While many of the largest banks have sought to repay federal bailout funds by repurchasing their preferred shares and warrants, some insurers are trying to raise capital through the Troubled Assets Relief Program (TARP), which was originally intended for traditional banks.Insurers are trying to raise funds as the Industry’s statutory capital levels have fallen sharply in the recent quarters.
The Treasury had stated that some of the life insurers may qualify for TARP because of their Bank Holding Company status.As of now, considering the repayments from banks, Treasury has approved six life insurers for capital infusion under TARP.
Among the other insurers, Hartford Financial Services Group Inc (HIG) is the first to receive government money. On June 24, 2009, HIG acquired Federal Trust to satisfy a key eligibility requirement for its participation in the Capital Purchase Program (CPP) and received $3.4 billion from the Treasury.
Lincoln Financial Group (LNC) was the second of the six insurers that got permission to receive TARP fund. On July 10, 2009, LNC raised $2.1 billion of capital by selling $950 million of preferred shares to the government under the TARP. The company also issued $690 million of common stock and $500 million of senior notes.
Besides these two, Allstate Corp. (ALL), Prudential Financial Inc. (PRU), Ameriprise Financial Inc. (AMP) and Principal Financial Group Inc. (PFG) were the other companies approved to receive TARP funds.
The ongoing turmoil in the financial markets as a whole has resulted in a highly challenging environment for the U.S. insurance industry, a trend that is expected to continue at least through the end of 2009.We also expect further consolidation in the industry.
Most life insurers have significant exposure to Commercial Mortgage Backed Securities (CMBS), which have resulted in increasing losses in the investment portfolio with the worsening downturn in Commercial Real Estate price.However, the TARP funds will provide some support to these companies.
We maintain our Hold recommendation on the shares of LNC and HIG.
Read the full analyst report on “HIG”
Read the full analyst report on “CPP”
Read the full analyst report on “LNC”
Read the full analyst report on “ALL”
Read the full analyst report on “PRU”
Read the full analyst report on “AMP”
Read the full analyst report on “PFG”
Zacks Investment Research
