According to the American Council of Life Insurers, the industry has some $4.9 trillion invested in the US economy. Life insurers are the largest source of bond financing, with some $1.6 trillion invested in 2007.
Although it’s still early in the process, the insurance companies will need $50 billion to $70 billion, Mr. Litan estimates. “It’s a lot of money even in these days, but it’s more manageable than the banking industry,” he says.
On Wednesday, the US Treasury replied to a report in The Wall Street Journal that said it was within days of announcing aid for the insurance industry. In a statement, the Treasury said, "There are a number of life insurers who met the requirements for the Capital Purchase Program because of their thrift or bank holding status and applied within appropriate deadlines. These are among the hundreds of financial institutions in the CPP pipeline that will be reviewed and funded as appropriate on a rolling basis."
Any decisions will probably not come for weeks.
The CPP is a $250 billion program that is part of the Troubled Asset Relief Program. The program allows banks and thrifts to borrow money, but they must pay dividends to the taxpayers and return the money. Government officials stress it is not a bailout. Perhaps fewer than 10 insurance companies might qualify for the loans.
The industry has been buffeted by three factors, Litan says. Many of them have large stock portfolios that have gone down in value during the bear market.
Many of the companies also have written annuities, which promise to pay a fixed rate or variable rate of return. However, an insurance company can’t meet its annuity obligations if the company’s assets, such as mortgage loans, are not performing.