Insurers May Tap U.S. After Banks Get $160 Billion (Update2)

Oct. 28 (Bloomberg) — U.S. life insurers are in talks with the government for potential investments as companies jockey for the remaining $90 billion of the $250 billion set aside to prop up ailing financial companies.

The Treasury has been “asking us how we can fit into the program,” said Jack Dolan, spokesman for the Washington, D.C.- based American Council of Life Insurers, declining to name companies that may participate.

Life insurers, including MetLife Inc. and Prudential Financial Inc., lost more than half their market value this month through yesterday on concern that investment declines will squeeze liquidity. American International Group Inc., once the world’s largest insurer, ceded control to the U.S. on Sept. 16 after losses from bad bets tied to housing.

“Investor confidence in the sector has recently come under considerable pressure in the aftermath of AIG’s bailout,” Nigel Dally, an analyst at Morgan Stanley, said yesterday in a research note. “Access to lower-cost equity would help bolster capital ratios and help put to rest lingering liquidity concerns.”

MetLife and Prudential are among companies that may receive the government assistance, Jeffrey Schuman, an analyst at KBW Inc., said yesterday in a note. MetLife spokesman Christopher Breslin and Prudential’s Bob DeFillippo declined to comment.

Nine of the biggest U.S. banks including Citigroup Inc., Bank of America Corp. and Goldman Sachs Group Inc. will get $125 billion from the Treasury. In a second phase of injections, at least 22 regional lenders agreed to take about $36 billion in government cash to help thaw frozen credit markets.

Seeking Capital

Life insurers asked the Treasury last week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion. Some of the firms asked the government to make participation mandatory because they don’t want to identify themselves as needing funds, the person said.

Government funds may be used to finance acquisitions, prompting a potential “wave” of deals, Colin Devine, an analyst with Citigroup Inc. said yesterday in a research note. New York- based MetLife has a “strong capital position” and may bid for AIG’s U.S. life insurance and retirement businesses, Devine said.

Prudential may seek capital to do a deal, while Lincoln National Corp., Principal Financial Group Inc. and Genworth Financial Inc. may consider sales, Devine said. Genworth spokesman Alfred Orendorff declined to comment. Principal spokesman Tom Graf and Lincoln’s Laurel O’Brien didn’t immediately return telephone calls.

MetLife advanced 54 cents, or 2.1 percent, to $26.72 at 9:36 a.m. in New York Stock Exchange composite trading and Prudential rose 67 cents, or 2.1 percent, to $32.92. Genworth gained 3.7 percent, while Principal advanced 4.8 percent and Lincoln was up 2.2 percent.

Stock Slump

Life insurance stocks are heading for their worst monthly decline in more than a decade. The 11-stock S&P Life & Health Insurance Index is down about 50 percent since Sept. 30. The next biggest drop on record, according to Bloomberg data, is a 19 percent slide in February of 2000.

Meanwhile, a group representing U.S. property-casualty insurers said the firms are well capitalized and a “substantial majority” won’t sell stock to the government under the $700 billion bailout.

Fitch Ratings cut its outlook on the U.S. life insurance industry to “negative” on Sept. 29 on concern that declines in the value of fixed-income investments will erode capital. Standard & Poor’s followed by lowering its outlook on Oct. 10.

`Significant Losses’

Life carriers may also suffer “significant losses” tied to their variable annuities businesses as equity markets decline, Jeff Mohrenweiser, a Fitch analyst, said in an Oct. 22 note. The capital needed to support variable annuities operations rose by $15 billion since the beginning of the year, Fitch said. Insurers sell retirement products that guarantee minimum returns on equity investments even when stocks slump.

Declining stock markets hurt returns in MetLife’s annuity business and caused Chief Executive Officer Robert Henrikson to lower the insurer’s projections for full-year earnings. Sliding stock values crimp fee income from investments on which insurers charge a percentage of the assets managed. The S&P 500 Index has dropped about 40 percent this year.

MetLife, Hartford

MetLife sold $2.3 billion in new stock this month to bolster its finances after fixed-income holdings dropped in value by $7 billion in the third quarter. Hartford Financial Services Group Inc., the life and property-casualty insurer based in the Connecticut city of the same name, agreed to sell $2.5 billion in debt and equity to Allianz SE after Fitch and Moody’s Investors Service lowered the company’s outlook to negative.

The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. AIG accounts for about $48 billion of the declines. Insurers invest policyholder premiums in bonds before paying claims.

Insurers may find competition for the government money from the automobile industry. The Bush administration said yesterday that automakers’ financing units may qualify for aid as part of the government’s package.

“Automakers do have financing arms, many of them do, and it’s possible that some of those financing arms could be a part of the rescue package,” White House spokeswoman Dana Perino said at a briefing.

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