Some of the nation’s largest life insurance companies have said, “Thanks, but no thanks” to the Obama administration’s recent offer of billions of federal taxpayer dollars.
Treasury Secretary Tim Geithner in May announced the Treasury Department would send up to $22 billion in Troubled Asset Relief Program (TARP) funding to six large life insurers with bank subsidiaries. But Ameriprise Financial, formerly known as American Express Financial Advisors, almost immediately rejected the money. Two other insurers—Prudential Financial and Allstate—soon followed suit.
Three others—Hartford Financial, Principal Financial, and Lincoln Financial—have agreed to accept several billion dollars of TARP bailout money, according to Geithner.
Amex Applied, then Declined
Through Ameriprise, American Express applied for TARP funds last fall, soon after the Bush administration and Congress authorized the program.
“While we appreciate Treasury’s approval of our application, we have elected not to accept funding,” said Jim Cracchiolo, chairman and CEO of Ameriprise Financial, in a statement. “We have carefully evaluated our current position and expectations for the future, and we are confident that our current capital position and access to potential additional funding sources are more than adequate.”
The latest insurer to reject TARP money is Prudential. On June 1 the company issued a one-sentence statement announcing but not explaining its decision: “Prudential Financial, Inc. (NYSE:PRU) today announced that, after conducting a thorough review, management has determined the company will not participate in the U.S. Department of the Treasury’s Capital Purchase Program (CPP).”
Bailout Is ‘Troubling’
Regardless of how much federal taxpayer money goes to insurers, the precedent is bad, said insurance expert Eli Lehrer, a senior fellow at the Competitive Enterprise Institute.
“This is a definite step in the wrong direction,” said Lehrer. “It’s a mess and in many cases likely to make things worse. It has significant potential to distort the overall market for insurance.”
Lehrer added, “Simply saying they should go bankrupt is not an answer either. If they go bankrupt, that falls onto state [insurance] funds. Some of these companies really do have problems that mean they could collapse in whole or in part if something isn’t done. In some cases it may be appropriate to collapse them onto a guarantee fund, but that has to be examined carefully. They made investments that weren’t wise, did a lot of things that were dumb, and the full story remains to be told. But the way Treasury is giving them a ‘get-out-of-jail-free card’ is troubling.”
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.