The Treasury Department plans to extend bailout funds beyond banks and automakers to six of the nation's largest life insurance companies.
The government granted preliminary approval to Prudential pru, Lincoln Nationallnc, Allstateall, Principal Financialpfg, Hartford Financial hig and Ameripriseamp for capital infusions under the so-called Troubled Asset Relief Program, or TARP, said Andrew Williams, a Treasury spokesman.
Hartford Financial, in a statement, said it expected to receive $3.4 billion under the program.
Insurers that applied by the program's deadline of Nov. 14, 2008, and have bank-holding company status, were eligible for government funds. Hundreds of other financial institutions that applied "will be reviewed and funded as appropriate," Williams said.
The government has already extended bailout funds to banks and automakers. Its latest round of aid will boost an industry that faces declining capital levels and ballooning investment losses. Some life insurers have also grappled with insurance contracts, such as annuities, that guarantee annual sums to consumers despite companies' worsening financial condition.
Not all insurers want the funds, however. MetLife met, in April, said that it does not need government aid, providing a welcome sign to investors of its financial stability. The property-casualty industry, which sells auto and homeowners insurance, has also said it doesn't need bailout funds.
The government's aid to life insurers "helps ensure the recovery effort is broad and covers all aspects of the economy," said Steve Bartlett, president of the Financial Services Roundtable, which represents insurers and banks.
In general, the TARP program should be expanded to as many areas of the financial industry as possible, Bartlett says.
Life insurers applied for government funds last year, hoping for quick relief. The government deliberated on the industry's applications for six months, approving them only after it had completed the bank stress tests. Life insurers own 18% of corporate bonds, so the government's investment could help revitalize the credit markets, an oft-stated goal of the financial rescue plan. It could also restore confidence to the 75 million families with policies issued by the life insurance industry.
In return for the government funds, life insurers will have to abide by a range of restrictions, including limits on executive pay.