Sense on Cents

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

This entry was posted on Monday, March 30th, 2009 at 3:56 PM and is filed under Insurance Industry, Tim Geithner, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.