More US insurance companies eye federal aid
Some of them, including Lincoln Financial, have bought small banks or thrifts in the hope of qualifying for government help.
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And some of the companies, Litan says, may be suffering from the equivalent of a run on the bank, as policyholders redeem the cash values of their policies or roll over investments into other financial institutions.Skip to next paragraph
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The industry could thus be facing massive losses.
MetLife, the biggest life insurer in the United States, could face multibillion-dollar losses this year. Its unrealized losses – which refers to a drop in the value of stocks, bonds, and other assets it holds – total $30 billion this year, according to industry research firm CreditSights. If the company is forced to sell those securities at today’s deflated prices to meet this year’s obligations, the losses would be substantial.
MetLife spokesman Chris Breslin declined to say Wednesday whether the company plans to use TARP money, if needed, to offset any losses. He instead touts the company’s $5 billion in excess capital to meet its obligations.
MetLife has been a bank holding company since 2001, meaning it has been eligible for a loan for some time. But several other insurers have scrambled in recent months to buy small or troubled savings and loans and other bank holding companies to be eligible for government funds.
In November, for example, insurance giant Hartford Financial, which has $347 billion in assets under management, agreed to purchase troubled Federal Trust Bank, based in Sanford, Fla., with assets of $602 million. Hartford recently infused $20 million into the bank as it attempts to complete the acquisition, which is still pending. If the deal is completed, the insurer could get CPP funds of as much as $3.4 billion.
Lincoln Financial made an even smaller acquisition. In November, the company, with $178 billion in assets under management, announced it would buy Newton County Loan & Savings, with assets of $6.6 million. Newton is a 115-year-old thrift based in Goodland, Ind. (pop. 1,096). Lincoln could be eligible for $1.7 billion to $5.3 billion in CPP funds.
Lincoln is exposed to potentially troubled commercial mortgage loans and securities based on those loans, which is a factor in a recent rating downgrade of the company, says A.M. Best analyst Rosemarie Mirabella.
This week, Lincoln Financial president and CEO Dennis Glass tried to assure policyholders that the company will weather the storm, touting a conservative investment approach. Short-term debt is “at or below prior years,” the company said in a release, highlighting the repayment of $500 million in mature debt, plus plans to repay $200 million in short-term borrowings in the next few weeks.
Insurers who partake of government loans will have to abide by the rules – including rules on executive compensation. No CEO of a TARP participant can earn more than $500,000 in salary.
Last year, C. Robert Henrikson – board chairman, CEO, and president of MetLife – earned $24.4 million in salary and other compensation. Mr. Glass earned $17 million.