Life insurers need a federal lifeline

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Kai Ryssdal: I understand how sick and tired you are of hearing about banks. And please believe me when I tell you you're not the only ones. That's why we're not going to talk about banks that are in trouble today. Let's make it life insurers instead. They're facing many of the same problems banks are. And at least a dozen of them are hoping they too might soon be in line for some help from the U.S. Treasury. Marketplace's Steve Henn reports now on what could be the next big bailout.

STEVE HENN: Life insurance companies have icons like noble stags or giant boulders.

PRUDENTIAL AD: Prudential. Let Prudential be your rock.

So going to the federal government and asking for a handout is a bit of a comedown. But Donn Vickery with Gradient Analytics says some companies like Prudential doubled their debt during the boom.

DONN VICKERY: And they've used those borrowed funds to invest in riskier and riskier assets.

Now, just like banks, insurers have watched the value of these assets decline. Vickery says it's unlikely any big firms are headed for disaster. But the hit insurers have taken is rippling through the economy.

VICKERY: We are the largest purchaser of corporate bonds.

Frank Keating heads the American Council of Life Insurers. He says his industry supplies almost one out of every five dollars companies borrow.

FRANK KEATING: But unfortunately in the fourth quarter of 2008 we only purchased $3.3 billion in stocks and bonds. That's a 63 percent drop.

Instead of lending to businesses right now, many big insurers are hoarding their cash. That's a drag on the economy. And last fall a dozen large insurers applied for money from the troubled asset-relief fund. They've been left dangling.

KEATING: Is it a matter of panic? No. Is it a matter of some disquiet? Yes.

Keating, an industry lobbyist, says giving TARP money to insurers would be great for the economy. Vickery says it would be a great thing for these companies' shareholders. But even without a bailout, policy holders are probably safe.

In Washington, I'm Steve Henn for Marketplace.

About the author

Steve Henn was Marketplace’s technology and innovation reporter for the entire portfolio of Marketplace programs until December 2011.
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I am curious why you zeroed in on Prudential as an example of a "struggling" life insurance institution. I work for Prudential Financial and our senior management has been very upfront and honest about Prudential's financial position. Yes,yearend 2008 shows a decrease from yearend 2007 but so do many companies. We all know the reason why. The market situation doesn't make Prudential more at risk or struggling than other life insurance companies. I'm disappointed in Marketplace for presenting a distorted view of Prudential....unless Marketplace has inside information about Pru that hasn't been shared with employees.

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