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Life Health > Life Insurance

Insurers Wrestle With TARP

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WASHINGTON BUREAU — Lincoln National Corp. and Hartford Financial Services Group Inc. are giving more information about their efforts to raise capital.

Lincoln, Radnor, Pa., says it intends to raise a total of $2.1 billion in additional capital, including $900 million through the Troubled Asset Relief Program.

Lincoln also says the company has agreed to sell a U.K. life insurance and retirement income products business, Lincoln National (UK) P.L.C., to a unit of Sun Life Financial Inc., Toronto, for the equivalent of about $320 million in U.S. currency.

Hartford Financial has filed documents with the U.S. Securities and Exchange Commission the give more details about its own decision to participate in TARP, as well about efforts to raise $750 million through a stock offering.

Hartford warns in a prospectus for the stock sale that it expects to report in its second quarter earnings statement “significant charges” resulting from other-than-temporary impairments of its securities portfolio that “are similar in magnitude to the impairments we recognized in” the fourth quarter of 2008 and the first quarter of 2009.

In addition, the amount Hartford will actually receive from the Treasury Department is still “subject to further discussions,” and the company could receive “substantially” less than the $3.4 billion it has asked for, the company says.

Four other insurers have announced that, because of improving market conditions, they have decided not to accept aid under the TARP Capital Purchase Program.

The decisions of Lincoln and Hartford to accept the federal funds and also raise additional capital today prompted Standard & Poor’s, New York, to raise its outlook on the two companies to stable, from negative.


Lincoln says its capital raisings will include a public offering of $600 million in stock, issuance of up to $500 million in senior debt, and issuance of $950 million in preferred stock. Lincoln will use the preferred stock as the vehicle through which it will receive federal aid.

Lincoln intends to contribute about $1 billion of the proceeds from the transactions to its principal insurance subsidiary, the Lincoln National Life Insurance Company, with the remaining $1 billion held at the holding company for general corporate purposes, including the repayment of short-term debt and investment in the company’s core businesses.

“These actions supplement dividend reductions, cost cuts, and other actions previously taken to strengthen the company’s capital and liquidity, and solidify the company’s capital positions at both the subsidiary and holding company levels,” the company says in a statement.

“Lincoln believes that participation in the CPP provides additional capital flexibility,” the company says.

Lincoln “expects to repay this financing as soon as practicable, taking into consideration appropriate balance sheet strength and capital markets conditions,” the company says.

Lincoln says it hopes to disclose the final amount of its participation in the CPP by the end of the month.

Lincoln’s deal with Sun Life will increase Sun Life’s U.K. assets under management by almost 60% to about $17 billion, while also doubling the number of policies in force to 1.1 million, Sun Life says.

Lincoln National (U.K.) has been doing business as Lincoln Financial Group in the United Kingdom, and it will do business as Sun Life Financial of Canada after Sun Life completes the acquisition, according to Sun Life.


Hartford notes in its SEC filings that it has amended an agreement with Allianz S.E., Munich, Germany, which invested $2.5 billion in Hartford in October 2008.

The agreement will make it easier for Hartford to participate in the CPP, by reducing the amount Hartford would have to pay to Allianz if Hartford issues equity-related instruments worth more than 5% of the company’s stock outstanding at the time. The CPP apparently could trigger the original version of that provision.

The payment to Allianz would be adjusted to $200 million, from an original amount that could have ranged from $50 million to $300 million.

The latest agreement also extends the payment date to Oct. 15.

Ryan O’Hanlon contributed information to this report.


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