LOS ANGELES (AP) - The Treasury Department has agreed to extend billions in bailout funds to six major life insurers, following a months-long quest by some in the sector for government help in shoring up capital positions in the wake of major investment losses.
The Hartford Financial Services Group Inc. was the first to disclose Thursday that it had been notified by the Treasury Department that it was eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP. Lincoln National Corp., which commonly goes by the name Lincoln Financial Group, said it has been initially approved for a $2.5 billion injection from TARP's Capital Purchase Program.
Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. also are among insurers receiving preliminary investment approval, Treasury spokesman Andrew Williams confirmed. He declined to disclose the amount of investment each company will receive.
The total capital injection into the six companies will be less than $22 billion, The Wall Street Journal reported, citing a person familiar with the situation.
The $700 billion TARP bailout fund, approved by Congress last year, was originally intended to purchase toxic loans on the books of banks that were inhibiting their ability to make loans. But the fund quickly morphed into a capital backstop fund for banks that also was used by the Treasury Department to make loans to General Motors Corp., Chrysler and insurance giant American International Group Inc.
Life insurers also requested government aid, worried that their balance sheets had became clogged by illiquid assets and escalating liabilities to policy holders who bought in to this decade's explosion in the variable annuities market. But a final word from the government was slow in arriving, and the stocks of most public insurance companies plunged in recent months.
Life insurers own 18 percent of all corporate bonds, so aiding them is consistent with the bailout program's goal of unclogging credit markets. Insurers also have seen their investment portfolios slammed by declines in stocks, real estate and other financial assets in the last two years. Analysts have warned that some insurers risked falling below necessary capital levels, which is essential to avoiding costly downgrades from ratings agencies.
Insurance companies won backing from the Bush administration last year to be considered for the government's TARP program because some of the companies either owned savings and loans or acquired them to be considered for the bailout program, or were already classified as bank holding companies. The Hartford and Lincoln National, two of the nation's largest life insurers, and several others applied to become thrift holding companies last fall.
Regulators approved applications earlier this year from those two firms. Hartford said in January that it expected to be eligible for between $1.1 billion and $3.4 billion in bailout money. But as the industry awaited the Treasury's move, shares in the sector were battered.
The KBW Insurance Index, which tracks 24 of the nation's largest insurers, tumbled 48 percent in the first two months of the year, dropping to its lowest point on March 6. The index has rebounded in recent weeks as reports circulated that Treasury would extend TARP assistance to some life insurers.
After a company receives preliminary approval for support from the TARP program, it can take several weeks for the final paperwork to be approved and for the loans to be disbursed.
Treasury Secretary Timothy Geithner told a congressional oversight panel recently that the TARP fund Congress approved last October now has $110 billion left in the fund that has not been committed. But several banks, including Goldman Sachs, are pressing to repay TARP funds, boosting the pot for additional Treasury financial assistance.
Shares of The Hartford rose $2.19, or 17.4 percent, to close Thursday at $14.75 as word of the government assistance leaked out. The stock rose another $1.45, or 9.8 percent to $16.20 in aftermarket electronic trading after the company confirmed the details. Futures on the Standard & Poors 500 Index added 0.2 percent early Friday, buoyed by the news.
"These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation's history," Ramani Ayer, chairman and chief executive of The Hartford, said in a statement.
"Access to the Treasury's Capital Purchase Program is a means to further enhance the company's financial flexibility and capital in what has continued to be an unprecedented economic environment," said Dennis R. Glass, president and chief executive of Lincoln Financial.
Spokespeople for other insurers receiving preliminary investment approval weren't immediately available for comment late Thursday.
Shares of Philadelphia-based Lincoln National rose 5.2 percent to $17.09 after hours following a 13 percent jump in Thursday's regular session. Newark, N.J.-based Prudential Financial tacked on a 3.3 percent gain after rising 6.4 percent in exchange trading to $39.37.
The Financial Services Roundtable, a major industry lobbying group, said in a statement late Thursday that the administration had made the correct decision in expanding the bailout program.
"The TARP program is working and it should be expanded to include as many facets of the financial services industry as possible. By including life insurers in TARP, it helps ensure the recovery effort is broad and covers all aspects of the economy," said Steve Bartlett, president of the group.
"By extending funds to certain insurers, Treasury is taking the right step toward helping restore lending and liquidity to the marketplace," said Frank Keating, President and CEO of the American Council of Life Insurers.
Not all insurers sought U.S. aid, however. MetLife Inc. said last month it would not participate in the Treasury Department's capital purchase program. The New York-based insurer issued the statement in response to widespread speculation that life insurers would seek a federal bailout.
MetLife, which launched its federally chartered bank holding company, MetLife Bank NA, in 2001, said then that it had about $5 billion in excess capital and a strong balance sheet. The company also noted that it had already taken actions to reinforce its financial position, including a $2.3 billion stock offering in October and the sale of over $1 billion in debt earlier this year.
Meanwhile, rival insurer Genworth Financial Inc. saw its bid to qualify for the $700 billion program expire without Treasury approval last month. That failure cost the insurer its planned purchase of Minnesota-based InterBank, denying Genworth much needed capital.
Minneapolis-based Ameriprise Financial's shares rose 60 cents, or 2.5 percent, to $25.06 but were unchanged in after-hours trading. Des Moines, Iowa-based Principal Financial added 64 cents, or 3.4 percent, to $19.50 in after-hours dealings. It ended the regular session up 1.7 percent.
Northbrook, Ill.-based Allstate rose $1.02, or 4 percent, at $25.25.