Treasury Department officials today said that it is talking to insurers but that there continue to be barriers to including them in the $700 billion Troubled Asset Relief Program.

One concern is that many insurers are not federally regulated, and another concern is uncertainty about whether giving money to insurers is important to promoting market stability, Treasury officials said.

Moreover, “the question remains, how do you do it?” Treasury spokesman Jennifer Zuccarelli said in an interview.

David Nason, assistant secretary of the Treasury for financial institutions, said in an appearance on CNBC, that the department is “willing to listen” to insurers but has not made a decision to involve insurers in TARP.

“One thing that’s very important in our banking program is we rely heavily on the federal regulators to give us an indication of how strong the institutions are and how much capital they need,” Nason said. “Other industries don’t have that benefit. That’s a significant challenge we have to spend time thinking about.”

Treasury believes any aid would have to be limited to insurers with banking institutions that are regulated by the Federal Reserve Board, the Office of Thrift Supervision or the Office of the Comptroller of the Currency, Zuccarelli told National Underwriter.

MetLife Inc., New York, is the only life insurer with a financial holding company charter, according to Jeff Schuman of Keefe, Bruyette & Woods Inc., New York.

Some of the insurers with OTS-regulated thrift subsidiaries include Ameriprise Financial Inc., Minneapolis; Nationwide Financial Services Inc., Columbus, Ohio; Principal Financial Group Inc., Des Moines, Iowa; and Prudential Financial Inc., Newark, N.J., Schuman writes.

Frank Keating, president of the American Council of Life Insurers, Washington, has put out a statement welcoming news that Treasury officials are thinking about including insurers in the capital purchase program.

The ACLI will be telling policymakers that supporting insurers is critical for the stability of the financial system, ACLI spokesman Jack Dolan says.

“One of the points we will be making is that while the banks are the retailers of credit, we are the wholesalers,” Dolan said. “Our investments provide banks and other corporations the ability to make credit available to consumers. That makes us a vital link in America’s economic engine.”

Scott Talbott, a senior vice president at the Financial Services Roundtable, Washington, says his group also is watching the negotiations closely.

Private, industry officials say Treasury officials want to permit mutual insurers to participate in TARP without forcing them to convert to stock company charters.

One large mutual insurer, New York Life Insurance Company, New York, says it has no need for a federal bailout.

“As one of the industry’s strongest, best capitalized, triple-A-rated companies, we do not require any additional capital, and we did not approach the government to obtain any capital for New York Life,” company spokesman William Werfelman says.

But New York Life has agreed to work with other industry leaders and Treasury to help develop strategies for strengthening the financial system, Werfelman says.

“We want to make certain that our unique perspective as a mutual company is heard,” Werfelman says. “In fact, we have not determined if it would be in our policyholders’ best interest to accept capital. We would not participate in any program that conflicted with our enduring commitment to mutuality.”

The Treasury decision to include insurers in the federal bailout program stems from a meeting Treasury Secretary Henry Paulson held Oct. 17. Insurers asked to participate in the meeting.

At the meeting, “Secretary Paulson said Treasury Department wanted to include insurers in the program, to provide equity investments in financial services firms through purchase of preferred stock,” according to a source who attended the meeting.

Early drafts of the TARP bill, the Emergency Economic Stabilization Act of 2008, did not list insurers as companies that were eligible for aid.

Insurers were added at the request of the insurance industry, which pointed out that insurers would not be eligible for programs available to competitors such as banks and investment banks, according to a lobbyist.

Foreign insurers with U.S. operations sought a TARP provision that would permit Treasury to help them, “but Congress balked in no uncertain terms,” a source said.

Insurance industry involvement in TARP “is certain to ensure that there will be an Office of Insurance Information within Treasury,” and potentially “could seal the deal on an optional federal charter for life insurers,” a lobbyist said.

The lobbyist said that it is “hard to say” which insurers will wind up participating in the program.

“The balance sheets of some insurers are not fully transparent, and everyone has some toxic waste,” the lobbyist said.

The lobbyist added that he believes that Treasury decided Friday to disclose its plans because the spreads on credit default swaps on insurance instruments have widened significantly over the past few weeks.

John Nadel and Jaron Weymouth, securities analysts at Sterne, Agee & Leach Inc., Birmingham, Ala., say they believe federal aid would have many positives for insurers.

Capital adequacy “has become the biggest overhang issue for the large-cap life insurers,” and most large-cap insurers would welcome the federal regulation that would accompany the federal aid, Nadel and Weymouth write.

If U.S. insurers got the TARP money, that would provide capital they could use to acquire other insurers and give them a leg up in competing with foreign insurers, Weymouth and Nadel write.

In addition, if insurers sold preferred stock to the federal government in exchange for government funds, that would be better for current shareholders than efforts to sell common stock at depressed prices, the analysts write.