Lincoln Re to Exit HMO Excess-of-Loss Reinsurance and Strengthen Reserves

Business Wire, Sept 24, 1999

FORT WAYNE, Ind.--(BUSINESS WIRE)--Sept. 24, 1999--

Lincoln Re, a part of Lincoln National Corporation (NYSE: LNC), announced today that, due to a continuing trend of significantly increasing HMO claims and loss ratios, it intends to discontinue writing new HMO excess-of-loss reinsurance programs.

The company also expects to take a charge of $25 million after-tax to strengthen reserves for claims on certain HMO excess-of-loss reinsurance programs.

"Increased loss ratios in HMO excess-of-loss reinsurance is also affecting others in this business. However, the continued volatility of this line of business does not meet Lincoln's sharpened focus on delivering consistent earnings growth," said Jon Boscia, president and CEO of the parent company.

"Accordingly, after conducting an in-depth review of this business in the third quarter we've concluded that it is no longer an attractive line for us. This action is indicative of management's commitment to eliminate negative developments before they become significant rather than remaining with poorly performing operations and risking significant financial exposure," said Boscia.

The review showed that, despite aggressive actions, including price increases and tighter contract terms, claims on 1997 and 1998 business have developed worse than previously expected. This led to the realization that pricing and contract actions for 1999 were not adequate to get this business to profitability.

"We believe that substantial rate increases and further restrictions in contract terms would be necessary to make it a profitable business," said Larry Rowland, president, Lincoln Re. "These terms may not be acceptable in the marketplace."

The HMO excess-of-loss business represented approximately 7% of Lincoln Re's total premium revenue. Lincoln Re will continue to administer and pay claims on its existing block of HMO excess-of-loss reinsurance business. As part of this decision, it is expected that a restructuring charge of approximately $3 million after-tax, related to employee severance will be taken in the third quarter.

Lincoln Re, the marketing name for the reinsurance companies of Lincoln Financial Group, is one of the world's leading life, health and financial reinsurance organizations. Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE: LNC) and its affiliates). LNC is a prominent financial services holding company with $98 billion in assets and annual revenues of $6.5 billion.

The businesses of the Lincoln Financial Group provide wealth accumulation and protection products, including annuities, life insurance, life-health reinsurance, mutual funds, 401(k) plans, institutional investment management and advisory services and financial planning.