumped into the rising equity market with stock offerings this week, stock offerings may not fly for other insurers; one key issue is the dilution such issues would entail for current shareholders.

"Maybe the market thinks we are a little too fast out of the gate. With fundamentals still mixed, no one is sure how sustainable" the stock market rally is, said Ernie Csiszar, insurance industry director with consulting firm Bridge Strategy Group, and a former insurance regulator.

Life insurer Principal Financial Group Inc. (PFG) raised $1 billion though a common stock offering announced Monday morning, but a Tuesday afternoon offering by Protective Life Corp. (PL) appears to be getting a cooler reception, suggesting a limited appetite for the deals. Shares of Protective Life were down considerably from their Tuesday close.

Life insurers that are exposed to the ups and downs of the S&P 500 through their variable annuity portfolios have sought capital relief through the TARP program, asset sales and raising product prices. But buyers have not materialized for asset sales, and there is still no clear answer over which insurers can access TARP, and under what conditions.

A rally in the S&P that began in March is making it more attractive to issue new equity. Other life insurers will likely follow, but only if markets continue to rise, Csiszar said.

"There is a fear that everyone else is rushing to the gates and you will be left behind," Csiszar said. He believes insurers with big variable annuity portfolios are all eyeing the market, including Hartford Financial Group Inc. (HIG), Lincoln National Corp. (LNC) and Prudential Financial Inc. (PRU).

But the dilution caused by issuing millions of new shares could be too much for some insurers, said Steven D. Schwartz of Raymond James.

Schwartz said he calculated the dilution to annuity provider Lincoln National's current shareholders at Wednesday's closing share price at close to 20% if the company raised $1.1 billion in stock, compared to around 13% for Principal, making a deal less attractive.

"I think if the market returns to rallying then I think companies like Lincoln could come back to equity markets," Schwartz said. "It makes sense."

On Thursday, life insurer shares outpaced the Standard & Poor's 500 Index, which was up 0.9% recently. The Dow Jones US Life Insurer Index rose 4.6%, with Hartford and Genworth Financial Inc. (GNW) leading life insurers up. But for the most part they were merely retracing ground they had lost the previous session.

Protective Life made the offer of 12.5 million new shares after its Tuesday close of $11.81. On Thursday, Protective shares traded near $9, up 1.2% for the day but well below Tuesday's price, which could translate to greater dilution and less interest, Schwartz said.

A Principal Financial spokeswoman said the stock deal did not necessarily affect its TARP application and that the company would evaluate TARP once the terms are made public. A spokesman for Protective Life did not respond to requests for comment on its share offering.

A Hartford spokeswoman said the company has not made any comment on potential capital raises.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com