UPDATE: Bond Insurers Ambac, MBIA Look Over Asset Programs

Life and bond insurers soared Monday after the announcement that they will be eligible to participate in the U.S. Treasury Department's Public Private Partnership Investment Program, which will back buyers of troubled securities.

Bond insurer Ambac Financial Group (ABK) is one that will investigate Treasury's offer to backstop a market for securities it holds in its investments, said Ambac spokeswoman Vandana Sharma.

MBIA Inc. (MBI) spokesman Kevin Brown said MBIA is still looking over the details of the program, but the company is "definitely" interested in the government's Term Asset-Backed Securities Loan Facility, or TALF, program, which makes one-year term loans to be backed by asset-backed securities.

The public-private partnership program will use $75 billion to $100 billion from the Troubled Asset Relief Program, or TARP, to generate $500 billion in purchasing power to buy legacy assets held by investors, with a government backstop encouraging private sector investors to purchase the assets.

"A broad array of investors are expected to participate in the Legacy Loans Program," Treasury said in a fact sheet. "The participation of individual investors, pension plans, insurance companies and other long-term investors is particularly encouraged."

It's unclear whether non-bank participants will participate as buyers, sellers, or both. While the Treasury documents invite insurer participation, the terms sheet says eligible sellers include any insured U.S. bank or U.S savings association. Banks or savings associations owned or controlled by a foreign bank or company aren't eligible, the Treasury's fact sheet said.

Up to now, insurers such as Ambac have unsuccessfully lobbied for inclusion in government programs that have offered capital to help make up for losses tied to mortgage loans.

Hartford Financial (HIG), Lincoln National Corp. (LNC), and Genworth Financial Group (GNW) were among a dozen or so life insurers that applied last year for bank status to potentially qualify for direct capital investments under an earlier TARP program.

Much of Ambac's exposure to the market is through financial guarantee insurance it offers on securities that are held by other institutions, but often it holds control rights on the securities if they default.

Eligible assets will be determined by banks, regulators, the Federal Deposit Insurance Corp. and the Treasury Department. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee on securities offered for sale. Leverage won't exceed a 6-to-1 debt-to-equity ratio.

Under the legacy securities program, non-recourse loans will be made available to investors to fund purchases of legacy securitization assets.

Eligible assets are expected to include certain non-agency residential mortgage-backed securities that were originally rated AAA and outstanding commercial mortgage-backed securities and asset-backed securities that are rated AAA.

Shares of Ambac were up 23.6% recently to 87 cents, leading bond insurers, while Prudential Financial Inc. (PRU) led life insurers, trading up 16.7% to $19.48 recently.

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]

(Maya Jackson Randall contributed to this report.)