The insurance industry is split down the middle over whether toaccept funds from the $700 billion federal bailout program, withlife insurers intrigued by the idea, but property-casualty carriersfirmly responding, “thanks, but no thanks.”

However, industry officials and observers say the differencewithin the business between life and p-c insurers over acceptingfinancing directly from Washington will not lead to a rift onbroader issues of mutual interest as the two sides work with a newadministration and Congress next year.

Concerns arose after the Treasury Department said it was lookinginto whether it should provide aid under the Emergency EconomicStabilization Act to insurers.

Officials of the American Council of Life Insurers confirmedthey had met with Treasury officials and that some carriers wereseeking aid. That prompted p-c industry officials to fire back thatthey didn't want the funds.

But both life and p-c officials cautioned this does not indicatethey will not be mutually supportive as Congress and a newadministration deal with many insurance issues next year, includingproposals for federal regulation and stronger capitalrequirements.

Joel Wood, senior vice president of government affairs at theCouncil of Insurance Agents and Brokers, calls it “overanalyzing”to suggest that life insurer access to the government's TroubledAsset Relief Program tilts the federal regulation debate away froma possible optional federal charter for p-c insurers.

Noting there are many diversified insurance companies that haveboth life and p-c affiliates, he said “even if it turns out thatnot a single insurance company receives TARP assistance, the AIGmeltdown alone will justify a deeply serious investigation intofederal regulatory options.”

He cautioned that “it is far too early to predict whether thiswill mean an additional level of systemic risk oversight from thefederal government, or whether insurers of any stripe will haveoptions.”

He said neither life nor p-c insurers “want this to metastasizeinto an onerous overlay of federal 'consumer protections' thatfails to deal with any of the underlying inefficiencies andconflicts of state-by-state regulation.”

Stating that “the ultimate consumer protection is solvency, toassure that the promise to pay is fulfilled,” he said “that's whereit's critical for our community to persuade Congress to takeeffective, not invasive action.”

Edward Shields, vice president of Sandler O'Neill Research inChicago, said the differences between p-c and life insurers on TARPdon't represent a conflict.

“I believe it is possible that they unite on some issues anddivide on others,” he said, adding the two sides of the insurancecoin would unite on consumer protections and other issues.

In a research note, Mr. Shields said he sees the potential forTreasury to provide assistance for a life insurer to acquire a lifesubsidiary of AIG, which is looking to sell off assets to pay backits federal loans.

“Treasury could step in to help the life insurance business, andalso to facilitate the sale of AIG properties because they areinterested in getting their money out as soon as possible,” hesaid. “This conceivably is a way to get the loan repaid as soon aspossible.”

As for an optional federal charter, Mr. Shields said he doesn'tthink support or opposition for an OFC will depend on whether theinstitution involved is a p-c or life insurer.

“I don't think this is a life vs. p-c issue, necessarily,” hesaid. “I think that typically national companies who write lifeinsurance or personal lines tend to be more in favor of a nationalcharter, versus regional insurers and mutual insurers, who tend tofavor the continued state-regulation only.” Therefore, he added, “Ithink there are some p-c carriers in favor and some opposed.”

The fissure over government aid developed when the AmericanInsurance Association issued a statement saying a majority of itsmembers feel they are “well-capitalized and well-positioned” todeal with the current economic turmoil, and don't plan toparticipate in the federal government's program to buy troubledassets.

Officials of both the Property Casualty Insurers Association ofAmerica and the National Association of Mutual Insurance Companiesissued statements later in the week mirroring that view.

In addition, John Degnan, vice chairman and chief operatingofficer of the Chubb Group, later released a copy of a lettersupporting the trade groups' policy on the issue that he had sentto Treasury Secretary Henry Paulson.

In his letter, Mr. Degnan wrote: “We do not believe that it isappropriate to include property and casualty insurance companies inthe [Capital Purchase Program] because there is no indication that[the progam's] objective would be served by such inclusion.” To thecontrary, he added, “most insurers in the p-c industry today appearto be well capitalized and not to present any systemic risk to theeconomy.”

Travelers issued a similar statement.

Seeking to play down signs of a rift, Jack Dolan, arepresentative for the ACLI, said there was no conflict.

“Absolutely not,” he said. “There is no subtle messagingunderway in our statement.” He said Frank Keating, president andCEO of ACLI, is simply saying that the “industry was pleased thatTreasury had taken the logical step to consider life insurers forthe capital purchase program.”

In his statement, Mr. Keating said the proposed inclusion ofinsurers “is in line with Treasury's plan to increase confidence inthe nation's financial institutions. Life insurers want to makesure consumers don't delay acting on their financial and retirementsecurity needs out of concerns prompted by current economicconditions.”

Blain Rethmeier, a representative for the AIA, agreed there isno rift being opened by the possibility of federal funding for lifeinsurers. “Far from it,” he said. “AIA's statement merely reflectedthat the substantial majority of the insurers we represent do notsupport inclusion of p-c insurers in Treasury's capital purchaseprogram,” adding that, “if made available, they would elect not toparticipate.”