Monday October 27, 2008
Navivest

Shares of some insurers rallied on Friday, despite the 312.30-point drop in the Dow Jones Industrial Average, on word that the U.S Treasury might be taking equity stakes in some insurance companies by buying some of their preferred shares. 

This would be akin to the Capital Purchase Program announced on October 14, 2008, under which the Treasury will purchase up to $250 billion of senior preferred shares from banks to help shore up their capital base.

The Capital Purchase Program was developed as part of the $700 Emergency Economic Stabilization Act of 2008 (EESA) that was signed by President Bush on October 3, 2008.

The Capital Purchase Program was designed to strengthen the capital and liquidity positions of the banks that are chosen under the program and to encourage them to increase lending to help reverse the current credit crunch.

Under the CPP, $125 billion out of the $700 billion is being allocated for the purchase of preferred shares in nine of the largest U.S. banks and another $125 billion is being earmarked for smaller banks.

While the Treasury has not confirmed a plan to purchase stakes in insurance companies, we saw an over 4% rise on Friday, in stocks such as Metlife (MET) $29.80 +$1.96, Prudential (PRU) $34.46 +$2.01, Hartford Financial Services Group (HIG) $24.30 +$3.39, Allied World Assurance (AWH) $30 +$2.45, NYMAGIC Inc. (NYM) $18.34 +$1.32, and Chubb (CB) $48.84 +$2.09.