A big drop in Principal Financial Group's (PFG) book value in the fourth quarter helped drive down its share price on Tuesday, despite the company's estimate that its capital position was strong.

Principal's book value dropped to $7.45 per share in the fourth quarter from $19.56 at the end of the third quarter, as unrealized investment losses rose. The drop, larger than others in its peer group, drove down the insurer's share price as low as $12.30 in trading Tuesday. Recently, Principal's shares were down 25.6% to $12.68.

Book value per share is a measure of a company's total underlying value divided by the number of common shares outstanding.

"Fourth quarter was a particularly unusual quarter," Larry Zimpleman, Principal's president and chief executive officer, said during an earnings conference call on Tuesday. He said the company's relatively small program of variable annuities that offered income or return guarantees meant the company didn't do as much hedging of its investments, resulting in big unrealized losses for the quarter that knocked just over $16.00 off book value.

"We remain comfortable with our decisions to minimize that variable annuity exposure," Zimpleman said. "While it may have had what looks to be negative impacts on GAAP (generally accepted accounting procedures), it is still the right decision over the long-term."

The unrealized losses may largely reverse, but the drop in book value "will be too dramatic for the market to ignore, said Keefe, Bruyette and Wood analyst Jeffrey Schuman in a Tuesday research note of the company's book value drop.

Moody's followed by revising its ratings outlook on Principal to negative, but left its rating unchanged. The rating on Principal's life-insurance unit is at Aa2, or two steps below AAA. Moody's noted the business' strong position in the U.S. group pension markets, solid profitability, "excellent capital adequacy and strong liquidity."

The company said its risk-based capital ratio remained well above target at the end of the year, in a range between 420% and 445%.

On Monday, Principal reported a fourth-quarter net loss available to common stockholders of $7.5 million or 3 cents per share. Operating earnings, which exclude investment gains and losses and other unusual items, was $179.0 million, or 69 cents per share, compared to 87 cents for the same period in 2007.

Operating revenue for fourth quarter was $2.527 billion compared to $2.899 billion for the same period last year.

Assets under management were $247.0 billion as of Dec. 31, compared to $311.1 billion as of Dec. 31, 2007.

The stock has lost three-quarters of its value the past five months as Principal, along with other life insurers, has been dealing in recent months with rising investment-portfolio losses amid the slumping equities market. Last year, the company halved its dividend and suspended stock buybacks as it looked to boost liquidity.

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

(Shirleen Dorman contributerd to this report.)