Lincoln National Corporation History

Company Perspectives:

LNC has a reputation for financial strength, a tradition of excellent service, an expertise for risk management and the strategic focus to succeed in the century ahead.

Company History:

With origins in life insurance, Lincoln National Corporation has evolved into a financial services company whose principal offerings include life insurance, annuities, and reinsurance. Additional services include 401(k) plans, mutual funds, institutional investment management, and financial planning. The company continues to maintain its headquarters in the midwestern city of its origin, Fort Wayne, Indiana. Its founders selected the name "Lincoln" as a symbol of integrity in an era when insurance companies were often suspect, and Robert Todd Lincoln quickly authorized the use of his father's image. Through the years the company grew both by internal expansion and by acquisitions, always maintaining stable leadership and highly conservative accounting and investment principles.

Surviving a Troubled Beginning

Lincoln National Corporation traces its origins to the Lincoln Life Insurance Company, which was preceded by a troubled firm in Fort Wayne, Indiana, called the Fraternal Assurance Society of America. Its founder was Wilbur Wynant, who organized a number of supposedly nonprofit fraternal insurance companies which promised to pay benefits by leveling assessments on surviving policyholders. Wynant, who was new to Fort Wayne in 1902, persuaded a number of respected business and professional men to join him in the company, but within two years Wynant had skipped town, and his local associates were left to pick up the pieces or fold the company. The local businessmen reorganized as a legal reserve company to be capitalized at $200,000 but prepared to open for business when $100,000 in stock was sold.

Lincoln National Life Insurance Company was incorporated in Fort Wayne on May 15, 1905. A few months later the New York state investigation of the insurance industry known as the Armstrong Committee exposed widespread abuses and led to much more effective state regulation of the industry. Lincoln National was fully prepared for the more stringent regulations and used the Lincoln name and image to good effect in promoting the new company amid widespread public suspicion of all insurance companies. Arthur Fletcher Hall, formerly an agent for Equitable Life Assurance Society of the United States, was brought in from Indianapolis to serve as secretary and manager, and for practical purposes he was the chief executive officer from the beginning, although a local businessman held the unsalaried office of president. When the company began to write policies in September 1905 it had three agents, including Hall. By 1911 the company had 106 agents and was in sound financial condition.

Arthur F. Hall was the dominant figure at Lincoln National Life Insurance for the company's first 37 years, and he did not hesitate to employ able and determined associates. In 1911 Hall hired Franklin B. Mead, the firm's first full-time actuary. Mead was much more than a numbers man. He devised careful plans for underwriting life insurance policies and for writing reinsurance policies for other companies, and he was a skilled manager. Mead provided statistical support for the company's medical director, Calvin English, and Lincoln National soon achieved a reputation for writing profitable insurance on carefully screened substandard--or undesirable--risks. While the typical insurance company rejected about 11 percent of those who applied for coverage, Lincoln National turned down only about four percent.

In 1916 the company adopted the policy of securing additional insurance in force by taking over other companies. Michigan State Life Insurance Company, acquired in 1916, was even younger than Lincoln Life, but it had grown more quickly. Michigan State Life had been a tool of Frederick L. Apps, who had involved Michigan State Life in a complex fraud. When Lincoln National purchased Michigan State Life, a web of companies set up by Apps to support the insurance company collapsed. Michigan State Life itself was a sound purchase. The merger was so successful that Hall took over another successful midwestern firm in 1917, the Pioneer Life Insurance Company of Fargo, North Dakota. Beyond the additional insurance acquired, these mergers also greatly increased the number of experienced agents selling Lincoln National policies throughout the Midwest.

During World War I the company grew quickly. Between 1913 and 1914 Lincoln National's reinsurance more than doubled, to $2 million. By 1917 reinsurance was bringing in $9.6 million. Lincoln National did not hesitate to pick up business from large German reinsurers at this time; in 1917 the company took over Pittsburgh Life, with its $2.5 million reinsurance business. The great influenza epidemic of 1918-19 had a far greater effect on the company. Death claims almost equaled those the company had paid out over the preceding decade, and extraordinary measures were required to pay benefits. Stockholders went without dividends and the members of the executive committee personally loaned $300,000 to the company, but Mead rightly predicted that deaths attributable to the war or the epidemic would increase the importance of life insurance.

Lincoln National was highly successful throughout the 1920s. The firm built its own offices on the southern edge of downtown Fort Wayne in 1921, part of the site it would continue to occupy into the 1990s, in order to accommodate the growing number of home-office employees. Hall became president in 1923, the year the headquarters building was occupied. Hall was a paternalistic chief executive and encouraged athletic and cultural activities for employees. As was typical in the 1920s, women employees were required to resign when they married, but Hall did sponsor tennis and basketball programs for single women. There was also a nine-hole putting course atop the new building, open to clerical employees as well as to management.

In 1928 Hall employed Louis A. Warren, who was establishing his reputation as a Lincoln scholar, to direct the Lincoln Historical Research Foundation. Hall had only a vague idea of doing something in line with the company's name, but Warren soon persuaded him that the company should sponsor and finance a major research library devoted entirely to the life of Abraham Lincoln. When Warren finally retired 28 years later, the company's library had grown into a national center for Lincoln scholars, called the Louis A. Warren Lincoln Library and Museum and funded entirely by the company.

