Tuesday, August 4, 2015

Cheap rates cost insurer millions: report

"Returns on new business may currently be below" Lincoln's capital cost, says RayJay's Schwartz

Cheap rates cost insurer millions: report

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(UPDATE with company comment) Banks and pension funds aren't the only ones who suffer when interest rates are low.

At Radnor-based Lincoln National Corp., the life insurance and annuity sales giant that pays $7 million a year to stick its name on the NFL Eagles' South Philly stadium, "returns on new business may currently be below" the company's capital costs, warns analyst Steven D. Schwartz, in a report to clients of broker Raymond James & Associates.

How can Lincoln keep selling policies that don't cover their financial costs? Lincoln insurance-and-retirement boss Mark Konen told investors that Lincoln "is in the life insurance business for the long haul;" it can reduce sales, but "leaving businesses or raising prices to uncompetitive levels" in order to boost financial ratios "will hurt shareholders in the long run by destroying the company's strong franchise," Schwartz reports. 

UPDATE: “Lincoln Financial is a very strong company." says spokesman Michael Arcaro. "Our diverse business model and financial strength have enabled us to take actions that respond to near-term macroeconomic trends, as well as keep us wedded to long term strategies to drive future growth. We will continue to set our sights high, in order to provide strong returns to clients and shareholders.”

EARLIER: Lincoln was one of just four insurers that enjoyed government investment cash - $1 billion -  during the banking bailouts of 2008-10. Despite the current daunting finance economics, Schwartz is urging investors to buy the stock at its recent price of around $21 a share; he claims it's worth more like $34.50, though that's down from his previous estimate of $38.50.

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PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

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Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

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