Life insurance companies next in line for bailout funds

Life insurers are expected to be the next recipients of bailout funds from the Treasury Department's remaining $130 billion in TARP funds, according to a story in today's Wall Street Journal. In order to get the money, the life insurers must own a federally insured bank or savings and loan.

Life insurance companies that bought regulated savings and loans and are now ready to take the money include Hartford Financial Services Group (HIG), Genworth Financial (GNW) and Lincoln Financial (LNC). Hartford and Lincoln have applied for TARP funds. Genworth is waiting for the Office of Thrift Supervision to approve its thrift purchase so it can gain access to the funds. Prudential Financial (PRU), which owned a thrift bank before the current crisis, also applied for funds. MetLife (MET), which also owned a thrift bank before the crisis, has not indicated publicly whether it plans to apply for TARP funds.

Not all insurers are struggling and some still have triple-A ratings. Those still in good shape include Massachusetts Mutual Life Insurance Co., New York Life Insurance Co., Northwestern Mutual Life Insurance Co., and TIAA-CREF.

Life insurers got into trouble for two main reasons -- guaranteed variable annuities and portfolio loses. They offered retirement-income products with guaranteed minimum returns, no matter what happened to the stock market. As markets decline, they must make payments even though the returns are no longer there. In addition, most insurers have lost money on their investments in bonds and real estate that back their policy payouts.

Access to TARP funds should provide significant breathing room to life insurers as they try to prop up their portfolios. An infusion of cash will help them avoid further credit-rating downgrades and the need to raise capital under less-than-desireable terms. That could be good news for capital markets because some insurers have been hoarding cash rather than purchasing bonds, adding to market stresses.

Shares of life insurers fell more than 40 percent in the last year. They faced a string of rating-agency downgrades, making it more difficult for some insurers to raise funds. Millions of Americans entrust their families' financial safety to these companies, so keeping them on solid footing could be crucial to maintaining financial confidence. No word yet on how much money will now be available to the insurers.

Lita Epstein has written more than 25 books, including Trading for Dummies.

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