Life insurance stocks up on possible government aid

NEW YORK (Reuters) - Shares of U.S. life insurers rose sharply on Monday on expectations that some will receive long-awaited approval for capital injections from the government's $700 billion financial bailout fund.

On Saturday, two sources familiar with the matter said approval for companies that applied for the aid could come as soon as Monday.

Fox-Pitt Kelton analyst Mark Finkelstein, in a research note, said government capital injections would potentially be a "positive" for companies as long as "terms are not too onerous."

Shares of Hartford Financial Services Group Inc (HIG.N) rose 24 percent, erasing declines on Friday, a day after the large life and property insurer posted a $2.7 billion net loss for the year and estimated its life insurance operations ended the year in a weaker capital position than previously forecast.

At the time of its application, Hartford said it could be eligible for up to $3.4 billion if approved for the federal program.

Other life insurance stocks were also higher, with the Dow Jones U.S. life insurance index .DJUSIL rising 4 percent. Genworth Financial Inc (GNW.N) was the largest percentage gainer, jumping 39 cents, or 17 percent to $2.71 a share. Hartford is not a component of the index.

Some insurance companies last month received approval to acquire banks, paving the way for them to participate in the government's $250 billion capital injection program, which is part of the larger bailout fund.

Prudential Financial Inc (PRU.N), the No. 2 U.S. life insurer, already has a federally regulated unit. It has also applied for federal aid.

Sources told Reuters that some of the insurance companies could be approved by the U.S. Treasury Department in return for giving the government equity stakes.

Bank regulators last month approved applications from Hartford and Lincoln National Corp (LNC.N) to become savings and loan holding companies, which is needed for them to be considered for the federal aid.

About a dozen insurers have applied for capital injections.

Genworth, a U.S. life and mortgage insurer, has also applied, but is still awaiting a decision from the U.S. Office of Thrift Supervision on its application to become a savings and loan holding company, a spokesman said Sunday.

Insurance companies have been seeking federal funds as a way to boost coffers after large investment losses eroded capital.

Hartford shares, which have fallen more than 85 percent in the last 12 months, rose $3.08 to $15.76. Lincoln stock was 9 percent higher at $18.03, and Prudential shares gained 5 percent to $31.52.

Lincoln shares have lost about 68 percent in the last year, while Prudential shares are down nearly 60 percent over the same period.

(Reporting by Lilla Zuill; editing by Jeffrey Benkoe)