Posted on 02 Apr 2009
Hartford Financial Services Group Inc., Protective Life Corp. and Principal Financial Group Inc. are among a dozen insurers whose recovery plans are in limbo four months after the industry asked for U.S. bailout funds.
Protective’s effort to get access to the Troubled Asset Relief Program by purchasing a bank fell apart yesterday when the Alabama-based insurer said The Bank of Bonifay's parent company backed out of an acquisition, citing Treasury’s inaction. Protective said Treasury hasn’t acted on any pending applications by insurers or specified a timetable.
“I thought we would have heard by now,” said Robert Haines, an analyst with CreditSights Inc. “It’s become kind of a back-burner issue with everything else that’s been going on.”
Life insurers including Prudential Financial Inc. sought access to the $700 billion TARP program after the swoon in financial markets squeezed profit and sliced the value of their holdings that back policies. Some of the applications date from November, and while they’ve been waiting, Prudential posted a record quarterly loss, Standard & Poor’s said Hartford’s brand may be damaged and Principal raised doubt in a filing about meeting its obligations to clients.
The industry’s odds of getting TARP may have dropped after the expanded $182.5 billion rescue of American International Group Inc. (AIG) -- and the controversy over employee bonuses -- soured Congress on bailouts. Private investors may be reluctant to fill the void after this year's 44 percent drop in the S&P Supercomposite Life & Health Insurance Index.
Frank Keating, head of the Washington-based American Council of Life Insurers, said March 3 that Treasury would probably take action within weeks. An official in the Obama administration said yesterday the agency hasn’t made any decisions about giving insurers TARP.
Life insurers were instructed last year by Henry Paulson, then secretary of the Treasury, to buy banking or savings and loan companies to become eligible, Keating said. That led to proposed takeovers by insurers including Hartford, Genworth Financial Inc. and Lincoln National Corp. Protective’s Nov. 18 deal involved Bonifay Holding Co., owner of Florida’s 143rd- largest depository, with six branches.
The slump has dented the reputation of an industry whose sales are based on the idea that insurers will outlive their customers. AIG undermined the premise when it appealed for more bailout money in March by saying a rumored or real failure of life or retirement companies could trigger customer withdrawals that would topple competitors and overwhelm state-run guarantee funds. State regulators have said they’re confident they can still protect policyholders if an insurer fails.