Friday, November 21, 2008

Big Annuity Players are Thinking Outside the Box for Capital Relief

Some of the big annuity players are so determined on getting government funding that they have taken on a new attitude: if the treasury won't change their eligibility criteria then we will change our company to meet the criteria.

As I mentioend in my previous blog, in order to qualify for the treasury's Troubled Asset Relief Program's (TARP) $700 billion, insurers would need to be recognized as a bank or a thrift that is regulated at the federal level. A number of annuity players already fell into one of those categories, such as Metlife, Prudential, John Hancock, and even AIG.

However a couple big names were not eligable, including Hartford, Lincoln and Genworth. Well they did some out of the box thinking in an attempt to get then "TARP elibable." He's my take on what went on in one of their executive meetings sometime last week:

CEO: I can't believe the treasury says we are not eligible for any of that $700 Billion of taxpayers money. This is going to kill us.

President: It's just not fair - they shouldn't be able to exclude us just because we are not a bank or a thrift. We need that money as bad as the next guy.

Exec Vice President: We'll we could buy a thrift (half joking)?

CEO: That's briliant! I think I know of a cheap one in Florida that we may be able to get for as low as $10 Million!

So, yeah, Hartford, Lincoln and Genworth suddenly entered into the thrift acquisition business for the sole purpsose of becoming TARP eligible. For companies in need of capital to go out and spend $10 Million to essentially buy a membership card for the troubled asset relief program club, it doesn't really seem like the most effecient use of their assets. We have the treasury's poorly thought out eligibility criteria - that excluded about have the industry - to thank for that.

So why did these three companies go out and spend millions to get on this list? Well insurers can apply for between 1% - 3% of their total risk based assets, up to a cap of $25 billion. Hartford said it would expect to receive $1.1 - $3.4 Billion. So While Lincoln and Genworth have not discussed what they believe they could get from thsi program, they did list assets of $173.3 Billion & $109.6 Billion from their Q3 earnings statment.

We wait with baited breath to see if these companies' thrift investments pay off and they are allowed to become elibible for the TARP. This would give these companies a much need boost to their capital.