Lincoln National Corporation of Philadelphia, parent company of the Lincoln Financial Group, announced plans to increase reserves related to reinsurance business sold to Swiss Re in 2001 by $270 million, or $175.5 million after-tax in the third quarter.
However, $110.5 million of the after-tax reserve strengthening is being added to the deferred gain on exited reinsurance businesses, as Lincoln’s exposure is capped at $65 million after-tax in accordance with the indemnification provision agreed to in the sale of Lincoln’s reinsurance operation to Swiss Re in December 2001. The effect on Lincoln’s third quarter net income will be $169.4 million after-tax, resulting from the $175.5 million after-tax increase in reserves, and a cumulative deferred gain amortization adjustment of $6.1 million after-tax.
The increase in reserves was triggered by the Unicover arbitration panel decision of October 9, 2002, and its implications on Unicover and other personal accident reinsurance business. The $110.5 million after-tax increase in the deferred gain on the sale of Lincoln’s reinsurance operations is amortized into earnings as the underlying exited businesses run off the books. Lincoln expects the after-tax amortization of the deferred gain recorded in connection with the Swiss Re transaction to increase by about $7 million annually over an estimated remaining 14-year amortization period.
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