Life Insurers Await Final Word on Bailout Funds

 

Saturday, Mar 07,2009, 3:46:27 PM   Click:

Life Insurers Await Final Word on Bailout Funds Raymond J Lehmann
Questions about Genworth Financial Inc.’s U.S. mortgage insurance business may be holding up its application to convert to a thrift holding company, the group’s chairman suggested, while declining to speculate on whether it or other life insurers would be approved for funds from the Treasury Department’s Troubled Asset Relief Program.

Despite reaching definitive agreement in early December on a planned acquisition of Maple Grove, Minn.-based InterBank fsb, Genworth’s application to close the deal and covert its holding company to a savings-and-loan remains under review by the federal Office of Thrift Supervision, Chairman and Chief Executive Officer Michael Fraizer said during the company’s fourth-quarter conference call. The life, long-term care and mortgage insurer took a $321 million net loss for the quarter and a $572 million loss for all of 2008.

Genworth (NYSE: GNW) made its application in concert with applying for funds from the TARP’s Capital Purchase Program, which is limited to federally regulated, U.S.-controlled banks, savings associations, and certain bank and savings-and-loan holding companies. The OTS already has approved similar purchases and conversions by insurers Hartford Financial Services Group, Lincoln National Corp. and Phoenix Cos.

Fraizer suggested the company’s “different business mix, specifically the mortgage insurance component” could require greater review. He also noted that OTS already has extended its mid-January deadline to approve or reject the applications and that the change in presidential administrations could be the cause of further delay.

“We believe we have a business mix that fits well with the public policy goals and that we meet other requirements,” Fraizer said of the company’s potential for CPP funds. “However, it is difficult to handicap the prospects of this given the fluid nature of government strategies, priorities and available funds. We will continue assessing this option, but our capital and liquidity strategies will not depend on it.”

Seven insurers have publicly confirmed their interest in participating in the CPP, while Dutch financial services giant Aegon N.V., which had sought a similar conversion through its Cedar Rapids, Iowa-based subsidiary Transamerica Life Insurance Co., later withdrew its application. Reports have been mixed on whether any of the insurers who have applied for participation in the CPP will ultimately be approved for funds. Though a Feb. 7 Reuters story suggested as many as a dozen insurers would be receiving funds when Treasury Secretary Tim Geithner released details of the revamped TARP program, Geithner did not address the investments during his Feb. 10 presentation and more recent reports suggest Treasury has chosen to exclude insurers from the CPP.

American International Group Inc.'s $150 billion federal rescue package includes $40 billion from the TARP, but not from the CPP. Instead, AIG is thus far the lone participant in the Treasury’s Systemically Significant Failing Institutions Program, which purchased perpetual preferred shares in the company and warrants equal to 2% of issued and outstanding shares. The Federal Reserve Bank of New York, which provided the remaining $110 billion loan and liquidity package, holds warrants for nearly 80% of the company's equity.

Speaking during his company’s conference call, Lincoln National President and Chief Executive Officer Dennis R. Glass said recent changes in the terms and restrictions around the participation in the program could lead the company to rethink whether it would want to participate in the CPP, if approved. Rolled out Oct. 14, the CPP allows eligible institutions to sell preferred shares, along with warrants for common shares, to the Treasury that pay 5% annual dividends for the first five years, which then escalate to 9% dividends thereafter.

“You see in Congress some suggestion that the fundamental terms will change or you hear rumors of that. And certainly, in Congress, you see much tighter restrictions,” Glass said. “So, with any piece of capital, if it were available to us, we'd take a look at the overall cost, not only in terms of the specific costs of the instrument, but what other restrictions such as very wide limits on cash compensation that if we had that money and those limits would put us in a very difficult competitive position.”

Similar comments were heard last week from Prudential Financial Inc., already eligible for the CPP due to its ownership of a federal thrift and the largest insurer thus far to confirm applying to participate. Chairman and CEO John Strangfeld said the company would “evaluate it based on [the] conditions and circumstances at that time.”

Others to confirm application to participate include Principal Financial Group -- like Prudential, already the owner of a federal thrift institution -- and Protective Life Corp., which was approved last month by the Federal Reserve to convert to a bank holding company structure. Neither Hartford nor Principal addressed the question of TARP funds in their fourth-quarter conference calls. Protective Life and Phoenix both have yet to release their earnings results.

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)

Copyright © 2009 A.M. Best Company, Inc. Questions about Genworth Financial Inc.’s U.S. mortgage insurance business may be holding up its application to convert to a thrift holding company, the group’s chairman suggested, while declining to speculate on whether it or other life insurers would be approved for funds from the Treasury Department’s Troubled Asset Relief Program.