A Dutch insurer’s experimental bid to tap the U.S. government for bailout cash looks doomed to failure, closing off an avenue for other insurers. Aegon NV said this week it was mulling buying a small U.S. bank to qualify for potentially more than $1 billion in U.S. government support (See IJ web site – https://www.insurancejournal.com/news/international/2008/11/19/95639.htm).
The insurer plans to talk with the U.S. Treasury about gaining access to the Troubled Asset Relief Program, which the U.S. government is using to help banks hit by the financial crisis. Foreign insurers are now barred from using the fund.
“If there is a high chance that we could use the TARP program in the future, then we are willing to buy a small thrift (savings bank). If not, then we will not buy it,” Aegon Chief Financial Officer Jos Streppel told Reuters on the margins of a financial conference.
The plan is similar to those of Hartford, a life and property insurer that has been hit by investment losses and in which Germany’s Allianz owns a stake, as well as peers Genworth Financial Inc and Lincoln National Corp, which are all planning to buy small savings and loans companies and apply for federal support.
Aegon already got a €3 billion ($3.785 billion) capital injection from the Dutch government last month to strengthen a capital base eroded by investment losses and exposure to risky assets.
The insurer will have to repay the Dutch government at a premium or pay a steep 8.5 interest rate to use the cash, opening an arbitrage opportunity if U.S. TARP funds are cheaper.
“The capital of Aegon is totally unchanged,” Aegon’s Streppel said. “I don’t need more money but I might replace a part of the €3 billion ($3.785 billion) with U.S. money,” he said. Dutch regulators have no problem with the strategy.
“If the United States has more leeway in granting capital support at more favorable terms (than we do), then who am I to tell Aegon not to use it,” Dutch National Bank Director for Supervisory Policy Klaas Knot told Reuters.
“Aegon has to compete in the North American market with other North American life insurers that will have access to the package under the same terms and conditions,” Knot said.
NOT SO FAST
Financial watchdogs point out that Europe’s insurers have been little affected by the financial crisis compared with their banking counterparts.
But with a host of state-sponsored guarantee schemes on offer throughout the developed economies – from enhanced deposit insurance to outright share purchases of troubled financial houses – regulators are keen to avoid giving companies an unfair competitive advantage.
Politicians were likely to intervene if they thought companies were angling to arbitrage between rescue funds, analysts said. “Governments just won’t allow that sort of thing. They would bring in new rules to stop it right away,” said a Frankfurt-based analyst, who asked not to be identified.
“We hope that it won’t lead to financial distortions between centers… but no one can exclude that it might,” said Thomas Steffen, chairman of EU insurance regulatory group CEIOPS and head of insurance supervision at German watchdog Bafin.
The U.S. would be particularly wary of foreign companies trying to tap the TARP through the back door, analysts said. “If it came down to a mass-arbitrage, where European insurers started buying U.S. savings banks just to get access to the TARP program, there would be an immediate political reaction against it,” said a second Germany-based analyst. “I don’t think the Aegon model will do the rounds.”
(Editing by Chris Wickham)
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