US Insurers Can Now Tap TARP

The Treasury Department has agreed to extend the Troubled Assets Relief Program (TARP), originally designated for banks, to life insures in order to shore up the capital positions of these entities in the wake of major investment losses. In discussions with a congressional oversight committee, Treasury Secretary Timothy Geithner stated that the TARP fund now has $110 billion left in the fund that has not been committed, excluding those funds that the financial institutions are wanting to repay.

At this time, Harford Financial (HIG) was recently notified that it was eligible for funds, while Lincoln (LNC), Allstate (ALL), Ameriprise (AMP), Principal (PFG) and Prudential (PRU) have received preliminary investment approval. These six would receive a cash infusion of approximately $22.0 billion.

Life insurers, which own nearly 20% of all corporate bonds, are concerned for the health of their respective balance sheets that became clogged by illiquid assets and escalating liabilities to policy holders who bought into this decade’s explosion in the variable annuities market. As such, some insurers risked falling below necessary capital levels, which has resulted in a number of preemptive rating agency downgrades throughout the industry.

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