Insurers That Own Banks May Get TARP Funding

The US Treasury may allow insurance companies that own banks or thirfts to receive TARP money, but no funds have been approved yet, a Treasury spokesman told CNBC.com.

CNBC.com

The Wall Street Journal earlier reported that the Treasury planned to extend the $700 billion financial bailout fund, known, as TARP, to certain life insurers. The Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift, the Journal reported on its website.

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However, a Treasury spokesman told CNBC.com that while several insurance companies have applied for TARP money, no decision has been made.

"There are a number of life insurers that have met requirements for the Capital Purchase Program because of their bank holding company status," Treasury spokesman Andrew Williams said in a statement. "These are among the hundreds of financial institutions in the CPP pipeline that will be reviewed and funded as appropriate on a rolling basis."

Williams said any capital investments in insurers that have bank holding company status would not constitute a new rescue program for the insurance sector.

The Treasury clarification caused stocks to pare gains, particularly the major insurers which were viewed as the likely benefactors of a widening of the Treasury's financial bailouts.

Prudential Financial shares had climbed more than 12 percent at one point in early trade, but by midday were up 7 percent, while MetLife's earlier 10 percent gain was chopped back to about 3.3 percent. Other insurers that have applied for TARP money include Hartford Financial Services Group and Lincoln National , the Journal reported.

In recent months, some insurance companies have received approval to acquire banks, paving the way for them to participate in the Capital Purchase Program, which the Treasury has estimated will top out at $218 billion.

As of Tuesday, the program had $198.5 billion invested, leaving $19.5 billion in available funds, according to Treasury documents.

A Treasury official said only a small number of life insurers have met the qualifications for the program.

The Treasury estimates it has around $134.5 billion left in the overall bailout fund, but it faces heavy funding demands from additional automaker aid requests and the launch of toxic asset purchase funds and a new program to provide additional capital if necessary to the largest 19 banks following the completion of stress tests at the end of April.

The American Council of Life Insurers, an industry lobbying group, said it expects the Treasury to communicate decisions on capital investments directly to companies that have applied.

"As we have argued all along, allowing life insurers to participate in the CPP would be consistent with the stated goals of the program to increase the flow of financing to U.S. businesses and stabilize the credit markets," said Frank Keating, chief executive of the group.

With $5.1 trillion in assets at the end of 2007, life insurers are major investors in corporate bonds. But as markets have fallen, so have the value of life insurance policies used by many Americans as a key savings vehicle.

Large numbers of policy redemptions could lead to a cash crunch for some companies.

Funds from the Treasury's Troubled Asset Relief Program could help alleviate some of these pressures, said Bret Howlett, an insurance analyst at Standard & Poor's Equity Research in New York.

"We caution that TARP funds will not completely solve the insurers' capital issues and note that some prior recipients of TARP funds have continued to struggle after receiving federal money," he added.

—Reuters contributed to this report.

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