Insurance Center

Carriers still await their government funding six months following advisement by the U.S. Treasury to buy banks in order to be eligible for federal bailout money.

More than $328 billion of the $700 billion financial rescue fund had been disbursed by the 31st of March by the U.S. Treasury. None of the life insurance companies that possess thrifts and applied for help have received any.

If they own a bank as a part of their organization, insurance firms can participate in the Capital Purchase Program, even though the Trouble Assets Relief Program is mainly focused on helping financial institutions.

Because of the instructions presented by then Treasury Secretary Paulson to insurance company telling them to purchase banks so as to participate in the government handouts, by the end of 2008, several had. As an example, Lincoln National has agreed to purchase Newton County Loan & Savings FSB. Another example is Genworth Financial which has agreed to buy InterBank FSB of Maple Grove. A deal was also made by Hartford Financial Services Group to purchase Federal Trust Corp.

In spite of the fact that the Treasury has estimated that it will provide at least another $218 billion more in capital to the banks, up until now, it has taken no action on the outstanding applications that have been made of many insurance companies. It has also been reported by the media that under the present Administration the Treasury has yet to make any decisions regarding the provision of support for insurers.
On March 5th, as a part of the Insurance Reform Summit in Washington, D.C., Rep. Melissa Bean, D-Ill., presented the suggestion that the insurance carriers have not yet succeeded in receiving a response to their requests because they lack federal presence as in the form of a regulator. Congresswoman Bean introduced a bill on April 2nd which she co-sponsored, designed to set up an elective federal charter. The charter once in place would introduce in addition to a federal regulator also a systemic regulator whose job it would be to supervise the federal and state systems.

The carriers have been experiencing a downturn in profits, stock prices and sometimes ratings, while awaiting a response from the Treasury.
Waiting for it application to be approved, Hartford Financial Services has suffered financially. In 2008, after posting a $595 million profit for the previous year, the carrier reported an $806 million loss. A series of downgrades from rating agencies, were experienced by the company in March in the company’s financial ranking which could exact considerable damage to the brand.

After the value of its vast investment portfolios declined significantly, Prudential Financial, which is already ranked with bank status, filed its application. In the intervening period Prudential posted a record fourth-quarter loss of $1.64 billion.

It is expected by the American Council of Life Insurers (ACLI) that the Treasury will settle the matter before the end of the month. It did add however, that it was not sure which way the Treasury would go. In an earlier statement however,the ACLI stated that the life insurance industry remains in a good positioned to deal with the crisis and will continue its proud tradition of honoring obligations to policyholders.