Nov. 17 (Bloomberg) -- Four of the world's biggest life insurers may acquire small banks that regulators have cited for improper practices to improve their own chances of getting cash from the $700 billion U.S. government bailout fund.

Lincoln National Corp. and Aegon NV, owner of Transamerica Corp., may buy savings and loan companies in Indiana and Maryland whose methods were found to be ``unsafe and unsound'' by the Office of Thrift Supervision. Hartford Financial Services Group Inc. is acquiring a Florida lender that was told by the OTS in May to curb lending. Genworth Financial Inc.'s target got a ``cease-and-desist'' order tied to potentially fraudulent loans.

Purchasing thrifts may allow insurers to qualify as savings- and-loan companies and tap the Treasury's Troubled Asset Relief Program. Hartford's $10 million acquisition of Sanford, Florida- based Federal Trust Corp. may entitle it to $3.4 billion of U.S. capital. Lincoln National in Philadelphia may win access to $3 billion by taking over Newton County Loan & Savings, which has three full-time employees and $7.3 million of assets.

``It's perverse,'' said Jason Arnold, a San Francisco-based analyst at RBC Capital Markets. ``Almost anyone can buy a thrift. At a certain point, regulators will have to put a stop to it.''

Life insurance stocks dropped the most in more than a month today with the 11-company Standard & Poor's Supercomposite Life & Health Insurance Index down 14 percent. Hartford plummeted $3.39, or 27 percent, to $9.26 at 4:15 p.m. in New York Stock Exchange composite trading, while Lincoln fell $1.80, or 13 percent, to $12.55 and Genworth declined 8.8 percent.

Hartford, Genworth

The insurers' plans to buy lenders were disclosed on Nov. 14 by Bill Ruberry, a spokesman for the OTS. Lincoln, Hartford, and Genworth announced their intentions in statements. Aegon spokesman Greg Tucker said the insurer may buy a lender and has applied for Treasury funds.

Treasury rules allow insurers to become eligible for U.S. funds if they convert into a federally regulated bank or savings and loan. Takeovers by insurers may help regulators as they try to keep the list of troubled lenders from increasing. Nineteen have failed this year, the most since 1993, according to the Federal Deposit Insurance Corp.

Insurers are under pressure to raise capital after the worst financial crisis since the Great Depression pushed down the value of investments they hold to back policies. Securities firms Goldman Sachs Group Inc. and Morgan Stanley previously gained bank status to get U.S. backing.

MetLife, Allstate

Treasury Secretary Henry Paulson's $250 billion bank recapitalization program injected $125 billion into nine of the largest banks, including Goldman and Morgan Stanley, and set aside another $125 billion to buy preferred shares and warrants from smaller and regional lenders.

MetLife Inc., the biggest U.S. life insurer, No. 2 Prudential Financial Inc. and Allstate Corp. are among insurers already regulated by the OTS or the Federal Reserve. New York- based MetLife dropped 21 percent and Prudential, based in Newark, New Jersey, fell 17 percent.

Hartford, based in the Connecticut city of the same name, is seeking a second capital injection six weeks after investment losses forced the company to sell $2.5 billion in stock and bonds to Allianz SE. To secure the U.S. investment, the insurer is buying Federal Trust, which lists 11 branches on its Web site. The lender has $430 million in deposits, according to U.S. data.

Federal Trust

Regulators imposed curbs on Federal Trust on May 12 to limit asset growth and the types of loans the company can make, according to the OTS. The lender, which recorded a $2.69 million loss in the quarter ended June 30, went looking for a merger after being battered by defaults tied to the slumping Florida real estate market, Chief Executive Officer Dennis Ward said.

``We needed to recapitalize in order to continue operations,'' Ward said in an interview. ``With the decline in values in the marketplace, people not paying their bills, we were incurring losses.''

Hartford plans to inject $100 million of capital in Federal Trust, Shannon Lapierre, a spokeswoman for the insurer said. The rescue is contingent on Hartford winning acceptance into Treasury's capital purchase program, both companies said.

Genworth's choice, Inter Savings Bank of Maple Grove, Minnesota, is operating under a cease-and-desist order from the OTS. The company was directed to review all its mortgage loans for ``suspicious or potentially fraudulent transactions,'' according to a Sept. 16 order.

Inter Savings

The lender must alert the OTS to indications of possible fraud, including invalid Social Security numbers, the regulator said. Inter Savings posted a $3.45 million loss for the period ended June 30 on real estate loan charge-offs, according to FDIC data.

Inter Savings President Fred Stelter declined to comment. The lender, which operates four branches as InterBank, confirmed its agreement with Genworth yesterday in a statement. Richmond, Virginia-based Genworth applied to sell an equity stake to Treasury, the insurer said in a statement.

Genworth, which has lost about 95 percent of its market value this year, said last week it was expelled from the Treasury program that buys short-term debt from financial firms after its credit rating was downgraded. The company had a third-quarter loss of $258 million after the value of investments declined and claims at its mortgage insurance unit rose.

Genworth spokesman Al Orendorff declined to comment today. Janet Frank of the OTS declined to comment today on the difference in size between the acquirers and their targets.

No Branches

Lincoln National plans to buy Goodland, Indiana-based Newton County Loan & Savings, which has $3.83 million of deposits, according to regulatory data, and no branches. The lender posted a $404,000 loss for the quarter ended June 30, according to FDIC data. Newton was ordered to halt certain types of mortgages without written approval from the OTS.

Lincoln may qualify for as much as $3 billion from the Treasury, company spokeswoman Laurel O'Brien said today.

``We understand that you do need to have a bank or thrift charter in order to qualify,'' O'Brien said in an interview. ``There are some synergies we might see with our retirement strategy,'' she said without being more specific.

Real Estate Lending

Aegon, the Dutch insurer that got 3 billion euros ($3.8 billion) from the Netherlands last month, is considering the purchase of Suburban Federal Savings Bank of Crofton, Maryland, the OTS said. Suburban Federal, with 72 full-time employees and $325 million in deposits, engaged in ``unsafe and unsound real estate lending practices,'' according to a March cease and desist order.

Suburban, whose net loss widened to $3.19 million in the three months to June 30 from $328,000 in the same period a year earlier, is forbidden from making any new development, construction or land loans without written approval from the OTS. Chief Executive Officer Ron Morrison didn't return a call for comment.

``We have indeed been looking at a thrift charter for some time,'' Aegon's Tucker said in an interview today. `` We decided to accelerate that, and pursue that now because it was a prerequisite to being considered eligible'' for U.S. aid.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net; Linda Shen in New York at Lshen21@bloomberg.net

Last Updated: November 17, 2008 16:50 EST