Lincoln Financial Execs Discuss Company Plans

Companies will have to recognize the need and to make sure that there is the product portfolio in place to help with that planning as boomer shift from the accumulation to the payout phase, he says.

And, for life insurers to more efficiently meet consumers' needs, according to Boscia, having the flexibility of an optional federal charter will be important.

He looks at the issue from three perspectives: consumers, producers and companies. Consumers, he says, should have the right to buy the same product in any state and not be denied that option because of specific state requirements.

Producers, Boscia continues, serve consumers who don't always live in one state and consequently, having a national license for producers would be helpful.

And, according to Boscia, companies have sizeable expenses to meet the requirements of a state regulatory system.

The fact that an OFC bill has been introduced in the Senate is a significant step forward, he says.

The National Insurance Act of 2006, S. 2509, was introduced in April by Sen. John Sununu, R-N.H. and Sen. Tim Johnson, D-S.D.

It is important that there be an option for companies to be regulated by either the federal government or states, adds Glass. The system should be similar to the regulatory structure the banking system uses, he adds.

On principle-based reserving, an issue that both companies supported and the combined company continues to support, Glass says that the concept is one that is being used by financial services regulators worldwide. The new reserving principles would be more economically appropriate, he says. State regulators have been working hard to help establish a principle-based system, Glass notes.

Discussions about regulation of the equity index annuity is focusing more on the equity aspects of the product and whether they should be regulated as such, according to Glass.

Glass says that EIAs can be good products and the ones offered by Lincoln are shorter term and more liquid.

Approximately three-fourths of the former JP's annuity and investment product sales over the last two years were EIA sales, according to JP's last 10K filing for 2005. And, approximately 55-60% of sales in its individual products segment over the last three years were attributable to products with secondary guarantee benefits, it adds.

Analysts are reacting positively to the combination. In an April 3 report, Saul Martinez, a Bear Stearns analyst, rated Lincoln National Corp. as an 'outperform' because of "its substantial capital flexibility, diversified earnings, and attractive relative valuation." Lincoln shares, according to Martinez, are trading at only 1.3 times book value, versus 1.9 times for Bear Stearns life insurance index.

In a Feb. 22 report Martinez says that the "ample capital flexibility remains underappreciated" because the combined company will operate at a "AA" financial strength rating freeing up capital that the former Jefferson-Pilot held to maintain its "AAA" rating.

UBS analyst Andrew Kligerman notes in a February 14 report that UBS' $65 price target is based on a "ROE-adjusted price/book valuation that reflects the pending JP merger and assumes a 12.3% full-year 2007 ROE. In the report which followed the release of Lincoln's fourth quarter results, Kligerman writes that "overall results were robust–with double-digit year-over-year variable annuity, retail investment management and life insurance sales growth and meaningful bottom-line improvement at Lincoln Financial Advisors and Lincoln Financial Distributors."

LFA is a financial planning unit of Lincoln Financial and LFD, a broker/dealer unit of the company.