Treasury May helps life insurers, shares rise

 

Thursday, Apr 09,2009, 3:25:29 PM   Click:

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WASHINGTON_Shares large life insurance companies in the United States initially rose Wednesday following news they receive help in May from the government $ 700 billion program to rescue the financial sector. But the Treasury Department said the life insurers that own banks savings and loans or assistance, and that no new programs for the industry are still being examination.

Shares of Hartford Financial Services Group Inc, which peaks by 35 percent to $ 11.40 minutes after the market closed at $ 9.59, a gain of 13.5 percent.

Hartford and Lincoln National Corp., two of the largest life insurers, and several others have applied to become holding companies of savings last fall. Regulators approved applications earlier this year from these two companies, and Prudential Financial Inc., Genworth Financial, Inc. and Aegon NV, a Dutch company which owns U.S. insurer Transamerica.

Life insurers, which have more than $ 5 trillion of assets and invest a portion of the premiums received from customers, play an important role in consumer confidence and security.

"These companies are among the hundreds of financial institutions in the pipeline ... which will be considered and funded as necessary on a basis", the spokesman for the Treasury said Andrew Williams.

Hartford said in January that he should be eligible for between $ 1.1 billion and 3.4 billion in bailout funds.

The bailout fund approved by Congress last year, known as the Troubled Asset Relief Program or TARP, is intended to assist banks in time to the credit crisis, but it was also used to grant loans to businesses and auto insurance giant American International Group Inc

Shares of insurance companies have increased after the Wall Street Journal reported that Treasury will announce a bailout of the sector in the coming days. But only those companies that have online last fall, will be eligible for government money, said Williams. He did not provide a timetable for aid ads.

Shares of Lincoln National has jumped to $ 10 earlier Wednesday, but ended at $ 9.15, a gain of 32.8 percent. Prudential stock climbed as high as $ 25.30 but closed at $ 23.81, an increase of 7.7 per cent.

The government's decision leaves many large companies in the cold, given the deteriorating financial conditions and emerging competitive challenges.

Life insurers own 18 percent of all corporate bonds to help is consistent with the purpose of the bailout program to ease the credit markets, said Frank Keating, president of the American Council of Life Insurers.

Insurers have been under pressure to maintain solid capital positions in order to avoid damage to the lower credit rating agencies. Keeping high ratings is key for insurers because lower ratings can mean higher costs or loss of activity.

If all holders of a life insurer in federal charter, the bank will not help you, which could remove the "in theory, all" of rising uncertainties in the industry, "said Robert Litan, an economist and Senior Fellow at the Brookings Institution.

It should also address concerns about the industry "bank run" scenario in which companies do not loan money to pay for policies for people who have lost confidence in the system, said Litan.

But other experts warn that the instability in the past companies could endanger the industry _ a core element of consumer confidence and security _ and pose grave threats to the whole financial system.

"It is quite likely ... we will see some big life insurers who do not qualify for aid or not to enter the state or in receivership," said Kent Smetters, an insurance expert and professor at the University of Pennsylvania Wharton School.

Industry severe financial balance sheets clogged with illiquid assets and the escalation of liabilities to policyholders who bought during this decade of the explosion in the market for variable annuities.

Pay rents vary depending on market performance, but often include guarantees of minimum payments. This means that the bear market can save a little cash on insurance companies who wrote too many policies.

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AP Business Writer Ieva M. Augstums contributed to this report from Charlotte, NC