Lincoln National And Swiss Re See Gains In Deal For Lincoln Re

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Swiss Re’s proposed $2.5 billion acquisition of Lincoln National Corp.’s life reinsurance subsidiary is a deal that will allow them both to pursue their respective growth strategies, the companies say.

Philadelphia-based Lincoln National sees the proceeds from the deal as an opportunity to deepen its presence in the wealth accumulation business.

Jon Boscia, chairman and CEO of Lincoln National, says the sale will make it possible for LNC to buy life insurance and annuity business, distribution or trust capabilities.

Boscia says that although the mid- to upper-mid market is crowded in the wealth accumulation area, the very-high-wealth market is populated only by a few companies that include Lincoln, Manulife Financial in Toronto, and Pacific Life Insurance Company in Newport Beach, Calif.

That market is Lincoln’s “strategic direction,” he continues. The deal, he adds, also removes Lincoln from a line of business that carries risk and creates volatility, both negatives from a shareholder perspective.

Boscia thinks the sale will increase the value of Lincoln National shares. But there is nothing, he says, that currently prevents Lincoln from being acquired, noting that “it has been at the top of many companies’ wish lists.”

Andrew Kligerman, an insurance analyst with Bear Stearns in New York, calls the sale a “solid strategic move” for Lincoln National. Lincoln Re is a “quality operation,” but investors were concerned with the volatility the life reinsurance business could create for the stock.

Kligerman does not think Lincoln is getting itself ready for a sale, but rather sees the deal as “an action to strengthen the company’s core fundamentals as well as strengthen the stock price.”

Swiss Re intends to complete the acquisition of Lincoln Re in the fourth quarter and says the deal will position it to benefit from greater reinsurance needs that primary insurers are experiencing due to capital pressures in the current market.

The acquisition will bring together Swiss Re’s capital expertise with Lincoln Re’s knowledge base, according to Jacques Dubois, deputy chief executive officer of Swiss Re Life & Health and chairman of Swiss Re Life & Health, North America. For instance, Dubois says Lincoln Re’s work on mortality was an attractive feature for Swiss Re in considering the deal.

Dubois says there will be no overlap of each company’s top 10 clients once the acquisition is complete. The deal will be accretive to earnings in 2002, he adds.

The acquisition will also help increase the life and health portion of Swiss Re’s business from 37% to 44% of its total business, says John Coomber, CEO of Swiss Re’s Life & Health Group.

Dubois says the 13.3 price-to-earnings multiple that Swiss Re will pay for Lincoln Re is “comparable” with other recent transactions.

Swiss Re paid a reasonable price for Lincoln Re, Bear Stearns’ Kligerman says. “It is one of the premium life reinsurers. It will clearly differentiate Swiss Re even more.”

Some U.S. competitors may find opportunities to pick up business in transactions in which both companies had previously been participating, he adds.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 13, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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