Phoenix Life Says It Won’t Get TARP Funds

Phoenix Cos. Inc. has pulled its application to participate in the U.S. Treasury’s Capital Purchase Program, which has allocated the lion’s share of the $700 billion Troubled Asset Relief Program, after federal regulators took control of the life insurer’s recently acquired savings and loan.

Phoenix had been one of a number of life insurers that applied in November to take part in the CPP, which allows eligible institutions to sell preferred shares, along with warrants for common shares, to the Treasury that pay 5% annual dividends for the first five years. In order to comply with program requirements that only federally regulated, U.S.-controlled banks, savings associations and savings and loans could participate,Phoenix moved to acquire Sugar Creek, Mo.-based American Sterling
Bank.

That deal and the company’s subsequent application to convert to a savings and loan holding company both were approved in January by the U.S. Office of Thrift Supervision (BestWire, Jan. 19, 2009). However, the Federal Deposit Insurance Corp. was appointed as American Sterling’s receiver on April 17, which Phoenix
noted in a statement “effectively terminates the acquisition agreement between Phoenix and American Sterling Corp.”

“In light of these developments, Phoenix intends to withdraw its application to participate in TARP,” the company said. “Phoenix had pursued TARP for potential additional financial flexibility in this difficult market environment but remains well-capitalized.”

The news makes Phoenix the latest insurer to cancel potential participation in the TARP. Earlier this month,Protective Life, which had Federal Reserve approval to convert to a bank holding company, withdrew its application after Florida-based acquisition target Bank of Bonifay terminated a planned deal. Genworth Financial Inc., which had been seeking OTS approval to purchase Maple Grove, Minn.-based InterBank fsb and convert to a thrift, had to withdraw its application after Treasury confirmed it would not extend a deadline for OTS to allow the conversion (BestWire, April 10, 2009). Treasury Secretary Tim Geithner noted in a letter this week to the TARP Congressional Oversight Panel that $109.6 billion remains in the $700 billion program.

A total of 13 life insurers are reported to have applied to participate in the TARP’s CPP, including Transamerica Life Insurance Co., which pulled its application early as its Dutch financial services parent, Aegon N.V., made it ineligible for the program. Only seven insurers of the remaining 12 have confirmed their applications publicly,
including Phoenix, Protective and Genworth.

Others still in the running to participate include Hartford Financial Services Group and Lincoln National Corp.,both of which have received OTS approval for savings and loan purchases and holding company conversions.

Hartford spokesman Jason Stewart said the company’s application “remains under review and Treasury has not, as yet, acted on that application.” A spokeswoman for Lincoln confirmed the company is eligible for the CPP, but declined comment on Treasury’s deliberations or whether Lincoln would take the money, if offered.

Others to confirm application to participate include Principal Financial Group and Prudential Financial Group,both already the owners of federal thrift institutions. Prudential spokesman Bob DeFillipo said the company could confirm only that it has applied to participate. Principal representatives could not be reached for
comment.

MetLife Inc., the largest U.S. life insurer and the only one that is also among the Top 20 U.S. bank holding
companies, said earlier this month it will not participate in the CPP, saying it remains well-capitalized and did
not need the assistance (BestWire, April 14, 2009). However, the company has never confirmed publicly that it applied for the program, and MetLife spokesman John Calagna declined comment on whether it had been one of the dozen firms seeking TARP aid.

Other major U.S. life insurers that own federally regulated banks or thrifts include Allstate Corp., Ameriprise Financial and Nationwide Financial. None have confirmed their application to participate in the TARP. “It is our company’s prudent management practice to evaluate the economic attractiveness of all potential sources of
capital,” Allstate spokeswoman Maria Gemski said. “We do not comment on plans for capital market activities. However, Allstate’s management is comfortable with the company’s capital position as of year end 2008, which was the most recent data announced.”

Last month, A.M. Best downgraded Phoenix Cos.‘s subsidiaries financial strength ratings from A (Excellent) to B++ (Good), after the company’s top two distributors ? State Farm and National Life Group ? announced they were suspending sales of Phoenix’s life and annuity products (BestWire, March 10, 2009). In 2008, State Farm
accounted for approximately 68% of Phoenix?s annuity deposits and 27% of total life premiums, while National Life Group accounted for about 14% of annuity deposits.

On the morning of April 21, shares of Phoenix were trading at $1.42, down 6.6% from the prior close.