Lincoln National Posts Net Loss on Charge for Jefferson-Pilot VA Business
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May 6, 2009 Wednesday 03:54 PM EST
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Lincoln National Posts Net Loss on Charge for Jefferson-Pilot VA Business
Fran Lysiak
PHILADELPHIA
Lincoln National Corp. posted a first-quarter net loss on a goodwill charge on the variable annuity business it acquired from Jefferson-Pilot, as the chief of the U.S. life insurer said the industry is moving to protect against future losses on these stock market-linked retirement-income products.
Net loss amounted to $579 million, compared with net income of $289 million the same period a year ago. Results included a $600 million noncash charge for impairing goodwill in the annuity business. The write-down recognizes, in part, the current equity market level and its impact on sales and account values, Lincoln National (NYSE: LNC) said.
Steven Schwartz, an equity analyst with Raymond James in Chicago, said the charge concerns Lincoln National's acquisition of Jefferson-Pilot Corp back in 2006. Due to current market conditions, Jefferson-Pilot's variable annuity business isn't as profitable as Lincoln expected, so goodwill associated with that business had to be impaired, he said.
U.S. life insurers' profits have been battered by investment losses in their portfolios tied to the global credit crisis and the sharp declines and volatility in the stock markets. They're taking millions in charges on deferred acquisition costs on their variable annuity businesses and higher costs for hedging against risks associated with the guarantees offered to policyholders on these retirement-income products.
Lincoln said it's taken steps to reduce risk and lower hedging costs on its VA living benefit guarantees.
During the company's earnings conference call, Dennis R. Glass, Lincoln's president and chief executive officer, said the industry "is beginning to make progress on constructively shaping the next generation of products, including the VA business." The industry is moving to derisk VA guarantees, he said.
In January, Lincoln made changes to raise fees, add investment limitations and reduce benefits, Glass said. "The next set of changes will further reduce risk, but we intend to remain competitive in the VA marketplace," he said.
Rating agencies "have essentially downgraded our entire industry," Glass said. Their actions have been based on liquidity and capital concerns "at a time when the capital markets, while certainly improving somewhat, continue to limit the range of options available to companies."
However, Lincoln has taken "decisive actions to protect our balance sheet and address liquidity," he said. The company posted a fourth-quarter 2008 net loss of $506 million.
Glass also said the company completed a 12% work force reduction in April, and that this, along with nonemployee cost reductions, adds up to the $250 million in previously announced savings.
In January, Lincoln said it would eliminate about 540 jobs, or about 5% of its work force (BestWire, Jan. 29, 2009) but later said it was considering further job eliminations (BestWire, March 17, 2009).
Lincoln is among several life insurers seeking financial aid under the U.S. Treasury Department's Capital Purchase Program, which is limited to federally regulated, U.S.-controlled banks, savings associations, and certain bank and savings and loan holding companies. (BestWire, Jan. 12, 2009).
On the afternoon of May 6, Lincoln's stock was trading at $15.23 a share, up 30.06% from the previous close.
Lincoln National Life Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])
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