Will life insurance firms fit under TARP?

Life insurance

TEXT OF STORY

Kai Ryssdal: Life insurance companies had an alright day in the markets today. All it took was a mention in this morning's Wall Street Journal that the Treasury Department plans to give them bailout money. It's what's left over in the TARP -- the Troubled Asset Relief Program, the original bank bailout. Life insurers are big investors in real estate and corporate bonds, so they have taken a hit as the economy's gone under. Our Washington bureau chief John Dimsdale reports.


JOHN DIMSDALE: Life insurers act a lot like banks. They take your premiums, invest them and give you or your heirs some of the returns years later. For some, like Robert Hunter at the Consumer Federation of America, insurance companies have made too many big promises to their customers.

ROBERT HUNTER: For example, in variable annuities, they've promised the amount of your insurance won't fall below certain amounts and of course now they don't have the assets they thought they would to back that up.

Those hit the hardest asked for federal help months ago. But insurers are regulated by states, making them ineligible for federal bailout money. Some insurance companies have taken over federally-chartered savings and loans, just so they can be treated as a federal bank and therefore eligible for TARP. Robert Litan at the Brookings Institution says federal oversight is long overdue.

ROBERT LITAN: It's been anachronistic that we've had a state system for insurance. They've been the exception. There's no other system of financial institutions that doesn't have federal regulation.

But could consumers lose confidence in insurance companies that get in line for government help? Robert Hunter says if his company applied, he'd check on the penalties for early withdrawal of his money.

HUNTER: I don't think I'd be putting big hunks of cash into insurance companies that were applying for TARP.

Industry sources, though, say the federal backstop will give customers the assurance their life insurance investments are as safe as their bank deposits. The Treasury announcement on an insurance bailout is expected within days.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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