Carriers Still Await Word on TARP

A half-year after the U.S. Treasury advised insurance companies to buy banks to be eligible for federal bailout money, carriers are still waiting for the funding.

As of March 31, the Treasury had already disbursed more than $328 billion of the $700 billion financial rescue fund. None of it has gone to the life insurers with thrifts that applied for the money.

Although the Trouble Assets Relief Program is primarily focused on helping financial institutions, insurance firms can participate in the Capital Purchase Program if they have a bank under their umbrella.

By the end of 2008, several insurers went bank shopping upon then-Treasury Secretary Henry Paulson’s instruction. Lincoln National agreed to acquire Newton County Loan & Savings FSB while Genworth Financial said it agreed to buy InterBank FSB of Maple Grove. Hartford Financial Services Group meanwhile struck a deal to purchase Federal Trust Corp.

Although the Treasury estimates it will provide $218 billion more in capital to banks, the agency has so far taken no action on the pending applications of insurance companies. Some media sources also reported that under the Obama Administration the Treasury has still not made any decisions about giving insurers access.

During the Insurance Reform Summit in Washington, D.C., on March 5, Rep. Melissa Bean, D-Ill., suggested carriers have not been able to get traction on their requests because they do not have a federal presence in the form of a regulator. On April 2, she introduced a bill she co-sponsored to establish an optional federal charter. It would put in place not only a federal regulator but also a systemic regulator that would supervise the federal and state systems.

While the carriers await word from the Treasury, their profits, stock prices and sometimes their ratings have been taking a beating.

Hartford Financial Services has also suffered financially while its application languished. The carrier reported an $806 million loss in 2008 after posting a $595 million profit in the previous year. In March the company’s financial ranking received a series of downgrades from rating agencies, which could inflict considerable damage to the brand.

Prudential Financial, which already carries bank status, filed its application in 2008 after the value of its vast investment portfolios declined significantly. Since then, Prudential posted a record fourth-quarter loss of $1.64 billion. 

The American Council of Life Insurers (ACLI) expects the Treasury to settle the issue before the end of the month. However, it admitted that it was not sure which way the Treasury would go. But in an earlier statement ACLI said the life insurance industry remains well-positioned to withstand the crisis and continue its proud tradition of honoring its obligations to policyholders.