After rushing to buy small banks to qualify for capital investments from the U.S. Treasury, several life-insurance companies have changed their minds.

Insurers that have dropped their applications in recent months have cited various reasons for their change of heart. Some spoke of a desire to raise capital on their own, even at higher prices than the Troubled Asset Relief Program, or TARP, offered. In another case, a regulator overseeing an insurer's application for a bank charter missed a crucial deadline the Treasury set for final bank status approval.

But in many cases, what is behind the insurers' reluctance is worry about the strings that come with government-supplied capital. In particular, insurers are worried about limits on executive compensation and the impact on key employee retention, said two industry insiders, a lawyer and a consultant who didn't want to speak on the record.

Insurers which, through annuities they have sold, are most exposed to the ups and downs of the Standard & Poor's 500 Index, and which, as a result, have taken sharp hits to their capital, are the most likely to take the money.

In many cases, an investment from the government would significantly help insurers. The possibility that Prudential Financial Inc. (PRU) will get TARP funds earned it an upgrade from Goldman Sachs on Friday. Goldman also raised price targets for applicants Hartford Financial Services Group Inc. (HIG) and Principal Financial Group Inc. (PFG), reasoning that more funds will likely be freed up to invest in these insurers as banks begin to repay their own TARP capital.

Still, some insurers have been cool towards the idea.

"We would evaluate it based on the conditions and circumstances at the time" it becomes available, John Strangfeld, Prudential's chief executive, said during the company's fourth-quarter earnings call in February.

In its two-notch downgrade of Prudential last month, Moody's Investors Service cited the failure so far of any Treasury capital to materialize as one reason for the downgrade. Moody's also downgraded Lincoln National Corp. (LNC) and said it may downgrade the insurer again if it doesn't receive Treasury capital.

But other insurers that applied for bank status in order to qualify for the Treasury's money have withdrawn in favor of private capital markets.

Aegon N.V. (AEG), the Netherlands-based insurer that operates in the U.S. as Transamerica, dropped its application in December, and then issued EUR1 billion in debt at 7% interest, higher than Treasury's 5% rate.

Spokesman Greg Tucker said in a recent interview that the insurer backed out "based on our further review of the requirements regarding acquiring a thrift and our assessment of our capital position at the time."

MetLife Inc. (MET) said earlier this month that it has successfully raised its own capital and won't be applying for TARP.

Other insurers dropped out citing other reasons.

Genworth Financial Inc. (GNW) dropped its application when the Treasury informed it that the deadline for approval of Genworth's application to become a savings-and-loan holding company had passed.

Protective Life Corp.'s (PL) would-be acquisition target, a small Florida bank, cancelled the deal after a March deadline to complete the deal passed.

Phoenix Cos. (PHX) application for bank status was approved and the Treasury had announced that insurers would be eligible when Phoenix withdrew its application on April 17.

Its deal to buy a bank included the contingency that it would be approved for TARP under "acceptable terms," said Alice Ericson, a spokeswoman for Phoenix.

Thrift applications by mortgage lender PHH Corp. (PHH) and Rock Holdings, which owns Quicken Loans, are still pending, according to the Office of Thrift Supervision's database. A PHH spokeswoman didn't return a phone call asking for comment.

Elizabeth Jones of Quicken Loans said Rock Holdings has applied for the charter in order to "potentially acquire a thrift.

"While we continue to consider acquiring a thrift as a possible future opportunity," she said, "as of now, we have not further pursued the thrift charter holding company process."

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141; lavonne.kuykendall@dowjones.com