Life Insurers Buoyed by Federal TARP Fund Participation
April 9, 2009 – U.S. life insurance companies and their shares enjoyed a significant boost yesterday after the Wall Street Journal reported federal officials will allow qualifying life insurers to participate in $700 billion taxpayer-funded rescue program for the financial industry. Officials for the U.S. Treasury Department reportedly said only those life insurance companies that own banks and small consumer lenders can participate.
Life insurance units that will benefit from the action include two of the nation’s largest, The Hartford and Lincoln National, as well as others who recently applied for official federal status as thrift holding companies. Federal regulators already approved applications from the two life insurance companies as well as Prudential Financial, Genworth Financial and Holland-based Aegon NV, which owns San Francisco-based Transamerica.
“These companies are among the hundreds of financial institutions in the … pipeline that will be reviewed and funded as appropriate on a rolling basis,” Treasury spokesman Andrew Williams told the Associated Press.
The $700 billion taxpayer-funded bailout program, the Troubled Asset Relief Program (TARP) is intended to help provide lenders with the relief they need to sustain themselves during the current economic crisis and continue issuing consumer loans. Embattled insurer American International Group (AIG) already has accepted federal TARP funds, and officials for The Hartford expect to be get between $1.1 billion and $3.4 billion in relief funds.
United States-based life insurance companies, led by MetLife and Prudential Financial, lost $76.8 billion in surplus during 2008, mostly due to investment losses and increased costs for guaranteeing retirement products that erased six years of industry gains, according to industry analysts.
The U.S. life insurance industry’s combined statutory surplus, which is the difference between company assets and liabilities, fell 24 percent to $237.3 billion in 2008, according to a study released recently by the consulting firm Conning & Company. The U.S. life insurance industry might need $50 billion in additional capital and consolidate operations to make up for the losses.
“Life insurers took a double hit in 2008,” said Terence Martin, a Conning analyst and author of the report. “A surplus reduction of this magnitude suggests that some insurance companies will be required to raise capital.”
U.S. life insurance companies during the fourth quarter of 2008 have cut jobs, asked insurance regulators to ease capital reserve standards and applied for federal aid to replenish their dwindling capital cushion. Company assets have fallen after suffering declines in the value of investments held to back life insurance and other policies. Liabilities advanced after equity market drops increased the funds carriers needed to back guarantees of minimum returns made to some annuity customers.
Life insurance stocks plummeted in 2008, and companies halted stock buybacks and slashed dividends to preserve their capital holdings. New York-based MetLife sold $2.3 billion in shares in October, and the Hartford Financial Services Group got a $2.5 billion investment from Germany’s Allianz SE.
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