UPDATE: Lincoln National CEO: Optimistic On Markets, Economy
September 16 2009 - 4:34PM
Dow Jones News
Months after turning to the U.S. Treasury for help raising
capital, Lincoln National Corp.'s (LNC) chief executive said he now
believes the economy is finally on the mend.
"We have not declared victory on capital markets or the economy,
but I see reason for optimism," said Dennis R. Glass, president and
chief executive of the Philadelphia insurer and investment manager,
at a Barclays Capital investor conference that was webcast.
Investment losses and variable annuity costs both rose for the
insurer over the last year as the economy weakened, pushing Lincoln
National to net losses in the last three quarters and making it
difficult to raise capital.
In the second quarter, Lincoln National applied to the U.S.
Treasury's Troubled Asset Relief Program for a $950 million
investment, and also issued $690 million of common stock and $500
million of debt, all of which gives Lincoln a "cushion" to "weather
any storm" should the economy weaken again, Glass said.
While he sees many hopeful signs, he said consumers "are still
reluctant to make big-ticket purchases," and that could slow the
recovery. It is also having the effect of driving down the average
face value of life insurance purchases and influencing more
customers to buy term rather than permanent insurance, Glass
said.
Glass said the company will repay the TARP funds quickly, but in
the meantime he is not finding TARP's restrictions on executive
compensation to be too restrictive to attract or retain key
personnel.
In August, Lincoln sold its asset management business Delaware
Management Holdings Inc. to Macquarie Group, an Australian
investment banker, for $428 million.
Like other insurers, Glass said that the company's unrealized
investment losses dropped since the end of the second quarter.
He also said that he expects the $7 billion in commercial
mortgages originated by his company will perform better than the
typical bank commercial mortgage portfolio because Lincoln
National, and insurers in general, are more conservative in real
estate lending than are banks.
"Banks take front-end risks," such as lending on buildings that
are built on speculation, Glass said. "In the insurance industry
and at Lincoln, we only invest in properties that are completed and
properties that have achieved our leasing requirements."
He said Lincoln's average loan size in commercial real estate
loans was $5.8 million, with the loan making up about 59% of the
value of the transaction.
Shares of Lincoln National closed up 6% Wednesday at $27 amid a
surge in insurance share prices generally.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com