Lincoln National (LNC) Inks Deal to Sell Wealth Management Unit
Lincoln National Corporation LNC recently struck a stock purchase deal with the renowned wealth management solutions provider of the United States, Osaic, to divest two of its independent broker-dealer and registered investment advisory firms, Lincoln Financial Advisors Corporation (“LFA”) and Lincoln Financial Securities Corporation (“LFS”). The units form a part of the wealth management business of LNC and contain a combined nationwide network of around 1,450 financial professionals.
Subject to the satisfaction of customary closing conditions, the agreement is likely to be completed in the first half of 2024. Employees who work from home for the wealth management business of Lincoln National will undergo a smooth move to Osaic.
Once the transaction is completed, LNC is likely to receive a capital benefit of around $700 million. The agreement is expected to inflict no significant impact on the ongoing free cash flow or earnings. Management expects to leverage the derived amount primarily for expanding the risk-based capital (“RBC”) ratio. A part of it is also likely to be utilized for repaying the debts of Lincoln National.
Both the purposes seem to be time opportune. The RBC ratio is a measure of the adequacy of statutory capital and surplus with respect to investment and insurance risks for life insurance companies. A fall in the surplus of Lincoln National’s insurance subsidiaries will lead to a decline in their RBC ratios and subsequently, is expected to take a toll on the dividend-paying abilities. Hence, the RBC ratio plays a vital role in deciding the credit and financial strength ratings of LNC and its subsidiaries.
Such moves indicate how management targets to reach an RBC ratio of 400%, for which it has even temporality halted share buybacks till the end of 2023.
The decision to pay off debts with the transaction proceeds seems prudent in light of a considerable debt burden that paves the way for higher interest and debt expenses, which escalated 22% year over year in the first nine months of 2023. Lincoln National’s long-term debt amounted to $5.9 billion as of Sep 30, 2023. As the latest transaction will take care of bringing down the debt burden, LNC can direct its cash reserves to pursue growth investments.
Additionally, by getting rid of the wealth management business, the insurer showcases efforts to boost its focus on expanding its individual insurance solutions and workplace solutions businesses through the utilization of its solid distribution capabilities. Probably, to complement the endeavor, Lincoln National retains its wholesale distribution brand, Lincoln Financial Distributors, which provides an impetus to the organic growth of the company’s retail product suite.
Shares of Lincoln National have gained 11.1% in the past six months compared with the industry’s 10.7% growth.
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LNC currently has a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the insurance space are Assurant, Inc. AIZ, Reinsurance Group of America, Incorporated RGA and Primerica, Inc. PRI. While Assurant sports a Zacks Rank #1 (Strong Buy), Reinsurance Group and Primerica carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The bottom line of Assurant surpassed estimates in each of the last four quarters, the average surprise being 42.38%. The Zacks Consensus Estimate for AIZ’s 2023 earnings indicates 30.8% growth from the prior-year actual. The consensus mark for revenues suggests a 5.4% rise from the prior-year actual. The consensus estimate for AIZ’s 2023 earnings has moved 14.4% north in the past 60 days.
Reinsurance Group’s earnings beat estimates in three of the trailing four quarters and missed the mark once, the average surprise being 18.81%. The Zacks Consensus Estimate for RGA’s 2023 earnings implies 36.2% rise from the year-ago reported figure. The consensus mark for revenues implies 10.1% growth from the year-ago figure. The consensus mark for RGA’s 2023 earnings has moved 1.9% north in the past 30 days.
The bottom line of Primerica outpaced estimates in each of the trailing four quarters, the average surprise being 7.84%. The Zacks Consensus Estimate for PRI’s 2023 earnings suggests a 39.9% surge from the prior-year reported figure. The consensus mark for revenues implies 3.2% growth from the prior-year reported figure. The consensus mark for PRI’s 2023 earnings has moved 1.9% north in the past 60 days.
Shares of Assurant, Reinsurance Group and Primerica have gained 25%, 11.9% and 7.6%, respectively, in the past six months.
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