Insurers Seek to Buy Thrifts To Get Piece of Bailout

The legislation creating TARP suggested insurance companies could be allowed to participate, but the Treasury Department decided insurers would have to become bank or thrift holding companies first. Insurance companies are regulated at the state level, and Treasury wanted to be sure they were also subject to federal supervision.

It isn't clear that another layer of supervision would give the federal government additional protection against any risks associated with investing in the insurance companies. Federal regulators such as the Office of Thrift Supervision or the Federal Reserve would continue to rely on state regulators to oversee the insurance components, and they would have limited authority over those operations.

"The insurance regulation is the job of the insurance regulators," said OTS spokesman William Ruberry. For matters that only indirectly affect thrift subsidiaries of holding companies, "our authority becomes much more tenuous," Ruberry said.

Paulson put it this way in congressional testimony: "We don't have capability at the federal level looking at insurance."

Industry analyst Alan Rambaldini of Morningstar said insurance companies' interest in TARP funds makes him more pessimistic about their prospects.

Rambaldini said he sees it as "a sign of their concern that they don't have the capital to make it through the downturn."

Analyst Laura Bazer of Moody's, the credit rating agency, echoed others in saying the industry faces a negative trend. "But generally speaking, the major companies are well diversified and strong. And generally speaking relative to the banking industry, the insurance industry is in much healthier condition," she said.

Major life insurers as a group ended last year with about four times the minimum capital they are required to maintain to absorb losses, and they are likely to end this year with about three times as much capital as required, said analyst Douglas Meyer of Fitch Ratings.

Such big insurers as Mutual of Omaha and State Farm said they don't need the Treasury's help and aren't applying.

"State Farm has not applied for any of the funds in the Treasury's program and [has] no plans to do so. Our conservative business practices have served us well and our core business of insurance and banking remains solid," company spokesman Jeff McCollum said by e-mail.