Other life insurers would probably join MetLife in turning down federal bailout funds, and only the most stressed companies will take the money if it's offered, analysts are predicting.
MetLife, citing its strong balance sheet and previous efforts to raise capital, said Monday that it wouldn't participate in the Treasury's Capital Purchase Program. The Hartford, Lincoln National Corp. and The Phoenix Cos., among others, applied months ago but haven't indicated which way they're leaning.
Each insurer must weigh how participation could affect earnings per share, stockholders, and customer and investor perception of the company, as well as how badly the capital is needed — especially to forestall further ratings downgrades. Many companies have been pressured by investment losses and the markets' effect on businesses such as variable annuities.
Analyst Nigel Dally at Morgan Stanley & Co. told clients in a note Tuesday it's likely Prudential Financial and Ameriprise Financial won't take the federal funds.
The Hartford Financial Services Group, Lincoln and Principal Financial Group could benefit from the Capital Purchase Program, Dally said, but at a steep cost — dilution of shareholders' stakes in the companies and earnings per share. Dally estimated dilution of 2010 earnings per share would average 25 to 45 percent. The book value of a company would be affected, too.
That's because the Capital Purchase Program has involved issuing preferred shares to the government that are convertible into common shares and warrants for common stock.
Dally believes insurers would only participate as "a last resort."
John Hall, senior analyst at Wachovia, also painted a bleak view in a note this week. "Given the challenges that have emerged following other financial services companies accessing the CPP, we do not see a clear reason why a life insurer would want to subject themselves to the program's shifting sands unless they were on the brink of failure with no other alternative," he said.
The Hartford reiterated Tuesday the statement it made in November when applying for the program: "Securing capital at the terms available through the Capital Purchase Program could be a prudent course in this market environment and would allow us to further supplement our existing capital resources."
The Hartford also repeated that it "remains well-capitalized to meet our policyholder obligations." The company had estimated it could qualify for $1.1 billion to $3.4 billion of federal funds.
Phoenix spokeswoman Alice Ericson said Tuesday, "We will evaluate our course of action once we receive definitive information on our eligibility and the terms of the program."
Analysts say the Capital Purchase Program is also unattractive to insurers because of the restrictions on executive compensation and increased scrutiny that come with the program.
BAILOUT FUND PREDICTIONS