Posted on 18 Jan 2010
A handful of large insurance companies, most of which turned down government bailout funds, would likely owe money under the proposed Financial Crisis Responsibility tax.
The proposed tax, unveiled Thursday by President Barack Obama, would amount to 0.15% of total assets minus high-quality capital, such as common stock, and disclosed and retained earnings. Insurance-policy reserves would be untaxed, being already subject to federal fees, according to the White House, but analysts and insurers note that some details are yet to be clarified. The fee must be approved by lawmakers.
Quite a few insurers qualify for the tax, according to analysts. According to a fact sheet from the Obama administration, the fee would cover large insurance and other companies that own insured depository institutions.
American International Group Inc., MetLife Inc., Prudential Financial Inc., Allstate Corp., Lincoln National Corp., Hartford Financial Services Group Inc., Ameriprise Financial Inc. and Principal Financial Group all are eligible for the tax, based on total adjusted assets, according to a Friday report by Credit Suisse.
A note from Citigroup on Friday included all those companies except Allstate.
AIG's main business is insurance, but it was the company's financial trading business that led to its multi-billion-dollar bailout. It would owe the most tax of the insurers, at an estimated $388.8 million based on a full year, according to the Credit Suisse estimate, and $367 million according to Citigroup.
Two other life insurers that took bailout funds would fall under the tax, according to analysts. Hartford Financial received $3.4 billion from the Treasury's Capital Purchase Program and would owe tax of about $28.2 million by Credit Suisse's estimate.
Lincoln National received $950 million from the program and would owe tax of about $29.4 million, according to Credit Suisse.
In an emailed statement, Hartford said it was evaluating the proposal but that it was too early to tell what effect it would have on the company. "This is an initial proposal that is likely to go through a number of modifications over the course of the next several months," the statement said.
Lincoln National didn't respond to a request for comment.
Prudential and MetLife, two insurers that declined funds from the Trouble Asset Relief Program, would owe significantly more, according to Credit Suisse and Citigroup. Prudential would owe about $85.2 million, and MetLife just over $81.5 million, Credit Suisse said; Citigroup pegged Prudential at $84 million, and MetLife at $97 million.
Prudential spokesman Bob DeFillippo said the company was working on understanding the proposal and didn't yet have a comment.
A MetLife spokesman agreed with the assessment that the company is included in the current proposal of companies that would owe the tax but said the company is still looking at the details of the proposed tax.
Allstate would owe $34.1 million, according to Credit Suisse. A spokesman said, "At this point, we don't have enough information to determine whether or to what extent a company like ours, which did not accept TARP funds and whose assets primarily are funds held on behalf of contract holders or insurance policy reserves, would be affected by this fee."
Ameriprise and Principal Financial didn't reply to requests for comment.
One consequence of the tax falling on the biggest insurers is that it would make them less competitive, said bank analyst Mike Moebs of Lake Bluff, Ill. "This will help smaller insurers," he said. "It will put them in good position to compete," particularly in specialized insurance markets.