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Lincoln National Corporation: Fighting Uncertainty

Jun. 08, 2020 11:44 AM ETLincoln National Corporation (LNC)3 Comments


  • Lincoln National Corporation has a strong balance sheet and business model, which has just gotten disrupted by COVID-19.
  • The company has marshaled all its resources, cut down on expenses, and has decided to become lean and mean.
  • It faces rough headwinds in 2020, which it estimates will blow away in 2021.
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Uncertainty about sales impedes business planning and could harm capital formation just as much as uncertainty about inflation can create uncertainty about relative prices and harm business planning. - Janet Yellen

It was a no-brainer that insurance companies' bottom-lines would be hit by a double whammy after the COVID-19 pandemic disruption got serious and the Fed slashed interest rate to near 0%. Lincoln National Corporation (NYSE:LNC) was no exception. The stock got hammered down from about $60 in late-Feb 2020 to $41 as of June 3, 2020.


Image Source: My tweet alerting about the impact of falling interest rates on insurers.

LNC is a 150-year-old company with a robust balance sheet. It had been doing good till Q1 2020, but all that is in the past. COVID-19 has changed the business dynamics and what matters now is how companies fight against the pandemic, near-zero interest rates, asset risk, equity market volatility, and hedging mortality risk.

Though I am neutral on the company because of the rocky road that lies ahead, it feels good to know that LNC is treading diligently and cautiously. Here's how it is fighting the uncertainty.

Stress Testing its Business Model

The company's stress-testing model takes hard landing into account. The model assumes that equity markets will drop by more than 40% and will not be able to retrace back to their old highs in the following 3 years. The model also has dropped interest rates to very low levels and treasury rates to 0.50% in 2020 against 1% in prior years. LNC has also checked the impact that a 0% treasury rate will have on its business. Plus, the stress test also builds in a credit shock.

The company has responded to the stress test by chopping and changing business and investment strategies. It has decided to

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This article was written by

Michael A. Gayed, CFA profile picture
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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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