On July 10, Lincoln Financial Group (LNC) announced the completion of its capital raising plan. The company issued preferred shares worth $950 million to the U.S. Treasury under the Troubled Asset Relief Program (TARP). This is a part of the company’s $2 billion capital bolstering initiatives, which also include $600 million of common stock offering and a $500 million of senior notes in the private market.
Of the total proceeds, Lincoln contributed about $1 billion to “The Lincoln National Life Insurance Company,” its principal insurance subsidiary. This will improve its risk-based capital ratios.
Lincoln was one of the six big insurers including Hartford Financial Services Group Inc. (HIG), Prudential Financial Inc. (PRU), Allstate Corp. (ALL), Ameriprise Financial Inc. (AMP) and Principal Financial Group Inc. (PFG), who qualified for the bailout funds under TARP in May. However, Prudential Financial Inc., Principal Financial Group Inc., Allstate and Ameriprise have declined to accept the assistance.
Last month, Lincoln also announced the sale of its U.K. insurance subsidiary Lincoln National (UK) plc to Sun Life Financial Inc of Canada for an estimated £195 million in cash. Lincoln estimated proceeds of $280 million to $300 million, net of tax, from the sale of its UK unit.
The company will use the net proceeds from the deal primarily to shore up the capital base of its core U.S. businesses. The transaction is expected to close by the end of September this year, subject to fulfillment of customary closing conditions.
The capital market turmoil has significantly impacted the insurance industry’s capital position and operating performances. While we expect the ongoing recession and capital market turmoil to continue to restrict Lincoln’s earnings potential in the near-term, we remain encouraged by the company’s cost containment measures and the capital bolstering initiatives.
We think that such measures will give Lincoln the much needed capital flexibility despite diluting earnings. Additionally, the company’s strong competitive position in the life insurance and annuity market along with a diverse distribution network should augur well going forward.
Hence, prior to its scheduled release of second quarter earnings results on July 29, we maintain our Hold recommendation on the shares.
Read the full analyst report on “LNC”
Read the full analyst report on “HIG”
Read the full analyst report on “PRU”
Read the full analyst report on “ALL”
Read the full analyst report on “AMP”
Read the full analyst report on “PFG”
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