Allstate Says Thanks, But No Thanks To Offer Of Federal TARP Rescue Money

Mr. Wilson said "these positions reflect proactive capital management steps taken over the past year"–including suspending Allstate's share repurchase program, augmenting investment risk mitigation programs and reducing operating costs.

In addition, the statement said, since the end of the quarter, Allstate completed a $1 billion debt offering and reported a more than $1.5 billion improvement in its securities portfolio value as of May 13.

"Maintaining our financial strength is a top priority in 2009, and we will continue to take proactive steps to manage our capital position as markets develop and the economy improves," Mr. Wilson said.

On the other hand, The Hartford confirmed that it has been cleared to get $3.4 billion under the program. "We are pleased that we received preliminary approval to participate in Treasury's Capital Purchase Program," said Ramani Ayer, chair and chief executive officer of The Hartford.

Following the announcement of TARP eligibility, The Hartford said it will not be selling its property-casualty, group benefits or life insurance businesses. (See page 7.)

"Applying for participation in the CPP was a prudent step for The Hartford, particularly given the continued economic uncertainty," Mr. Ayer said. "These funds would further fortify our capital resources and provide us with additional financial flexibility during one of the most volatile market climates in our nation's history."

All terms of the actual Treasury investment in The Hartford are subject to final negotiations and approval, he added.

The Property Casualty Insurers Association of America is asking the Treasury Department to "tread carefully" in providing financial aid to life insurers with property-casualty operations so as to ensure those receiving such aid don't wind up with an unfair competitive advantage.

"If Treasury's funding of life insurers is used to prop up the companies' ability to retain unsustainable short-term market share in their other lines of business, such as property-casualty insurance, that would undermine fair competition and the overall health of the industry," said PCI President and CEO David Sampson.

"The results for consumers and taxpayers would be more risk, higher costs, less competition and an increasing reliance on government intervention and resources," he warned, adding that he hopes the Treasury Department will take steps to ensure "this funding does not give any of these insurers' property-casualty divisions an artificial competitive advantage over fiscally sound property-casualty companies who do not need federal rescue funds."

PCI has said its members aren't seeking TARP cash and are concerned that those who do receive such aid could potentially win an unfair competitive advantage.

Mr. Sampson said PCI members, despite the challenges of the economic downturn, "remain the safest and strongest financial sanctuary in the current storm."

"Property-casualty insurers have behaved responsibly and continue to be generally well-capitalized and managed, providing sound and secure products to consumers," he added.

Mr. Sampson said p-c carriers "are highly regulated at the state level for solvency," adding that he believes "[federal] government intervention would actually harm consumers and the vast majority of responsible insurers."

The Treasury on May 14 approved six insurers to receive funds under the CPP component of TARP–Ameriprise Financial Inc., Allstate, The Hartford Insurance Group, Lincoln National, the Principal Financial Group and Prudential Financial.

Allstate was the second insurer to reject federal aid. Ameriprise announced immediately after being confirmed as eligible for TARP funds that it wouldn't accept the money.

Prudential has indicated they are unlikely to participate in the program. The Principal has said it has made no decision either way. Lincoln National said it is reviewing the final terms and conditions of the offer before accepting the funds.

Several other insurance companies that had applied for aid dropped out, including the Phoenix Companies and Protective Life.

Genworth was turned down because its application to restructure as a bank holding company and therefore become eligible was not approved before the deadline.

When the insurers applied for the program last October and November, the credit markets were closed. Since then, the private credit markets have reopened, prompting some applicants to reconsider.

Moreover, public criticism of the program has prompted the Treasury Department to demand strong oversight of institutions that accept aid–including limits on dividends and compensation.

Specifically, a rule proposing strict limits on pay and bonuses of executives of private firms accepting aid under the TARP program is expected to be released shortly by Treasury.

Those approved for federal funds "met the requirements for the CPP because of their bank holding company status, and each applied for CPP capital investments in time to meet a government deadline," said a Treasury Department representative, Andrew Williams. "These companies are among the hundreds of financial institutions in the CPP pipeline that will be reviewed and funded as appropriate on a
rolling basis."

Frank Keating, president and CEO of the American Council of Life Insurers, said his trade group "welcomed" the Treasury Department's announcement.

"Treasury's reported decision reflects the important role the life insurance industry plays in the lives of 75 million American families, in the financial services system and in the national economy," he said. "By extending funds to certain insurers, Treasury is taking the right step toward helping restore lending and liquidity to the marketplace."