The federal government has agreed to extend billions in bailout funds to six major life insurers, helping them shore up their capital positions in the wake of major investment losses.
The Hartford Financial Services Group Inc. said Thursday that it had been notified by the Treasury Department that it was eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP. Lincoln National Corp., which goes by the name Lincoln Financial Group, said it has been initially cleared for a $2.5 billion injection from TARP's Capital Purchase Program.
Allstate Corp. of Northbrook, Ill., Minneapolis-based Ameriprise Financial Inc., Principal Financial Group Inc. of Des Moines, Iowa., and Prudential Financial Inc. of Newark, N.J., also are among insurers receiving preliminary investment approval, Treasury spokesman Andrew Williams confirmed. He declined to disclose the amount of investment each company will receive.
The total capital injection into the six companies will be less than $22 billion, The Wall Street Journal reported, citing a person familiar with the situation.
The $700 billion TARP bailout fund, approved by Congress last year, was originally intended to purchase toxic loans on the books of banks that were inhibiting their ability to make loans. But the fund quickly morphed into a capital backstop fund for banks and was also used by the Treasury Department to make loans to General Motors Corp., Chrysler and insurance giant American International Group Inc.
Life insurers also requested government aid, worried that their balance sheets had became clogged by illiquid assets and escalating liabilities to policy holders who bought in to this decade's explosion in the variable annuities market.
Life insurers own 18 percent of all corporate bonds, so aiding them is consistent with the bailout program's goal of unclogging credit markets. Insurers also have seen their investment portfolios slammed by declines in stocks, real estate and other financial assets in the last two years. Analysts have warned that some insurers risked falling below necessary capital levels, which is essential to avoiding costly downgrades from ratings agencies.
Insurance companies won backing from the Bush administration last year to be considered for the government's TARP program because some of the companies either owned savings and loans or acquired them to be considered for the bailout program, or were already classified as bank holding companies. The Hartford and Radnor, Pa.-based Lincoln National, two of the nation's largest life insurers, and several others applied to become thrift holding companies last fall.
Regulators approved applications earlier this year from those two firms. Hartford said in January that it expected to be eligible for between $1.1 billion and $3.4 billion in bailout money.
After a company receives preliminary approval for support from the TARP program, it can take several weeks for the final paperwork to be approved and for the loans to be disbursed.
"These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation's history," Ramani Ayer, chairman and chief executive of The Hartford, said in a statement.
"Access to the Treasury's Capital Purchase Program is a means to further enhance the company's financial flexibility and capital in what has continued to be an unprecedented economic environment," said Dennis R. Glass, president and chief executive of Lincoln Financial.
Spokespeople for other insurers receiving preliminary investment approval weren't immediately available for comment.
The Financial Services Roundtable, a major industry lobbying group, said in a statement late Thursday that the administration had made the correct decision in expanding the bailout program.
"The TARP program is working and it should be expanded to include as many facets of the financial services industry as possible. By including life insurers in TARP, it helps ensure the recovery effort is broad and covers all aspects of the economy," said Steve Bartlett, president of the group.
"By extending funds to certain insurers, Treasury is taking the right step toward helping restore lending and liquidity to the marketplace," said Frank Keating, President and CEO of the American Council of Life Insurers.
Not all insurers sought U.S. aid, however. MetLife Inc. said last month it would not participate in the Treasury Department's capital purchase program. The New York-based insurer issued the statement in response to widespread speculation that life insurers would seek a federal bailout.
MetLife, which launched its federally chartered bank holding company, MetLife Bank NA, in 2001, said then that it had about $5 billion in excess capital and a strong balance sheet. The company also noted that it had already taken actions to reinforce its financial position, including a $2.3 billion stock offering in October and the sale of over $1 billion in debt earlier this year.
Meanwhile, rival insurer Genworth Financial Inc. saw its bid to qualify for the $700 billion program expire without Treasury approval last month. That failure cost the insurer its planned purchase of Minnesota-based InterBank, denying Genworth much needed capital.