Lincoln National Corp. (LNC - Free Report) is likely to suffer in the near term due to COVID-19-induced uncertainties but shall be able to overcome business difficulty owing to many initiatives undertaken to combat the adverse operating environment.
In the Life business, the company is expected to take a hit from COVID-19-related mortality claims. The company also expects elevated loss ratios in group disability due to higher mortality and morbidity claims.
Lincoln National anticipates sales decline as it re-prices business for the continued tough environment combined with disruptions from the coronavirus. As a result, the company expects the amount of capital deployed to new business to plunge by approximately $400 million in 2020.
The COVID-19 poses multiple challenges to the company’s business. Lincoln National expects an increase in mortality claims in the second quarter of 2020. This apart, the company may incur bad debts, caused by premium payments or 401(k) hardship withdrawals. It is also expected to see interruptions in distribution with online sales gaining prominence on the back of lesser physical contact mandate triggered by the COVID-19. Finally, the resulting downslide in the economy is likely to result in some incremental credit downgrades and asset impairments.
Also, the company reports private equity returns on a one-quarter lag. Given the significant slowdown in equity markets during the first quarter, the company expects a negative return in the alternative portfolio.
Nevertheless, it is taking additional steps to protect and further improve its capital position including decelerating sales of high risk products to reduce capital consumption, suspending share buybacks for the second quarter and possibly beyond that and selectively trimming more positions in the investment portfolio. On the business mix front, sales of products with long-term guarantees has been reduced and now is approximately 20% of total sales. The company also successfully managed expenses to offset headwinds by reducing costs by $100 million in 2020.
Year to date, the stock has lost 45% compared with the industry’s decline of 34.3%.
Other companies in the same space include Brighthouse Financial Inc. (BHF - Free Report) , Primerica Inc. (PRI - Free Report) and Athene Holdings Ltd. (ATH - Free Report) , which have depreciated 32.9%, 22.5% and 47.9%, respectively.
Lincoln National carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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