September 28, 1999
New York, NY

Lincoln National to Decide Fate of U.K. Business
Jon A. Boscia, President & CEO

Lincoln National Corp. will soon decide whether to shed its United Kingdom operations, the company's chief executive officer said.

Lincoln CEO Jon Boscia said new regulations in the U.K. could make it difficult to do business there. For example, new regulations that limit acquisition costs cut the sales loads of pensions so severely that sales agents' compensation would be reduced by 80%, he said.

As a result, Boscia expects higher expenses from Lincoln U.K. to continue in order to pay agents well, among other costs.

The company has been reviewing its U.K. business to determine whether it should continue to operate there "or allow someone else to assume that business," he said.

Boscia spoke Sept. 28 at the life insurance segment of the CIBC World Markets conference, co-sponsored by A.M. Best Co. "We will get to that decision very shortly," he said, adding that the company should make an announcement this fall.

U.K. business has been successful for Lincoln National, which has had a 14.2% return-on-equity from that business this year. For the second quarter, the Lincoln UK segment contributed $19 million in earnings, a 10% increase over 1998 second-quarter earnings of $17.2 million.

"If we reach a decision to remain in the United Kingdom, we will be doing that from a position of strength," Boscia said.

Overall, Boscia said he expects the new regulations to thin the ranks of competitors in the U.K. "Most companies will probably bail out of the U.K., and you have huge conglomerates taking over," Boscia said. Those companies will likely expect their large size to make up for any costs regulations add to business.

Meanwhile, Lincoln National has decided to opt out of health-maintenance-organization excess-of-loss reinsurance. "I just have no confidence that we have the skills to figure out what's going to happen with this kind of business," Boscia said.

Lincoln National Corp. said its reinsurer faces $28 million in charges to strengthen reserves for its health maintenance organization excess-of-loss reinsurance and to pay costs of exiting the business.

Lincoln Re faces a higher loss ratio, despite price increases and tighter contract terms, the company said.

Lincoln Re said it would set aside $25 million to strengthen reserves needed to pay claims on the business. It also said it would take a $3 million charge to pay severance costs to cut employees who handle the medical reinsurance. "I said, 'Let's not wait until this becomes a $150 million, or $200 million, or $250 million problem,' " Boscia said.

Boscia recognized that the health reinsurance line has grown and added, "I wish the other companies the best."

Lincoln Re is not the only company struggling with medical reinsurance business. Last week, ReliaStar said high claims in its medical reinsurance business caused its loss ratio to increase to 94 for July and August, up from about 71.65 during the second quarter.

Lincoln National Life Insurance Co. has an A rating from A.M. Best Co. For 1998, the company had net premiums written of $13.48 billion, and capital and surplus of $3 billion. It's the nation's fourth-largest life/health insurer based on net premiums written, according to A.M. Best.

Lincoln National trades as "LNC" on the New York Stock Exchange.