The insurance industry is split down the middle over whether to accept funds from the $700 billion federal bailout program, with life insurers intrigued by the idea, but property-casualty carriers firmly responding, “thanks, but no thanks.”

However, industry officials and observers say the difference within the business between life and p-c insurers over accepting financing directly from Washington will not lead to a rift on broader issues of mutual interest as the two sides work with a new administration and Congress next year.

Concerns arose after the Treasury Department said it was looking into whether it should provide aid under the Emergency Economic Stabilization Act to insurers.

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

But both life and p-c officials cautioned this does not indicate they will not be mutually supportive as Congress and a new administration deal with many insurance issues next year, including proposals for federal regulation and stronger capital requirements.

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

Noting there are many diversified insurance companies that have both life and p-c affiliates, he said “even if it turns out that not a single insurance company receives TARP assistance, the AIG meltdown alone will justify a deeply serious investigation into federal regulatory options.”

He cautioned that “it is far too early to predict whether this will mean an additional level of systemic risk oversight from the federal government, or whether insurers of any stripe will have options.”

He said neither life nor p-c insurers “want this to metastasize into an onerous overlay of federal 'consumer protections' that fails to deal with any of the underlying inefficiencies and conflicts of state-by-state regulation.”

Stating that “the ultimate consumer protection is solvency, to assure that the promise to pay is fulfilled,” he said “that's where it's critical for our community to persuade Congress to take effective, not invasive action.”

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

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

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

“Treasury could step in to help the life insurance business, and also to facilitate the sale of AIG properties because they are interested in getting their money out as soon as possible,” he said. “This conceivably is a way to get the loan repaid as soon as possible.”

As for an optional federal charter, Mr. Shields said he doesn't think support or opposition for an OFC will depend on whether the institution involved is a p-c or life insurer.

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

The fissure over government aid developed when the American Insurance Association issued a statement saying a majority of its members feel they are “well-capitalized and well-positioned” to deal with the current economic turmoil, and don't plan to participate in the federal government's program to buy troubled assets.

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

In addition, John Degnan, vice chairman and chief operating officer of the Chubb Group, later released a copy of a letter supporting the trade groups' policy on the issue that he had sent to Treasury Secretary Henry Paulson.

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

Travelers issued a similar statement.

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

“Absolutely not,” he said. “There is no subtle messaging underway in our statement.” He said Frank Keating, president and CEO of ACLI, is simply saying that the “industry was pleased that Treasury had taken the logical step to consider life insurers for the capital purchase program.”

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

Blain Rethmeier, a representative for the AIA, agreed there is no rift being opened by the possibility of federal funding for life insurers. “Far from it,” he said. “AIA's statement merely reflected that the substantial majority of the insurers we represent do not support inclusion of p-c insurers in Treasury's capital purchase program,” adding that, “if made available, they would elect not to participate.”

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