Insurers get preliminary OK for Treasury funds

updated 1:33 p.m. ET May 15, 2009

LOS ANGELES - The federal government has agreed to extend billions in bailout funds to six major life insurers, helping them shore up their capital positions in the wake of major investment losses.

The Hartford Financial Services Group Inc. said Thursday that it had been notified by the Treasury Department that it was eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP. Lincoln National Corp., which goes by the name Lincoln Financial Group, said it has been initially cleared for a $2.5 billion injection from TARP's Capital Purchase Program.

Allstate Corp. of Northbrook, Ill., Minneapolis-based Ameriprise Financial Inc., Principal Financial Group Inc. of Des Moines, Iowa., and Prudential Financial Inc. of Newark, N.J., also are among insurers receiving preliminary investment approval, Treasury spokesman Andrew Williams confirmed. He declined to disclose the amount of investment each company will receive.

The total capital injection into the six companies will be less than $22 billion, The Wall Street Journal reported, citing a person familiar with the situation.

The $700 billion TARP bailout fund, approved by Congress last year, was originally intended to purchase toxic loans on the books of banks that were inhibiting their ability to make loans. But the fund quickly morphed into a capital backstop fund for banks and was also used by the Treasury Department to make loans to General Motors Corp., Chrysler and insurance giant American International Group Inc.

Life insurers also requested government aid, worried that their balance sheets had became clogged by illiquid assets and escalating liabilities to policy holders who bought in to this decade's explosion in the variable annuities market.

Life insurers own 18 percent of all corporate bonds, so aiding them is consistent with the bailout program's goal of unclogging credit markets. Insurers also have seen their investment portfolios slammed by declines in stocks, real estate and other financial assets in the last two years. Analysts have warned that some insurers risked falling below necessary capital levels, which is essential to avoiding costly downgrades from ratings agencies.

Insurance companies won backing from the Bush administration last year to be considered for the government's TARP program because some of the companies either owned savings and loans or acquired them to be considered for the bailout program, or were already classified as bank holding companies. The Hartford and Radnor, Pa.-based Lincoln National, two of the nation's largest life insurers, and several others applied to become thrift holding companies last fall.

Regulators approved applications earlier this year from those two firms. Hartford said in January that it expected to be eligible for between $1.1 billion and $3.4 billion in bailout money.

After a company receives preliminary approval for support from the TARP program, it can take several weeks for the final paperwork to be approved and for the loans to be disbursed.

"These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation's history," Ramani Ayer, chairman and chief executive of The Hartford, said in a statement.

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