2nd UPDATE: After A Long Wait, Some Insurers Reject TARP Funds
May 15 2009 - 3:57PM
Dow Jones News
After nearly six months of suspense, six life insurers were
approved to participate in the Treasury's TARP Capital Purchase
Program. But at least two 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.
Principal Financial Group (PFG), which raised $1 billion in a
common stock offering earlier this week, said Friday that it had
received preliminary approval for $2 billion from the Trouble Asset
Relief Program, and its decision whether to participate "will be
based on a review following receipt of all the terms and
conditions, both economic and non-economic," said Larry Zimpleman,
president and chief executive officer of Principal Financial, in a
Friday statement.
Allstate Corp. (ALL), which also raised $1 billion in a debt
offering, said it would consider the offer.
Hartford Financial Group (HIG) and Lincoln National Corp. (LNC)
said they have preliminary approval for $3.4 billion and $2.5
billion, respectively, from the TARP, and both said their
acceptance is subject to a review of the final terms.
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.
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 is down 11.4% year-to-date, but
has risen 24.7% in the last 30 days.
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.
In a Friday note, ratings agency Standard and Poor's said that
TARP participation could win favorable outlook revisions for some
life insurers, and in addition, "in limited cases, we could raise
ratings if factors beyond capital alone support an upgrade," the
report said.
But Robert E. Broatch, chief financial officer of Guardian Life
Insurance Co. of America, the fourth-largest mutual life insurer,
believes that TARP will be good for the industry, even though
Guardian decided not to apply itself.
In a Dow Jones Newswires interview, he called TARP a "sign of
need" that would put recipients at a competitive disadvantage.
Existing customers of insurers that received TARP funds would be
reassured, "but it is not particularly reassuring to new customers
who come in the door."
Mutual life insurers are also allowed to apply for TARP. Besides
Guardian, 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."
Guardian's Broatch said his company focused on building up
capital in past quarters, resulting in two financial strength
ratings upgrades for the insurer, out of only a handful given to
life insurers last year.
After a surge in early trading, shares of life insurers were
mixed. Hartford closed down 1%, at $14.60, Lincoln closed down 0.7%
at $16.12, Ameriprise closed up 1.4% at $25.40, Principal closed
down 1.5%, at $18.58, Prudential fell 4.1% to close at $37.75, and
Allstate dropped 3.8% to close at $24.30.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141;
lavonne.kuykendall@dowjones.com