Government approval for billions of dollars in taxpayer bailout funds for life insurers is dividing the industry into haves and have-nots, with Ameriprise Financial Incand possibly others rejecting the government’s helping hand.
The sector’s finances have improved during months of waiting for final approval for the bailout package, reflecting a partial recovery in stock markets.
That was enough for Ameriprise and possibly Prudential Financial Inc. to turn down the money. Prudential, the No. 2 U.S. life insurer, said it was “evaluating all options.” The Wall Street Journal reported it may not accept government aid.
But two others said they would take the cash, subject to final approval. Hartford Financial Services Group Inc. and Lincoln Financial Corp. announced late Thursday they could receive $3.4 billion and $2.5 billion, respectively, from the U.S. Treasury Funding Program originally referred to as TARP when it was instituted to help troubled banks last year.
Earlier, analysts at Keefe, Bruyette & Woods, in a research report, said Ameriprise, Prudential and one other life insurer, Principal Financial Group Plc, may have enough capital to forego the cash injections.
Life insurers are getting the green light for the government funding program just as some banks are trying to extricate themselves, unhappy with the restrictions on spending and compensation the government has imposed.
Up to a dozen life insurers applied for federal aid last October and November, but needs may have lessened in recent months. Some have raised fresh capital through market transactions since and stock markets have staged a recovery from lows set in recent quarters, alleviating pressure on the industry.
The sector had been broadly hurt in recent months by weaker financial markets that caused investment losses and higher costs for annuity products that are affected when market values fall.
Principal Financial, in a statement, said it had to review “all the terms and conditions, both economic and non-economic,” before making its decision.
Allstate Corp., a large home and auto insurer, that was also approved for the program, said it also had not yet decided if it would participate.
Allstate, which has a life insurance unit, just raised $1 billion in new debt. Principal Financial also this week announced plans to sell equity to raise about $1 billion.
Until now, the only insurer to receive government aid was American International Group Inc, given a lifeline last September that has since swelled to about $180 billion. AIG’s problems stemmed from derivatives bets taken by a financial products unit.
Frank Keating, president of the American Council of Life Insurers (ACLI), said in a statement Treasury’s decision to extend aid to insurers was “the right step toward helping restore lending and liquidity in the marketplace.”
Life insurers hold about half their assets in bonds and are the single largest source of U.S. corporate bond financing, according to ACLI figures.
Those applying, had to either own or acquire a lender to be eligible.
“IMPROVING TREND”
Allstate said in a statement it had been helped by the “improving trend in the volatile financial markets” since the end of the first quarter, bolstering the value of an investment portfolio by $1.5 billion.
“We remain confident in our current capital position. We will, however, undertake a prudent review of our participation in CPP in light of market conditions,” CEO Tom Wilson said in a statement.
Brian Meredith, an analyst with UBS Investment Research, said in a research note that Allstate might no longer need the aid and also may not want the “increased scrutiny that comes with” the funds.
AIG and other financial institutions that have already taken TARP funds have had to drastically reduce spending, including cutting client entertainment, and put limits on compensation, including for top executives.
The shares of some life insurers rose sharply earlier in the day, but all had fallen by nearly 4 percent or more by afternoon.
(Reporting by Lilla Zuill; Editing by Brian Moss and Andre Grenon)
To view a Reuters graphic on life insurers winning access to a federal financial rescue scheme, click on: http://graphics.thomsonreuters.com/RNGS/MAY/TARP.jpg
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