Treasury to Open TARP Tap for Insurance Companies

SOURCE: InsuranceNewsNet.com

April 8, 2009

The Treasury Department is finally opening the TARP vault for life insurance companies, according to The Wall Street Journal.

It’s been approximately six months since then-Treasury Secretary Henry Paulson advised life insurance companies they could qualify for funding from the Troubled Assets Relief Program if they had a bank under their umbrella. Several carriers bought thrifts since then but were left waiting at the Treasury door.

Among the several carriers asking for funding are Genworth, The Hartford, MetLife and Prudential. Lincoln National applied for TARP funding but seemed to be backing away. The company is trying hard to straighten out its finances without the money, paying off a $500 million debt this week. Although the carrier did withdraw its application for Federal Deposit Insurance Corp. funding, it has not rescinded its TARP request of $3 billion.

Toxic assets appear to be at the core of problems for the companies, having the mortgage-backed securities in their holdings. But a greater liquidity concern has prompted rating companies to either downgrade or sound warnings about the companies. That in turn has thrown carriers into a cautious mode, although MetLife has become far more aggressive in the annuities market, becoming the No. 1 seller of fixed annuities in 2008.

Mutual companies, without shareholders and quarterly returns and reporting to worry about, have said they do not need TARP funding.

The Wall Street Journal made an interesting observation in its story. Besides the concern about the health of the companies themselves, there is a greater worry about the effect of the carriers' actions in the financial marketplace. If customers perceive a weakness in their carriers and rush to cash in their policies that would force the companies to dump their investments and that would cause markets to tumble further.

A tangled web indeed. 

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