The Treasury Department has decided to offer aid to the struggling life-insurance companies (via WSJ):
The department is expected to announce the expansion of the Troubled Asset Relief Program to aid the ailing industry within the next several days, these people said.
The news will come as a relief to a number of iconic American companies that have suffered big losses made worse by generous promises to buyers of some investment products. Shares of life insurers have fallen more than 40% this year. Their troubles led to a string of rating-agency downgrades that, in a vicious cycle, made it more difficult for some insurers to raise funds.
The decision by the Treasury Department adds another industry to the banks/brokers and automakers that have received bailouts from the government. It is not a trend we would like to see develop. But since millions of Americans have entrusted their financial legacy with these life insurers, it’s important to keep them on solid footing, to preserve confidence in our financial system.
Access to TARP funds should provide significant breathing room to life insurers, helping them avoid further credit-rating downgrades and the need to raise capital under onerous terms. That, in turn, could be good news for capital markets. Due to their capital constraints, some insurers have been hoarding cash rather than purchasing bonds, adding to market stresses.
In today’s trading session, the insurers are up over 5% on the news: