Markets

AIG Racks Up More TARP Debt, While Rivals Pay It Back

By Ed Leefeldt

Updated on: March 17, 2010 / 4:42 PM EDT / MoneyWatch

In the insurance industry, it's clear who is showing signs of health, and who is still on life support.

CEO Liam McGee (pictured) announced The Hartford's plans to pay back the $3.4 billion it owes TARP.
CEO Dennis Glass, whose pay just doubled, said Lincoln Financial will repay TARP by year end (though he has offered no details).
AIG borrowed $2.2 billion more.

The Hartford was in dire straits when McGee's predecessor, Ramani Ayer, took out the loan in 2009. The insurer had made bad bets on the variable annuity market by selling policies with guaranteed returns even as the stock market collapsed. Those days are over. The Hartford has revised its annuities so that both price and guarantee are more rational and, of course, the stock market has rebounded. The insurer plans to pay back its TARP debt with a common stock offering of $1.45 billion, plus preferred shares and senior notes to be sold in the marketplace.

Rating agency Standard & Poor's is likely to make it more expensive by lowering its outlook to negative because of recent investment losses. S&P may also feel a bit shaky about the $3 billion-plus in new stock and debt The Hartford will now have outstanding. But McGee said he's "pleased" with the outcome.

Taking TARP money stigmatized AIG, The Hartford and Lincoln National, which is probably why more insurers didn't tap it. Accepting the funds also allowed the Treasury, and in particular its pay czar, Ken Feinberg, to play a role in running these companies that none of them much liked.

But AIG, at least, will have to get used to it for a while longer. AIG borrowed another $2.2 billion from the Treasury to prop up its property casualty business. The company needs to pay back more than $50 billion before it can shake off TARP's shackles. That won't happen anytime soon.