Insurers Waiting in Line for TARP Funds

May 15, 2009

(ChattahBox)—After months of waiting their turn for a slice of the TARP pie, insurance companies are finally receiving cash infusions from the government’s Troubled Assets Relief Program. With the nation’s financial sector in free fall last year, banks took precedence under the Treasury’s TARP program.

Now that Wall Street is no longer in danger of collapsing, Treasury is turning its attention to the ailing insurance companies, approving six giant insurers for assistance under TARP’s Capital Purchase Program.

Although the TARP legislation suggested that insurers might be eligible for TARP funds, the struggling companies that applied for the cash infusions have been waiting on tenterhooks since November, for word that they would be receiving assistance.

Finally, yesterday, six major insurers were granted preliminary approval. The six insurers are Hartford, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial Group. These insurance giants will benefit from Treasury purchases up to $250 billion of senior preferred shares.

Hartford announced that it received preliminary approval for a capital infusion of a government purchase of senior preferred shares worth $3.4 billion.

As a condition of accepting TARP funds, insurers must adhere to the Treasury Department’s standards for executive compensation and corporate governance. One of the most critical provisions is a “required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate.”

Before this provision was put in place, TARP recipients like AIG paid exorbitant bonuses to its executives and hedge fund managers.

The TARP funds are meant to stabilize the life insurance sector, which plays a crucial role in the nation’s economy, including death benefits, annuities and investments in bonds and real estate.

Treasury spokesman Andrew Williams noted that hundreds of additional insurers are waiting for approval for cash infusions and their applications are being reviewed on a case-by-case basis.

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