Treasury Secretary Mum on Life Insurer Access to Federal Bailout for Banks

Feb. 11, 2009 – U.S. Treasury Secretary Timothy Geithner yesterday outlined his plan for the next move for the federal Financial Stability Plan without indicating whether or not U.S. life insurance companies would be allowed to participate.

Geithner said financial institutions participating in the rescue program must show how taxpayer-funded assistance will maintain or generate new consumer and commercial lending. The taxpayer-funded bailout program is designed to help struggling financial institutions and formerly was named the Troubled Asset Recovery Program (TARP).

Life insurance companies can provide the information Geithner says is needed for federal relief, according to Genworth Financial Group Chief Executive Officer Michael D. Frazier. Genworth officials recently applied for federal status as a thrift to qualify for the federal rescue program for consumer lenders. Genworth has agreed to purchase a small private lender contingent upon the insurer being allowed access to the bailout funds for banks.

In an interview yesterday, Frazier said Genworth has maintained to federal legislators that allowing insurance companies to participate in the taxpayer-funded relief program will be beneficial for average Americans. Providing a capital infusion would enable Genworth’s mortgage-insurance firm to guarantee more home loans and expand its various offerings for employee retirement plans and protection.

Frazier said Genworth could continue doing business without the taxpayer funding, but gaining access to the capital would bolster its investors.

“In this type of new world we live in, we look at options for additional capital flexibility. It is an uncertain world,” Frazier said. “In a fear-based market, the market says ‘show me.’ People need to see big capital buffers.”

Other life insurance companies that have applied for participation in the Treasury Department’s rescue program for consumer lenders include the Principal Financial Group, Lincoln National and The Hartford Financial Corporation. The insurers all reported fourth-quarter earnings crippled by investment losses and weak results on their variable annuity policies.

Life insurance companies anticipating participation in the federal capital program were among the biggest losers in stock trading yesterday after financial-services companies traded down when Geithner’s remarks failed to convince investors. Principal traded down 32 percent near the close of trading Tuesday. Hartford was down 14 percent and Lincoln National was down 18 percent.

Genworth traded down 15 percent, wiping out an earlier gain amid a general downturn in insurance share prices yesterday. Genworth officials reported a fourth-quarter loss, but the insurer posted capital ratios that were above analysts’ expectations and temporarily bolstered Genworth’s share prices.