Insurers Would Owe Under Proposed Financial-Crisis Tax

A handful of large insurance companies, most of which turned down government bailout funds, would likely owe money under the proposed Financial Crisis Responsibility tax.

The proposed tax, unveiled Thursday by President Barack Obama, would amount to 0.15% of total assets minus high-quality capital, such as common stock, and disclosed and retained earnings. Insurance-policy reserves would be untaxed, being already subject to federal fees, according to the White House, but analysts and insurers note that some details are yet to be clarified. The fee must be approved by lawmakers; quite a few insurers would qualify for the tax, according to analysts.

American International Group Inc. (AIG), MetLife Inc. (MET), Prudential Financial Inc. (PRU) Allstate Corp. (ALL), Lincoln National Corp. (LNC), Hartford Financial Services Group Inc. (HIG), Ameriprise Financial Inc. (AMP) and Principal Financial Group (PFG) all are eligible for the tax, based on total adjusted assets, according to a Friday report by Credit Suisse.

A Sandler O'Neill research note on Friday came to some different conclusions on which insurers would be taxed and added more names to the list. Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), Travelers Cos. Inc. (TRV), Aflac Corp. (AFL) and Genworth Financial (GNW) would all have to pay the tax, in addition to the names Credit Suisse cited.

AIG's main business is insurance, but it was the company's financial trading business that led to its multi-billion-dollar bailout. It would owe the most tax of the insurers, at an estimated $388.8 million based on a full year, according to the Credit Suisse estimate. Sandler O'Neill analyst Daniel Arnold put AIG's tax burden at $420 million and generally had higher estimates for tax liability for all the insurers.

Arnold noted the difficulty of interpreting what counts as Tier 1 capital when it comes to insurance companies, which don't generally use the term. The tax is based on covered liabilities calculated based on the company's assets minus Tier 1 capital and excluding FDIC-assessed deposits and/or an adjustment for insurance liabilities covered by state guarantee funds.

An AIG spokesman declined to comment on the bill.

Two other life insurers that took bailout funds would fall under the tax, according to analysts. Hartford Financial received $3.4 billion from the Treasury's Capital Purchase Program and would owe tax of about $28.2 million by Credit Suisse's estimate or about $258.9 million, according to the Sandler O'Neill estimate.

Lincoln National received $950 million from the program and would owe tax of about $29.4 million according to Credit Suisse, or $134.9 million according to Sandler O'Neill.

Neither company immediately responded to a request for comment.

Prudential and MetLife, two insurers that declined TARP funds, would owe the second- and third-most under the tax, according to Credit Suisse. Prudential would owe about $85.2 million, and MetLife just over $81.5 million.

Prudential spokesman Bob DeFillippo said the company was working on understanding the proposal and didn't yet have a comment.

A MetLife spokesman agreed with the assessment that the company is included in the current proposal of companies that would owe the tax but said the company is still looking at the details of the proposed tax.

Berkshire Hathaway, which made stabilizing investments in Goldman Sachs Group Inc. (GS) and General Electric Co. (GE) during the financial crisis, would owe $133.4 million, according to Sandler O'Neill. A Berkshire Hathaway spokeswoman didn't immediately return a request for comment.

Allstate, which would owe $34.1 million according to Credit Suisse, is also examining the proposal, a spokesman said.

Genworth and Aflac didn't immediately respond to a request for comment.

One consequence of the tax falling on the biggest insurers is that it would make them less competitive, said bank analyst Mike Moebs of Lake Bluff, Ill. "This will help smaller insurers," Moebs said. "It will put them in good position to compete," particularly in specialized insurance markets.

-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141; lavonne.kuykendall@dowjones.com

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