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Will life insurance companies be the next shoe to drop – that is, flounder, fail or otherwise need a 23rd hour bailout? Technically the answer is no, since most of the largest ones are now eligible for TARP funding and will presumably use the funds to bolster balance sheets. The question is, will all of the life insurance companies found eligible to take the funds – now and down the road – actually do so. Ameriprise and Prudential, among the first wave of companies approved by Treasury last week (http://www.globest.com/news/1411_1411/washington/178704-1.html) , are declining the funds; Ameriprise on the grounds that its capital is more than adequate. To a certain extent life insurance companies have less wiggle room in declining or accepting TARP funds because of different regulations regarding their capital adequacy. Still, though, watching banks struggle under the restrictions that come with TARP funds – not to mention the number of banks that are repaying or trying to repay TARP – has no doubt made an impression on life insurers. There is also a perceived ‘taint’ of taking on TARP funds by shareholders and analysts. How much the industry is in need of TARP funds is debatable – but it should be noted that they also gorged on MBS and CMBS securities. Like or not the biggest factor that appears to keep these companies from participating in TARP are the restrictions on compensation. Treasury should keep this in mind as it refines its plan for PPIP – the program it’s working on to buy up toxic or legacy debt. If banks and (maybe) life insurance companies are turning away needed funds because the money comes with strings attached, how will it convince investors to participate who don’t necessarily need the government to invest in a bargain basement security.

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