Insurers Jump on TARP Despite Concerns

The latest moves by several insurers to try to qualify for relief under the Troubled Assets Relief Program, or TARP, are attracting a lot of attention this week. But purchasing troubled savings and loan companies as a way to reinvent themselves into banks or thrift holding companies may prompt these insurers to lose their chance at a piece of the TARP.

First off, mere eligibility for TARP funding does not mean automatic approval.

And although companies like Hartford Financial (HIG), Lincoln National (LNC), Genworth Financial (GNW) and Aegon (AEG) likely did not take the step of acquiring an S&L without a strong indication that approval would be granted, Treasury Secretary Henry Paulson has not always followed an obviously readable path. He rescued some firms but allowed Lehman Brothers to fail; and he has stated that the TARP's funds are not intended for use to bail out automakers General Motors (GM), Ford (F) and Chrysler.

The reason that Paulson might not take action is very simple -- federal oversight. Paulson is currently engaged in a battle with the National Association of Insurance Commissioners, or NAIC, the states' insurance divisions, for control of the insurance companies. Paulson wants to bring insurance companies under federal control, and this is being vigorously opposed by the states.

Life was given to Paulson's idea as American International Group (AIG) fell into his hands. Initially reluctant, or not, to provide a federal bailout of AIG, Paulson has subsequently committed the American taxpayer to a massive $173 billion through a combination of preferred equity investments, loans and credit lines. AIG's failure has provided a catalyst for Paulson to pursue the federal oversight mantra further and lead to a federal charter for insurance companies.