Lincoln National in the red; gets ratings revision from S&P

Lincoln National Corp. ended the first quarter in the red, citing a $600 million charge on the impairment of goodwill in its annuity business. The insurer reported a loss of $579 million, or $2.27 a share, for the quarter, down from a profit of $289 million, or $1.10 a diluted share, a year earlier. Although income from operations was in the black during the first quarter, bringing in $171 million, it was still down from a year earlier, when operations earned $322 million. Individual annuities brought in $74 million in income during the first quarter, down from $118 million a year earlier. That decline reflected a $16.3 billion deterioration on average variable annuity account balances, compared with the previous year. Life insurance income also fell to $142 million, compared with $157 million a year earlier. Total gross realized losses on investments in Lincoln’s general account came to $247 million. Philadelphia-based Lincoln also addressed its capital and liquidity positions. Just last month, the insurer paid off $500 million in maturing senior debt using internal cash sources at the holding-company level. Another upcoming debt maturity of $250 million isn’t due until next March. Lincoln said that along with cash flow from its operating companies and access to the commercial-paper market, it also has $1 billion of internal borrowing capacity and a $1 billion bank line of credit that will mature in two years. But that wasn’t enough to ward off a ratings outlook revision to negative from stable by Standard & Poor’s of New York. The negative outlook stems from the company’s weakened capital levels at its insurance operations in the U.S., S&P credit analyst Jeff Watson said in a statement. Although the company was able to pay off its short-term debt maturities, Lincoln has relied more on its insurance operations to cover those debts because of the limited amount of credit available in the capital markets, he said. This internal funding has raised liquidity available at the holding-company level but at the expense of the operating company’s capital adequacy, Mr. Watson said. Calls to Lincoln seeking comment about the ratings revision weren’t immediately returned.