Six major insurance companies yesterday received preliminary approval from the Department of the Treasury to participate in the Troubled Asset Relief Program, according to published reports.
The insurers are Allstate Corp. of Northbrook, Ill.;
Ameriprise Financial Inc. of Minneapolis; The Hartford (Conn.) Financial Services Group Inc.; Lincoln National Corp. of Radnor, Pa.;
Principal Financial Group Inc. in Des Moines, Iowa; and
Prudential Financial Inc. of Newark, N.J.
The Hartford yesterday confirmed that it has been pre-approved for $3.4 billion in aid.
“Applying for participation in the [TARP Capital Purchase Program] was a prudent step for The Hartford, particularly given the continued economic uncertainty. 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,” Hartford’s chief executive, Ramani Ayer, said in a statement.
In addition, the Treasury would receive non-voting senior preferred shares in The Hartford and warrants to purchase common stock equal to 15% of the government's investment into the insurer, said company spokeswoman Debora Raymond.
Lincoln National has also been cleared to receive $2.5 billion in aid, according to spokeswoman, who declined to comment further.
Most likely, as has been demonstrated with the banks that already received federal aid, the government would likely have a say in executive compensation and matters related to the boards of directors at the carriers that take the help.
Bearing that in mind, at least one analyst doesn’t think that all the insurers on the list will accept the government’s aid.
“With Principal Financial, unless the negotiations would indicate a minimum of government interference, I don’t think they’ll take any money,” said Steven Schwartz, a Chicago-based analyst with
Raymond James & Associates Inc. of St. Petersburg, Fla.
Principal announced a $1.1 billion common stock offering to the public on Monday.
While Lincoln National hasn’t put together an equity offering yet, a rising market could allow it to do so, in lieu of accepting the aid, Mr. Schwartz said.
However, if Lincoln took all the $2.5 billion extended to it, the aid “would cover any investment hole that they could conceivably have,” he said.
Mr. Schwartz said that he doesn’t expect Lincoln’s investment losses to be larger than $1.5 billion to $1.6 billion.
The Treasury Department’s approval ends six months of suspense for the carriers, who had applied for federal aid through the Capital Purchase Program and, in order to be eligible, became either bank holding companies or savings and loans regulated through the
Federal Reserve or the Office of Thrift Supervision.
Since then, a number of the aid applicants have suffered through dismal quarterly earnings and a barrage of ratings downgrades. Some — such as TARP applicants Genworth Financial Inc. of Richmond, Va., and The Phoenix Cos. of Hartford, Conn. — have suspended some distribution channels and were eventually passed over for TARP participation for a variety of reasons.
Prudential Financial spokeswoman Gabrielle Shanin confirmed that the firm has received preliminary approval from the Treasury to participate in the CPP program.
"Prudential, which applied to participate in the CPP last October, is currently evaluating all options available to the company," she said.
Principal Financial Group’s president and CEO Larry Zimpleman said in a statement: Our decision about whether to participate in CPP and, if so, at what level, will be based on a review following receipt of all the terms and conditions, both economic and non-economic.
Allstate, Ameriprise and the Treasury Department didn’t return calls seeking comment.
