LNC - Lincoln Financial inks $28B reinsurance deal expects weak Q1 earnings

2023-05-02 16:41:24 ET

Lincoln Financial ( NYSE: LNC ) on Tuesday announced a ~$28B reinsurance deal with Fortitude Reinsurance, sending its stock up 4.5% after hours, but reported preliminary Q1 earnings well below Street estimates.

To reduce its balance sheet risk, Lincoln ( LNC ) will cede ~$28B of in-force ULSG, MoneyGuard and fixed annuity statutory reserves to Fortitude Re. Lincoln ( LNC ) will continue to service and administer the reinsured policies.

The deal is expected to improve Lincoln's ( LNC ) capital position and be accretive to ongoing free cash flow. It will also result in a higher RBC ratio upon closing of ~15 percentage points and incremental ongoing free cash flow of over $100M per year.

The transaction, which will close in Q2, is expected to have a negative quarterly impact to adj. operating income of $35M–$40M.

Lincoln ( LNC ) expects Q1 adj. EPS of $1.47-$1.56, lower than $1.78 consensus due to higher expenses and lower prepayment income, as well as higher reinsurance costs and lower base spreads in its life insurance business.

Q1 GAAP loss per share is estimated to be $5.43-$5.34, reflecting unfavorable impacts from the new accounting for market risk benefits. RBC ratio is projected to be 377%-380% vs. 377% at 2022-end.

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