Moody's: TARP for insurers beneficial

CHARLOTTE, N.C. - Although some insurance companies have shied away from accepting bailout money from the government, Moody's Investors Service said insurers would benefit from the funds.

Last month, the government said it would allow six major insurers to tap the Treasury Department's Troubled Asset Relief Program for additional capital. Half have already declined the aid.

TARP money has the potential to materially increase companies' capital reserves and give them more financial flexibility, Moody's said in a report issued Tuesday.

The credit rating agency also said additional capital would help the insurers prevent ratings downgrades and improve their ratings outlooks, which are currently negative for most insurers.

"When TARP was introduced, capital and debt markets were essentially all but shut, which made TARP one of very few options available to increase capital buffers," or reserves, Moody's analyst Jean-Francois Tremblay wrote in the report.

As hundreds of banks accepted billions in government bailout funds last fall, some life insurers aggressively lobbied for their own piece of the federal aid program. The insurers' balance sheets were weakened by losses in the financial markets.

Insurers eligible to participate in the government's financial rescue program include: Allstate Corp., Ameriprise Financial Inc., Hartford Financial Services Group Inc., Lincoln National Corp., Principal Financial Group Inc. and Prudential Financial Inc.

On Monday, Prudential Financial said it will turn down the Treasury Department's bailout, but it is planning to raise $1.25 billion on its own through a common stock offering.

"An equity raise is the most positive for policyholders and other creditors, as it provides a capital cushion at low cost," Tremblay wrote.

The Newark, N.J.-based life insurance and financial services firm joins two other companies, Allstate and Ameriprise, which have already declined to accept the funds.

Of those remaining, Hartford Financial is eligible for $3.4 billion from the Troubled Asset Relief Program; Lincoln National has been initially cleared for a $2.5 billion capital injection; and Principal Financial is eligible for $2 billion.

Principal Financial spokeswoman Susan Houser declined to comment further on the Des Moines, Iowa-based insurer's TARP application, as did Hartford, Conn.-based Hartford spokeswoman Debora Raymond.

A call seeking comment from a Lincoln National representative was not immediately returned.

Tremblay said in the Moody's report there are potential downsides if a company decides to take TARP, including restrictions on dividend payments and stock repurchases. There might also be a stigma in the stock market about insurers' acceptance of TARP money that could further hurt their stock prices.

Trembly said any capital raise, whether it is from TARP or other sources, is unlikely to result in rating upgrades for insurers.

Shares of the six eligible insurers traded mixed Monday afternoon: Allstate rose 51 cents to $26.65; Ameriprise shed 73 cents, or 2.4 percent, to $30.20; Hartford Financial gained 75 cents, or 4.9 percent, to $15.93; Lincoln National rose 27 cents to $19.85; Principal Financial gained 11 cents to $22.55; and Prudential Financial jumped $2.25, or 5.7 percent, to $41.77.

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