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What is Lincoln Thinkin’?

Posted by Larry Doyle on March 30, 2009 3:56 PM |

Lincoln Financial Group is not exactly a small or even medium sized insurance company. LNC  has a current market capitalization of approximately $2.5 billion. The stock is down almost 40% on the day, trading at approximately $6.50. The 52 week high for Lincoln was $59.99. Clearly, Lincoln has a whole host of issues.

What is Lincoln thinkin’? What should a company do in circumstances like this? Well, how do they put themselves in a position of getting access to government bailout money currently allocated to banks?

Perhaps Lincoln could become a bank. But how does an insurance company become a bank? Well, how about they just go buy one. So that is what Lincoln did. The WSJ reports:

Lincoln National was believed to have qualified for TLGP (Temporary Liquidity Guarantee Program) and other government programs after it acquired Newton County Loan & Savings in Indiana and converted into a savings and loan in November. However, in the company’s filing with the Securities and Exchange Commission, it said it does not believe it qualifies under the current provisions of the TGLP and thus voluntarily withdrew its application to participate.

So with one small purchase of a small savings and loan in Indiana, Lincoln tried to become a bank and gain access to bailout money. What has our financial world come to when a nationwide insurance company is buying a small regional savings and loan to gain access to bailout money?

In any event, Lincoln’s strategy did not work as their application to participate in the government program was denied. Alas, no bailout money and Lincoln’s stock trades down 38% on the day.

I think this act of desperation on behalf of Lincoln just goes to show how bad liquidity conditions are for the insurance industry as a whole.

Other insurance stocks (Prudential, Principal, Hartford) are down approximately 20% on the day. I believe Secretary Geithner’s request for increased powers to deal with the collapse of non-banks is focused right here in the insurance space.

The problems in insurance focus on problems in their investment portfolios (commercial real estate, corporate and high yield bonds) and fixed liabilities (guaranteed annuities). As a frame of reference, a premiere office tower in Boston, the John Hancock Tower, is expected to be sold for half of the $1.3 billion it garnered in 2006!! Ouch 

Sense on Cents strongly recommends you check the financial condition of your insurance carriers. As policyholders, you are creditors of these companies. Could insurance companies fail? Who knows. That said, you may not be able to access your cash if need be.

LD

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  • TeakWoodKite

    LD, that hope “trap” I spoke of …well, all most to a window, 3 out of 5 storefronts are empty in my town. All this commercial real estate sitting empty`will fail mid year if not sooner.

    Today a collection letter from Chevron, now GE Money
    for a card debt that was paid off when I became a home owner. Like a bad penny this elint is carried on someone books, even though it does not exist.

    Point is, I don’t believe the financial reporting of
    what “Lincoln was Thinkin” is accurate on its face. Many of these institutions are like pilot fish and AIG a whale.

    Great read.

    is worth much

  • Larry Doyle

    TeakWoodKite…we have to continue to look under the hood and behind the doors to really figure out what is going on with so many of these institutions. As I initially wrote with Madoff, when the water goes out we are going to learn a lot…and we are.

    Thanks for the plug.

  • Bill

    I don’t own any annuities. Never looked at them closely, as from what I’ve read they’re a bad deal from standpoint of fees and getting locked in. Then there was the issue of the stability of the issuer, which is front and center. About the only advantage was some tax deferral which the insurance companies pried out of out kleptocratic Congress. For those needing life insurance, term is the way to go from a cost standpoint. An added plus, more relevant in the current climate, is the ability to walk away with little or no loss if the insurer becomes insolvent.

  • Larry Doyle

    Bill,

    Thanks for highlighting the critically important point of solvency. I think many people in the country NEVER appreciated the credit risk in purchasing an insurance policy.

  • Bill

    Larry, there was a fair sized insurance company called Baldwin United that went belly up back in the 80’s I think. As I recall, BU issued a lot of annuities. The company was located in the city where I live, and I knew people who got frosted in that one. From what I’ve read, these insurance companies have enticed a lot of buyers with high guaranteed yields. Only now they say they can’t pay those rates. I recently saw a Fidelity ad that touted guaranteed income. In the parenthese it said subject to the solvency of the insurance company. As Kojak said, if you want a guarantee, go out and buy a washing machine.

  • Larry Doyle

    Telly was the man!! Was not aware of Baldwin but that is great color….






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