Life-Insurance Companies Have Change Of Heart About TARP

In a surprising turn, a number of life insurance companies that purchased smaller banks in order to qualify for special capital investments being offered by the US Treasury expressed regret for the hasty move.

Over the last few months, insurers have removed their applications for consideration, citing various reasons for their change of heart about the Troubled Asset Relief Program, or TARP.

Some representatives suggested that their companies expressed an interest in raising the capital themselves rather than using the government program. In other cases, it was simply due to oversight on the part of regulators monitoring the application process. One example included a missed deadline for turning in a completed bank charter for Treasury approval.

By far the most common reasons for the reticence of insurers involve their concerns that accepting government money will include unwanted obligations. Some insurers do not like the idea of limiting executive compensation, and there is also concern that employee retention levels could be affected.

The reason many life insurance companies find themselves in their present condition has to do with the sales of annuities that have been through serious fluctuations on the S&P 500. Losses on investment capital have been heavy for enough insurers to seriously warrant the use of TARP money. Such government-supplied capital could provide a crucial support when insurers need it the most.

Companies like Prudential Financial, Hartford Financial Services, and Principal Financial Group are among those that are expected to benefit from TARP funds in measurable ways.

Still, other insurers that applied for bank status as a part of the qualification process for TARP money have withdrawn their requests and are pursuing private investment markets for sources of available capital.

For example, MetLife noted at the beginning of April that is has managed to raise its own capital and now will not go ahead with its application for TARP. This is not the only company to find alternatives means of “bailing themselves out.”