After A Long Wait, Insurers Ponder Whether To Take TARP
15 Mai 2009 - 6:36PM
Dow Jones News
After nearly six months of suspense, life insurers can start
receiving capital through the Treasury's TARP Capital Purchase
Program.
What remains unclear is how many will do so.
So far, two of six publicly traded life insurers approved to
participate have said they will do so, but both said their
participation is subject to the final terms of the deal. Hartford
Financial Group (HIG), which announced its preliminary approval for
$3.4 billion, said the deal is subject to "final negotiations and
approval," of the terms. Lincoln National Corp.'s (LNC) preliminary
participation for $2.5 billion is "subject to a final review of its
terms and conditions," the company said Thursday.
The life insurance industry has been battered by losses on
investments, and from its exposure to the stock market downdraft
through guarantees on variable annuities. A partial rebound in some
financial markets has taken a little pressure off some insurers;
the Dow Jones Life Insurance Index (DJUSIL) is down 11.4%
year-to-date, but has risen 24.7% in the last 30 days.
Some insurers have sold stock recently, relieving some capital
needs. Insurers appear wary of the business and management
restrictions that come with money from the Troubled Asset Relief
Program. Still, TARP capital could help insurers by garnering
financial strength rating upgrades from rating agencies. Such
upgrades would reassure customers.
Allstate Corp. (ALL), one of the companies being offered TARP
capital, gave a cautious take on its preliminary acceptance. The
company will "undertake a prudent review of our participation in
[the Capital Purchase Program] in light of market conditions and
our current capital position," Allstate CEO Thomas Wilson said in a
press release Friday. The release didn't disclose how much TARP
money Allstate was eligible to receive.
Allstate's $1 billion debt offering completed earlier in the
week "was significantly oversubscribed," Allstate said, and its
investment portfolio has improved recently as well, which puts it
on a better footing even without the money.
Principal Financial Group (PFG), Ameriprise Financial Group
(AMP) and Prudential Financial Group (PRU), the other insurers
called eligible by Treasury "may be more hesitant given the baggage
attached (compensation restrictions, public scrutiny, etc.)," said
Thomas Gallagher, a Credit Suisse analyst in a Friday note.
Hartford and Lincoln may be the only companies to end up taking
the money, while other insurers may use it only as a "backstop" to
raising their own capital, Gallagher wrote.
Principal Financial also raised its own money in a $1 billion
common stock offering earlier this week. At the time, a Principal
spokeswoman said if Principal's TARP application were accepted, the
company would evaluate it and make a decision at that point.
According to the American Council of Life Insurers, life
insurers' 2007 premium revenue was $600 billion, equivalent to 4.4%
of GDP. Premiums have been down for some big insurers in recent
quarters, and fresh capital would allow the recipients to write
more new business, and to increase investments in longer-term
securities. Insurers have put far more of their investments in cash
and short-term securities in recent quarters in response to the
weak market.
A spokesman for Ameriprise did not return phone calls asking for
comment.
A Prudential spokesman said the company would be releasing a
statement Friday.
Mutual life insurers, which are not traded publicly, may be
allowed to apply for TARP funds under a separate, parallel process,
but no mutual insurers have been approved yet for participation.
Two of the largest, New York Life Insurance Co. and Massachusetts
Mutual Life Insurance Co. have said they will not participate.
Shares of life insurers surged Friday. With Hartford up 9.8%
recently, to $16.19, and Lincoln up 7% to $17.37. Insurers that
have not yet announced their plans for the money traded up slightly
to flat recently, with Allstate flat at $25.26, Ameriprise up 1.7%
to $25.48, Principal up 4.2% to 19.66, and Prudential down 1.2% to
$38.88.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141;
lavonne.kuykendall@dowjones.com