Annuity FYI Blog

After severe fourth-quarter losses, annuity provider Lincoln National has decided to enter a reinsurance agreement with Commonwealth Annuity and Life Insurance Co. The Wall Street Journal’s Kerry E. Grace writes that the plan will result in capital relief of around $240 million.

Details of the agreement between Lincoln and Goldman Sachs subsidiary Commonwealth are as follows:

• Lincoln will re-insure $1.5 billion of its reserves (solely a closed block of life insurance policies) to Commonwealth
• Commonwealth provides quota-share coinsurance of 55%

Last week, Lincoln (also known as Lincoln Financial) withdrew its application to issue debt under the FDIC Temporary Liquidity Guarantee Program. However, they may still receive some government assistance: Lincoln is now eligible for U.S. Treasury funds, since its’ application for a savings-and-loan charter has been approved.

The Retirement Income Reporter recently reported on annuity provider Lincoln National receiving $300 million in regulatory tax relief from the state of Indiana. The Indiana Department of Insurance is allowing the life insurance company to use a certain accounting practice with deferred tax assets that will free up capital. The division that sells fixed annuities and variable annuities, Lincoln Financial Distributors, has had to lay off over 10% of its workforce over the past few months.

Lincoln’s Chief Financial Officer stresses that no material money was injected into the annuity or life insurance reserves. Their risk-based-capital is over the 250% needed for life insurers to avoid regulatory attention.

Hartford Business Journal’s Greg Bordonaro has mentioned the recent trend in major life insurance companies acquiring small savings and loan institutions.

Lincoln National, Hartford Financial, and Genworth Financial are among those that have recently bought up S&Ls.

The acquisitions make life insurers eligible for funding from the Capital Purchase Program provided by the federal government. That program’s money is reserved for depository institutions.