Life Insurance Companies Get Bail Out!

Peter Barnes and Joanna Ossinger

FOXBusiness

Life insurers, which have come under financial strain in recent months amid as their capital levels have declined and credit markets have frozen, may soon be eligible to receive government bailout money.

A financial industry source close to the TARP process told FOX Business that the Treasury Department would give money from the Troubled Asset Relief Program to certain eligible insurers.

Under the Bush Administration, Treasury had considered providing TARP funds to life insurance companies, but the review was interrupted by the auto industry rescue and the transition to the Obama Administration. Now the assistance is under review again, by the Obama Treasury team, as the life insurance industry faces increasing financial troubles.

The financial industry source close to the TARP process suggested the new review is in its preliminary stages and that some assistance for life insurers cannot be ruled out.

Life insurers that are bank holding companies have been eligible to receive TARP money, but haven’t been approved yet by Treasury. A source tells FOX Business that life-insurer applications total $20 billion from about half a dozen firms.

Prudential Financial (PRU: 22.08, 0, 0%), which already owns a thrift, has applied for TARP funds.

A number of insurers applied last fall to buy small bank holding companies in an effort to become eligible for TARP money, going so far as to say the acquisition was contingent on it obtaining them bank holding company status and TARP funds.

Genworth Financial (GNW: 2.1, 0, 0%), Hartford Financial Services (HIG: 8.45, 0, 0%) and Lincoln National (LNC: 6.93, 0, 0%) all pursued that strategy. They’re at various points in applying for TARP funds, according to a report published in the Wall Street Journal on Tuesday.

Life insurers are suffering more than health and property/casualty insurers amid the downturn because of their asset mix, which generally includes mortgage-backed securities and even sometimes stocks or other risky investments.

Because life-insurance liabilities are generally longer-dated -- a life policy might be paid 20 or 30 years down the line, whereas a health-insurance policy would likely start getting claims almost right away -- life insurers could take the opportunity to add some risk to boost their returns. That strategy would pay off during bull markets, but hurt the insurer in deep downturns such as this one.