Treasury May Add Insurers To Investment List

Bloomberg News
October 25, 2008

WASHINGTON - The US Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections to target regional banks and other financial companies, a person briefed on the plan said.

A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to reveal investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.

An initial $125 billion out of $700 billion approved by Congress was allocated last week to buy shares of nine of the largest US banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.

"Capital adequacy has been a major concern among investors" in insurance companies, said Nigel Dally, an analyst at Morgan Stanley in New York, in a note to investors yesterday. "If the Treasury were to purchase preferred equity stakes in some insurers, it would help calm these concerns."

Paulson has shifted the government's financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers Thursday.

A group of insurance companies - primarily life insurers - asked the Treasury this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.

Some life insurers have asked the government to make the participation of life insurance companies mandatory because firms don't want to identify themselves as needing funds, the person said.

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