Although the Treasury Dept won’t be extending TARP financing to troubled automakers Chrysler and GM because they cannot be certified as “financially viable,” a different set of standards appears to apply to life insurance companies at death’s door.

The life insurance companies’ troubles don’t extend from a sudden increase in mortality, but rather a combination of selling annuities with unsustainable rates and excessive bad bets in real estate and the stock market the companies made with premiums. As their portfolios have plummeted, so too have their credit ratings, in turn making it harder for them to raise further capital.

Since TARP funding is only available to certain types of financial institutions, many insurance companies have been buying up the odd bank here and there in order to qualify.

Although stocks of troubled insurance companies have jumped with this news, it remains far from clear that an infusion of capital will resolve the underlying structural problems.

From the Wall Street Journal:

“An injection of capital similar to the banks would provide enough capital for even the most thinly capitalized institutions to weather a prolonged and protracted credit cycle,” Credit Suisse analyst Thomas Gallagher told clients in a note Wednesday. He added “one major caveat,” however: an assumption that the S&P 500 does not drop materially below the 600 level.

Why the largess with insurers but not with carmakers?

Insurers hold major stakes in bonds, up to 18% of all outstanding corporate bonds, according to the American Council of Life Insurers. As insurers have hoarded cash in the wake of the financial meltdown, they have held off buying new bonds.

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