Insurer to Treasury: No thanks on TARP

At least one insurer won't take Treasury Secretary Tim Geithner's bailout money.

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NEW YORK (Fortune) -- Treasury is offering bailout funds to big insurance companies, but some of the insurers are responding with little enthusiasm.

The government cleared six big life insurance firms with banking subsidiaries to receive $22 billion in federal rescue funding this week. The goal: ease investor worries about the health of the sector, which depends on investment portfolios that have been hit hard by falling asset prices.

But one of the six firms has already said it won't accept the funds, and two others are on the fence.

Ameriprise Financial (AMP, Fortune 500), the Minneapolis-based insurer that was formerly known as American Express Financial Advisors, said Friday it won't accept funds under Treasury's Troubled Asset Relief Program.

Two other big insurers - Prudential Financial (PRU, Fortune 500) of Newark, N.J., and Allstate (ALL, Fortune 500) of Northbrook, Ill. - said they are considering their options.

With numerous banks that took federal funds now racing to repay the money, the insurers are weighing the merits of taking more capital in a deepening downturn against the complications of government involvement.

The comments come a day after three other big insurance firms received preliminary approval to receive TARP funds. The government offered to provide funding to Hartford Financial (HIG, Fortune 500) of Connecticut, Principal Financial (PFG, Fortune 500) of New York and Lincoln Financial (LNC, Fortune 500) of Philadelphia, according to the companies and Treasury.

Lincoln expressed enthusiasm for Treasury's decision, though it didn't explicitly say it would participate. The government cleared the company to received $2.5 billion in funds under the TARP capital purchase program.

"Access to the Treasury's Capital Purchase Program is a means to further enhance the company's financial flexibility and capital in what has continued to be an unprecedented economic environment," Lincoln Chief Executive Dennis Glass said in a statement Thursday evening. "We appreciate this preliminary approval for inclusion in the CPP program, subject to a final review of its terms and conditions."

Likewise, Allstate chief Thomas Wilson said the Treasury's decision to offer funding to insurers "is a positive and proactive step by the administration to stabilize the financial markets, and recognizes the integral role that insurance companies play in our economy."

Allstate said it would "undertake a prudent review of our participation in CPP in light of market conditions and our current capital position before responding to the Treasury's preliminary approval."

Some observers said the infusion of fresh capital would ease pressure on some insurers. Keefe Bruyette & Woods analyst Jeffrey Schuman upgraded Hartford and Lincoln to buy from hold, saying the new money took the worst case scenario off the table.

"While we believe much of the TARP capital will need to be eventually refinanced with common equity, the companies now have the luxury of time, and we can assume the equity capital will be raised at much better, less dilutive, valuations than we previously assumed," he wrote Friday in a note to clients.

Ameriprise, however, had a different take. The company applied for TARP consideration last fall, but has since decided it doesn't need the money.

"We applied in November at a time when Treasury was strongly encouraging healthy companies to apply for funding," said spokesman Ben Pratt in an e-mail. "Our capital position and overall financial health has remained strong throughout the market downturn and recession."

While Ameriprise contended Friday that its capital and access to funding "are more than adequate," not everyone is persuaded.

S&P Equity Research analyst Matthew Albrecht reiterated his sell rating on the stock Friday, saying, "we remain concerned about its remaining exposure to troubled debt instruments, including residential and commercial loans and securities. We also anticipate continued pressure on operating results due to client asset declines and lower fee and other revenue."

And while turning down TARP may seem appealing about now, doing so is hardly a one-way ticket to prosperity.

Take the case of business credit card issuer Advanta (ADVNA), which in December declined to apply for TARP funding. The Spring Hill, Pa., firm said in a filing with regulators that it "determined that there would be limited value to participating in these programs given its already strong capital and liquidity positions, and that participating would not be in the best interests of its shareholders."

Since then, shares have fallen 73% to below a dollar each, as delinquencies on the company's credit cards have doubled from a year ago. This week Advanta said it would shut down its card business, which accounted for nearly all its revenue last year, to conserve cash.