Insurance companies that have been eliminated from the TARP pool are running up against a new obstacle: financial advisers who are reconsidering whether they want to do business with them.
"We have all but stopped writing any new contracts with those companies," said Eric Brotman, president of Brotman Financial Group Inc. of Timonium, Md., which manages $50 million in assets.
Last fall, a dozen insurance carriers took the first step in seeking federal aid through the Capital Purchase Program — a part of the Department of the Treasury's Troubled Asset Relief Program. But since then, some contenders for the help have lost their places in the bailout line.
Those who are no longer in the running include Genworth Financial Inc. of Richmond, Va., and Protective Life Corp. of Birmingham, Ala.
Brotman Financial continues to maintain term life policies with Genworth, but won't write new term business with the insurer and is scrutinizing annuities and permanent policies held with the company.
ON A 'BLACKLIST'
"Any entity that looks for TARP — whether they get it or not — is on our blacklist," Mr. Brotman said. "We stay away from their bonds, their equity and their accounts."
Genworth spokesman Al Orendorff would not comment specifically to the idea of whether advisers and policyholders would be turned off because the firm is no longer a TARP contender.
"We've been very clear and consistent on our rock-solid commitment to managing capital and liquidity, as well as the fact that TARP was only one lever we were looking at, and we look at other levers to help us do that [manage liquidity]," he said.
Protective Life, for its part, shrugs off the concerns.
"We haven't been approached by the distribution [channel] on those concerns," said Eva Robertson, vice president of investor relations at the company.
Protective Life was approved by the
Federal Reserve Board to become a bank holding company, a requirement for participating in TARP, but was declared ineligible for government aid after a deal to buy The Bank of Bonifay (Fla.) fell through. The insurer allowed the bank to end the deal because Protective Life felt that TARP participation wouldn't be in its best interests, Ms. Robertson said.
Analysts say these companies aren't in desperate need of government help and aren't expected to go belly up. "We have secure ratings, which means we're confident that they will meet their obligations," said Stephanie McElroy, manager of rating criteria and rating relations at A.M. Best Co. Inc. of Oldwick, N.J. The ratings agency maintains an A rating on Genworth and an A+ rating on Protective Life.
Ms. McElroy described the carriers' willingness to participate in TARP as "opportunistic" because they applied for the aid at the peak of the market meltdown.
Generally, A.M. Best doesn't see carriers' participation in TARP — or lack thereof — as a help or hindrance, and if other insurers are eliminated from the federal aid line, it won't be a basis for downgrades, she said.
But advisers and clients may not see it that way, particularly if they see stock prices and ratings as a barometer of an insurer's strength.
For instance, Mr. Brotman said that his firm is not actively writing annuity business with The Hartford (Conn.) Financial Services Group Inc. and Lincoln National Corp of Radnor, Pa. Both carriers have applied for TARP aid and are still in the running for funds.
Meanwhile, Carl R. Stern, found-er and chairman of Imeriti Inc., an Olympia, Wash., insurance wholesaler, has recently reached out to Genworth to ask for up-to-date financials.
"We're trying to protect what we've written, but we'll probably cut back unless we're totally satisfied on where they are with reserves and everything else," he said. Mr. Stern also has concerns about Lincoln.
Scot L. Stark, president of Stark Strategic Capital Management Inc. in Freeland, Md., said that his firm is concentrating on what happens to the carriers that applied for TARP, as he fields questions from clients who now fret about solvency issues.
"If they're applying for bailout funds, they have troubles," he said. "If they're turned away, then you wonder what they will do if they needed the funds to cover operations."
Mr. Stark said that he has no plans to switch out of any policies placed with TARP applicants, but the companies remain on his radar.
"Whether a carrier gets TARP has to be part of the decision-making process, but it's not the exclusive means," he said. "But if you can find an equal policy from a company that never asked for it, you'd lean in the direction of the company that doesn't need the help."
Analysts expect that advisers may switch insurers amid the TARP shakeout, volatile share prices and crumbling ratings. Foreign carriers, mutual companies and highly rated insurers are poised to take advantage, according to Randy Binner, an analyst with FBR Capital Markets Corp. in Arlington, Va.
"To the extent that agents and advisers perceive weakness, there could be a general flight to quality," he said.
"A lot of the challenges from the agents' perspective would persist for companies that do get the funding," Mr. Binner said. "But it would be preferable to have it, as opposed to going down the path of uncertainty about capital."
Still, carriers who remain in the running for TARP now face a paradox: Receiving federal aid would likely beef up an insurer's liquidity, but consumers may still want out of their policies.
"[American International Group Inc. of New York] has seen a large increase in redemptions," said Alan Rambaldini, a stock analyst for Morningstar Inc. of Chicago. "You would think with the government putting money into the company that it would be safe, but it wasn't the case with policyholder behavior."
Ms. McElroy warned against reading too much into carriers' dropping out of the running for TARP funds, which could happen as insurers think about shareholder dilutions and the government's interference in regular business.
"We think some carriers are looking at banks that have accepted TARP and are seeing the stipulations," she said. "The government having a hand in operations and decision making isn't necessarily in the best interest of the company."
E-mail Darla Mercado at [email protected].
