Steven Wevodau - Property & Casualty Insurance

WASHINGTON (AP) — Federal regulators on Thursday approved the bid of insurer Phoenix Companies Inc. to buy a thrift, making it qualified to receive money from the government’s financial rescue program.

The Office of Thrift Supervision, a Treasury Department agency, said it approved the application from Hartford, Conn.-based Phoenix to acquire American Sterling Bank, based in Sugar Creek, Mo., and become a thrift holding company.

Insurance companies that own thrifts, which are federally regulated, are eligible to apply for a piece of the $700 billion in government bailout funds. The agency last Friday cleared similar applications from insurers Hartford Financial Services Group Inc. and Lincoln National Corp.

President George W. Bush, on behalf of President-elect Barack Obama, asked Congress this week to release the second $350 billion of the rescue money, and on Thursday the Senate voted 52-42 to turn aside an attempt by opponents to block its release.

Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in consumer loans such as mortgages. Insurance companies are mostly regulated at the state level, but insurers that become thrift holding companies are under federal supervision and thereby qualify for the government bailout money.

At least two dozen insurers currently own thrifts. Many insurers have been struggling amid the financial crisis and credit crunch. Like banks and other financial institutions, some insurance companies also bought subprime mortgage securities that turned sour.

A number of property-casualty insurers have said they aren’t interested in participating in the bailout program. The industry appears to be split between life insurers, some of whom have previously expressed interest in participating in the program, and property-casualty companies.

The biggest U.S. insurance company, American International Group Inc., skirted collapse last fall when the government stepped in with a roughly $150 billion bailout package. The New York-based company was pushed to the financial brink by the huge volume of credit default swaps, instruments traded as bets against bond defaults, that it sold and by rising levels of defaulted mortgages and other debt.