The U.S. Department of the Treasury recently expanded its Troubled Asset Relief Program (TARP) to the life insurance industry. Pursuant to new guidelines released by the Treasury Department on April 7, 2009, insurers that own federally chartered banks may participate in the TARP’s Capital Purchase Program (CPP). Many insurers owned banks or savings and loans before the Treasury announcement, and some insurers that didn’t own banks or thrifts recently purchased such institutions so that they could qualify. The deadline to apply under the new guidelines was May 7, 2009. On May 14, 2009, the Treasury Department announced that six insurers had been approved for capital infusions.
The new Treasury guidelines take the form of term sheets for new qualifying financial institutions applying to the CPP. The new term sheets establish specific eligibility and program guidelines for (a) publicly-traded subsidiary holding companies seeking to participate in CPP by issuing preferred stock, (b) privatelyheld subsidiary holding companies seeking to participate by issuing preferred stock, and (c) top-tier mutual holding companies that do not have subsidiary holding companies seeking to participate by issuing debt. Depending on its holding company structure, the terms for an insurer participating in the CPP are substantially similar to the original TARP CPP terms offered to publiclytraded, privately-held, or subchapter S institutions. Included in such terms are requirements for certain levels of stock dividend and debt interest payments, immediately exercisable warrants for new issues of stock or debt, and mandates for compliance with Congress’s strict executive compensation rules.