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PRU may be targeted by FED. but other insurers will be left on their own?

October 27, 2008 – Comments (0) | RELATED TICKERS: PRU , MET , CNA

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Treasury cautious on investments in insurers
Focus is on federally regulated financial institutions that lend: official
By Alistair Barr, MarketWatch
Last update: 1:45 p.m. EDT Oct. 27, 2008
Comments: 1
SAN FRANCISCO (MarketWatch) -- A Treasury Department official expressed caution Monday about government investments in insurers, stressing that the main focus is on stabilizing the banking system and encouraging more lending.
Insurers are among the many industries that have asked for help from the federal government, and an investment in the insurance sector is "something that we have to consider," David Nason, assistant secretary for financial institutions at the Treasury, told the cable news channel CNBC on Monday.

    'There is considerable uncertainty about what [an insurance-sector assistance] program might look like and which companies might be eligible.'

    — Jeffrey Schuman, Keefe, Bruyette & Woods

However, Nason stressed that in deciding whether to invest in an institution, Treasury focuses on how important the company is to the financial system and whether such support would increase the supply of credit to the economy.
Nason also said that Treasury relies on federal regulators to let the government know how strong financial institutions are and how much capital they may need. "With other industries, we don't have that benefit, so that's a significant challenge," Nason added, during the televised interview.
The U.S. insurance industry is regulated by states, not by the federal government. However, some insurers are federally regulated, while others have subsidiaries that submit to federal oversight.
"There is considerable uncertainty about what any such program might look like and which companies might be eligible," Jeffrey Schuman, a life-insurance analyst at Keefe, Bruyette & Woods, wrote in a Monday note to clients.
Under the current rules of the government's Troubled Asset Relief Program, or TARP, institutions must own federally regulated entities, such as thrifts, to be eligible, Schuman noted. "If this rule is maintained, we believe it could be fairly restrictive for the life industry," he wrote.
Chart of MET
Big life-insurance stocks declined Monday on such concerns. MetLife Inc. (MET:
metlife inc com
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 Last: 28.39-1.41-4.73%
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MET 28.39, -1.41, -4.7%) lost 6% to $28.10, Hartford Financial Services (HIG:
hartford finl svcs group inc com
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2:03pm 10/27/2008
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HIG 21.30, -3.00, -12.3%) dropped 11% to $21.71 and Genworth Financial (GNW:
genworth finl inc com cl a
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GNW 4.54, -0.60, -11.7%) slumped 12% to $4.52.
Principal Financial, another life insurer, dropped 2.5% to $19.13, while Prudential Financial (PRU:
prudential finl inc com
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PRU 34.84, +0.38, +1.1%) gained 9 cents to $34.51.
Prudential owns Prudential Bank & Trust, a federal savings bank, so the insurer may be considered a savings and loan. It's also subject to annual examination and regulation by the Office of Thrift Supervision and the Treasury, Randy Binner, an analyst at Friedman, Billings, Ramsey, said in a note to investors.
"Prudential could be the largest beneficiary of government action in our coverage group," he added.

    'If balance sheets are in bad shape on a relative basis, Treasury has demonstrated they have no interest in throwing a lifeline.'

    — John Nadel, Sterne Agee

MetLife could also qualify for government investment because it became a bank holding company in 2001 when it was acquired by a federally chartered commercial bank and came under the regulatory umbrella of the Federal Reserve, Binner explained.
Still, government money may not help all insurers.
"If balance sheets are in bad shape on a relative basis, Treasury has demonstrated they have no interest in throwing a lifeline, if all it does is prolong the ultimate drowning," John Nadel, an analyst at Sterne Agee, wrote in a note to investors. "It is safe to assume the same will hold true for life insurers, if they are afforded participation."
Nadel expects MetLife and Prudential to be "clear winners" from any government intervention in the sector, he said.
Hartford and Lincoln National (LNC:

LNC 19.97, -1.02, -4.9%) may also be included, but it's less clear whether this would help them.
"Principal Financial is a tougher call as well," Nadel said. "Thereafter, we suspect none of our life names would be included." End of Story
Alistair Barr is a reporter for MarketWatch in San Francisco.