UPDATE: After A Long Wait, Some Insurers Reject TARP Funds
16 May 2009 - 5:08AM
Dow Jones News
Not all the life insurance companies being offered capital from
the government want it.
After nearly six months of suspense, life insurers can start
receiving capital through the Treasury's TARP Capital Purchase
Program. But at least two of the six insurers who won preliminary
approval for the funds have turned down the chance to have the
government as an investor.
Ameriprise Financial Inc. (AMP) turned down the money outright,
and Prudential Financial Inc. (PRU) is also expected to say no,
according to a Wall Street Journal report. Ameriprise noted that it
has more than $1 billion in excess capital, which is a measure of
an insurer's financial strength, in its statement turning down
TARP.
Allstate Corp. (ALL) issued a non-committal statement, noting
that its current position has improved.
A spokeswoman for Principal Financial Group (PFG), which raised
$1 billion in a common stock offering earlier this week, said
Thursday the company would evaluate the offer and make a decision
once its application was accepted.
Hartford Financial Group (HIG) and Lincoln National Corp. (LNC)
have said so far that they have preliminary approval for $3.4
billion and $2.5 billion, respectively, from the Troubled Asset
Relief Program. Both say their acceptance is subject to a review of
the final terms.
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.
TARP applicants Allstate and Principal Financial raised capital
in recent weeks, and Prudential Financial will receive around $5
billion before tax in January as part of a deal to sell its stake
in Wachovia Securities to Wells Fargo & Co. (WFC).
Some insurers may be unwilling to have the same experience as
banks that participated in TARP and then had to suffer through
public scrutiny and executive pay restrictions that "caused
headaches for those up top," said Peter Larson, an analyst with
Gradient Analytics. "If they can stay away, they keep investors
happier, too."
One insurance executive said that opening TARP up to insurers
may backfire by increasing public concern over the industry's
solvency, continuing a drag on sales and forcing agents to spend
yet more time reassuring customers.
Hartford and Lincoln may end up being the only companies to take
the money, while other insurers may use it only as a "backstop" to
raising their own capital, Credit-Suisse analyst Thomas Gallagher
wrote in a Friday note. Strong capital levels are essential for
insurers to maintain high financial strength ratings and to back up
new policies they write, said a spokesman for the American Council
of Life Insurers.
Mutual life insurers are allowed to apply for TARP through a
parallel process. Two of the largest, New York Life Insurance Co.
and Massachusetts Mutual Life Insurance Co., have said they will
not participate.
Gary Wendlandt, chief investment officer and vice chairman of
New York Life, said in an interview with Dow Jones Newswires Friday
that, with more than $12 billion in surplus capital at the end of
2008, "we have more than enough capital to achieve our strategic
objectives."
After a surge in early trading, shares of life insurers were
mixed. Hartford was down 1.7% recently at $14.50, and Lincoln was
down 2.3% at $15.87. Ameriprise rose 0.8% to $25.27, Principal was
up 0.3% at $18.93, Prudential dropped 3.4% to $38.03 and Allstate
dropped 3% to $24.47.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141;
lavonne.kuykendall@dowjones.com