Insurers eligible for bailout, US says
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WASHINGTON - The US Treasury yesterday said life insurers are eligible for capital infusions under the federal rescue program, and applications are under review.
"There are a number of life insurers who met the requirements for the Capital Purchase Program," Treasury spokesman Andrew Williams said. Hundreds of financial institutions will be reviewed, he said.
The bailout for the financial sector, originally designed to buy soured loans and securities from banks, has since become a tool for the Treasury to bolster firms including credit card companies and automakers.
The $700 billion Troubled Asset Relief Program, which includes the CPP, "could be a source of relatively cheap capital" for insurers, said Andrew Kligerman, an analyst with UBS AG in New York. "It likely will temporarily boost investor confidence, but TARP funds alone cannot eliminate the capital and liquidity pressures caused by weak credit, equity market, and economic conditions."
North American insurers have accumulated more than $190 billion in losses and write-downs tied to the collapse of the US mortgage market since the beginning of 2007. Corporate debt defaults are poised for a significant increase this year and may end up costing life insurers more than losses on securities linked to subprime, Alt-A, and commercial mortgages, according to a research report by Barclays PLC analyst Eric Berg.
US life insurers, which hold about $1 trillion in corporate debt, need Treasury aid to buy more bank bonds and help inject liquidity into the credit markets, the American Council of Life Insurers has said. Twelve life insurers were waiting for TARP approval, council president Frank Keating said last month.
Yet "TARP is more of a last resort for life insurers, rather than a preferred option," wrote Suneet Kamath, an analyst at Sanford C. Bernstein & Co. "We maintain our view that companies in the space are unlikely to access the TARP unless market conditions show significant deterioration."
American International Group, once the world's largest insurer, already has a commitment of as much as $70 billion in TARP funds.
More than $100 billion of TARP funds remain, according to projections in a March report by the Government Accountability Office.
