Lincoln National Corp. is in advanced discussions with Talcott Financial Group over a potential reinsurance transaction that would move billions of dollars of life-insurance reserves away from Lincoln's balance sheet, people familiar with the matter said.
The discussions, as described by those people, would center on approximately $5 billion of universal life policies that include secondary guarantees. Secondary guarantees are contractual features that keep policies from lapsing irrespective of their account value, a provision that is attractive to policyholders but that can carry substantial costs for the insurer that retains the risk.
Officials have not finalized any agreement. The people cautioned that talks remain ongoing and that the two firms could ultimately decide not to consummate a transaction.
In a statement provided by email, Lincoln said transferring risk off its balance sheet is one of several options it is considering to help improve free cash flow in its life insurance business. "We routinely evaluate options that support our strategic objectives and will share information on any transaction decisions when we are able," the company said.
Reinsurance arrangements of this kind allow carriers to reduce the capital and reserve burden associated with long-duration guarantees. By ceding a block of policies to a reinsurer, an insurer can relieve some of the financial strain those guarantees impose, freeing capital that can be redeployed to underwrite new annuities and life-insurance products or otherwise support the business.
Market reaction accompanied the report of the talks. Lincoln National shares rose 2.8% in Monday trading following the news, reflecting investor attention to measures that could strengthen the company's cash flow profile.
Because the matter remains in negotiation, specifics beyond the approximate $5 billion figure, the inclusion of secondary-guarantee universal life policies, and the parties involved have not been disclosed. The outcome depends on whether Lincoln and Talcott reach mutually agreeable terms or decide against proceeding.
This report reflects only the information that has been made available publicly through people familiar with the deliberations and Lincoln's emailed statement; it does not assert that any transaction has closed or that terms have been set.