Treasury Department Extends TARP to Life Insurers, Inflates Capital Positions

The US Treasury Department has announced an extension of the Troubled Assets Relief Program (TARP) to life insurers, in an effort to shore up their capital positions in the wake of major investment losses. Secretary Timothy Geithner revealed that the TARP fund has $110 billion left, excluding funds committed to banks and those being repaid by financial institutions. Six life insurers, including Harford Financial Services, Lincoln National Corp., The Allstate Corp., Ameriprise Financial, Inc., Principal Financial Group, Inc., and Prudential Financial, Inc., will receive a combined $22 billion infusion. This move aims to address the health of these insurers' balance sheets, clogged by illiquid assets and escalating liabilities related to the variable annuities market.

Key Takeaways:

The Treasury Department has extended TARP to life insurers to bolster their capital positions.
The $110 billion TARP fund has $110 billion left, excluding committed funds to banks and those being repaid by financial institutions.
Harford Financial Services, Lincoln National Corp., The Allstate Corp., Ameriprise Financial, Inc., Principal Financial Group, Inc., and Prudential Financial, Inc. will collectively receive approximately $22 billion.
Life insurers own nearly 20% of all corporate bonds, posing a risk to their balance sheets.
Variable annuities market has led to escalating liabilities, causing several insurance companies to fall below necessary capital levels, resulting in rating agency downgrades.
The TARP extension is intended to address these issues and protect the stability of the life insurance industry.
Secretary Timothy Geithner has confirmed that the TARP fund has sufficient resources to address the capital needs of the life insurers.

Statistics:

TARP fund has $110 billion left, excluding committed funds to banks and those being repaid by financial institutions: $110 billion
Six life insurers will collectively receive approximately $22 billion: $22 billion
Life insurers own nearly 20% of all corporate bonds: 20%
The variable annuities market has led to escalating liabilities for several insurance companies, resulting in rating agency downgrades: N/A
Secretary Timothy Geithner has confirmed that the TARP fund has sufficient resources to address the capital needs of the life insurers: N/A

Sources:

"Zacks.com via COMTEX" - May 16, 2009
"Comtex SmarTrend Alert" - May 12, 2009