By Karey Wutkowski and Patrick Rucker
WASHINGTON (Reuters) - The U.S. Treasury Department is closely studying how it could give relief to insurance companies under a $700 billion financial services rescue package, two sources familiar with the deliberations said on Friday.
The Troubled Asset Relief Program established by Congress early this month has been seen mainly as a way to recapitalize banks and take bad assets off their books to help support creaking credit markets.
Last week, the Treasury tried to squash rumors the government was preparing to give bond and mortgage insurance companies a capital injection, but senior officials are considering how the Treasury might be able to aid state-regulated insurance companies, the sources said.
The KBW Insurance index <.KIX> briefly turned positive on the reports, led by mortgage insurer Genworth Financial
The Treasury so far has used capital powers only to aid federally regulated institutions. But the TARP program could be used to buy sour assets from other financial companies and help them scrub their balance sheets.
MBIA Inc, the largest U.S. bond insurer, and its No. 2 rival, Ambac Financial Group Inc, met with regulators earlier this week to push for a way to tap into the federal government's bailout plan.
New York Insurance Superintendent Eric Dinallo, the main regulator for MBIA, and Wisconsin insurance commissioner Sean Dilweg, Ambac's primary regulator, convened in New York to discuss the matter with the firms.
Both companies have seen business grind to a near halt after large losses on mortgage debt guarantees, and subsequent rating cuts.
TRADE GROUP SPEAKS UP
A leading financial trade group on Friday sent a letter to the Treasury asking that the government interpret its new TARP powers broadly and leave the door open to aid for insurers, automakers and subsidiaries of foreign banks or companies.
"The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market," the Financial Services Roundtable wrote on Friday in a letter to TARP administrator Neel Kashkari. "The Roundtable would strongly urge that you permit such institutions to participate in the Program."
The Financial Services Roundtable represents major insurers who are mulling whether the TARP program could be useful for them.
(Additional reporting from Lilla Zuill in New York; Editing by Andrea Ricci)
