The insurance companies are back in the limelight, qualifying for billions in troubled asset relief program (TARP) or bailout money, yet many of them are now expected not to take it. That's fine, but it begs the question - why did the likes of Prudential and Ameriprise get in line for it in the first place?

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Details of the Deal
All told, $22 billion worth of the remaining TARP money has been allocated to assist the struggling insurance industry. Hartford Financial Services Group Inc. (NYSE:HIG) qualified for up to $3.4 billion, Prudential Financial Inc. (NYSE:PRU) could get up to $2.8 billion, and AIG International Group Inc. (NYSE:AIG) and its subsidiaries could qualify for up to $6.8 billion.

The logical assumption would be since these companies requested the money, they need it. However, these requests were made before November 14 of last year, a period around which everyone learned to expect disastrous news on a daily basis. A lot has changed since then. Perhaps the need has changed too.

To figure out the likely impact a capital injection would have for these insurers, I did something very rare... I looked at these companies' balance sheets. As it turns out, many of them truly don't need the money. That, or it wouldn't do them a bit of good. (Learn about the components of the statement of financial position and how they relate to each other, see Reading The Balance Sheet.)

What Would Be the Point?
Take Prudential for instance. The company is in line to receive $2.8 billion in TARP funds which is expected to materialize in the form of preferred stock yielding 5% and warrants. Great, but as of the end of Q1, Prudential was sitting on $427 billion worth of assets, some more desirable than others. The company's also got $414 billion worth of liabilities, some riskier than others.

Don't get me wrong – $2.8 billion is more money than I can imagine. But that's not going to make a dent in Prudential's balance sheet, which was the whole point of the plan. For similar reasons, Ameriprise Financial Group Inc. (NYSE:AMP) and Principal Financial Group Inc, (NYSE:PFG) were also expected to refuse the money.

On the other hand, Hartford Financial and Lincoln National Corp. (NYSE:LNC) would be wise to snatch the cash while it's there. And it looks like they will. So what's different about Hartford and Lincoln?

Hartford's CEO Ramani Ayer said in a statement "These funds would further fortify our capital resources and provide us with additional financial flexibility". Lincoln's CEO Dennis Glass stated "Access to the Treasury's Capital Purchase Program is a means to further enhance the company's financial flexibility and capital".

Did you catch common word in both statements? Flexibility – something there's never quite enough of if you've miscalculated in the insurance business.

Never Saw it Coming
At first glance, Hartford's and Lincoln's balance sheets don't look all that different than Prudential's and Ameriprise's. And, with the bailout money granted to insurers now being held to a maximum of 3% of each company's current assets, it's not out of line to wonder if the cash injection will even really matter.

It Does Matter Though
If you think it's tough for a bank to pinpoint and value bad mortgage debt on their balance sheets, that's nothing compared to pinpointing and valuing the liabilities associated with insurers' variable annuity obligations. Talk about a moving target.

Variable annuities make payments based on market returns but many insurers sweetened their VAs by guaranteeing a minimum payout no matter how badly the market did. (Learn more in Getting the Whole Story on Variable Annuities.)

Needless to say, this can be a risky business to be in. Though all of the companies mentioned here offer variable annuities of some sort, some insurers clearly handled this business better than others. It's probably safe to say none of Hartford's actuaries ever expected stocks to implode the way they did in 2008. Hartford reported a $1.2 billion quarterly loss earlier in May, largely from – you guessed it – their variable annuity division. Garnering $3.4 billion now would boost the company's excess cash position from $1.0 billion to $4.4 billion, and analysts expect that to make a tangible impact by allowing Hartford to offset VA and investment losses.

Bottom Line
The concern that the companies that should take the bailout are going to refuse it seems to be (mostly) unmerited. If the market starts to recover, which of course is a big if, insurers like Hartford and Lincoln won't be dragged down further; this round of TARP cash should keep them afloat until they can swim on their own again. At the same time, Prudential, Ameriprise, and Principal wouldn't refuse the cash if they needed it. A light at the end of the tunnel? I feel it is. Considering how beaten down these stocks are despite that light, I think insurers could be 2009's Cinderella story.