Under Hall's conservative management Lincoln National avoided the extravagant financial schemes of the late 1920s, although he arranged another successful merger--with Merchants Life Insurance Company of Des Moines, Iowa--in 1928. Hall fought off efforts to sell control of the company to interests based in New York or Chicago and announced his determination to keep Lincoln National in Fort Wayne. Its business was still entrenched in the Midwest and most of its policyholders lived on farms or in small towns. Throughout the 1920s the company had acquired a considerable amount of farm property as a result of defaults on mortgages it held as investments, but Hall worked diligently to make the farms pay, and the company reluctantly found itself raising livestock and distilling mint. The company shifted investment emphasis from mortgages to corporate bonds before the stock market crash of 1929 and began to sell off its farm properties in 1928, sometimes at a loss rather than try to farm the land itself.

Depression and War Pose Significant Challenges

The Great Depression brought unprecedented problems for Lincoln Life and the entire insurance industry. Failed investments were more numerous than ever before, and the company began to be troubled by suicides, often disguised as accidents, among policyholders. There was also an expensive problem resulting from policies written by agents desperate for business on persons who were high risks or simply unable to pay for the insurance. The company's rejection rate increased by 75 percent between 1928 and 1931. Its basic business remained sound and profitable, despite the Depression, and its reinsurance business for some 300 insurance companies was particularly successful.

In 1932 the company unveiled a large statue entitled "Abraham Lincoln, The Hoosier Youth" by sculptor Paul Manship, who received $75,000 for the work. The Lincoln image was a vital theme in the company's advertising during the 1930s. Home-office employment remained stable throughout the Depression, but the proportion of men did increase significantly as the company protected the jobs of family men at the expense of unmarried women. There was not always sufficient work for all of the employees, but the company avoided layoffs and prepared for busier and more prosperous times to come. The Depression also meant opportunities for healthy companies to acquire less successful firms, and Lincoln National took over three smaller life insurance companies between 1932 and 1933: Northern States Life Insurance Company of Hammond, Indiana; Old Line Life Insurance Company of Lincoln, Nebraska; and Royal Union Life Insurance Company of Des Moines, Iowa. The company's business was still primarily midwestern, but Lincoln National reached $1 billion of insurance in force in 1939, a goal that Hall had hoped to reach by 1930.

Franklin Mead had long been the second-ranking executive at Lincoln National and was Arthur Hall's likely successor until Mead's own death in 1933. Mead's successor as chief actuary and prospective president was Alva McAndless, known as "Mac," who had joined the company in 1919. Hall, in failing health, became chairman of the board early in 1939, and McAndless became president and chief executive officer. His primary concern was not in writing insurance policies--that part of the business flourished--but the low yield on the company's investments. Indiana insurance law had been changed to permit greater investment in corporate bonds, but McAndless disliked the high-yielding 30-year obligations of utilities and railroads, while few new mortgages were available on farm property and interest on government bonds slipped as low as 1.9 percent in 1940. The company turned increasingly to mortgages on urban property, particularly homes.

During World War II the company contended with higher federal taxes and a greatly altered investment climate. Labor costs were also a concern. In 1941 the company increased starting salaries for the first time since the onset of the Depression. The tight labor market also persuaded the company to relax its ban on the employment of married women. During the war there was a reduction in automobile accidents, as driving declined as a result of gasoline rationing. Life insurance companies had long escaped most federal income taxes, but wartime demand for revenue led to some changes in the laws in 1942, and the company began to pay a modest level of corporate income tax from 1943 onward.

McAndless also planned for postwar expansion. He particularly hoped to develop Lincoln National's agency force and prod agents to sell more life insurance. By 1945 the company's profits depended more upon its extensive reinsurance business. McAndless also kept dividends moderate and built up extensive cash reserves, both to provide against emergencies--like the Depression--and to take advantage of attractive opportunities. The company had been unable to finance an attractive acquisition during the Depression, and its leadership did not wish to be caught short again. In 1951 Lincoln National purchased the Reliance Life Insurance Company of Pittsburgh from the Mellon National Bank for $27.5 million in cash. Reliance was an exceedingly conservative firm with a strong agency force. Mellon had been forced to sell the operation in order to meet the requirements of the Bank Holding Act. It was a very large merger for the early 1950s, and Lincoln National made the most of it. It retained Reliance employees, as promised; reduced expenses; and greatly improved investment results. Reliance agents were particularly strong in the South, a region in which Lincoln National had been very weak.

McAndless was very much a detail man. He was always tight with the company's money and held a close rein on the company. Under McAndless, Lincoln National's leadership became increasingly shallow as strong managers left for positions of greater authority. His management style was not well-suited for the much larger company that resulted from the Reliance merger, but before any plans were made for a change in leadership, McAndless died of a heart attack early in 1954. McAndless was succeeded by another actuary, Walter O. Menge, who had worked for Lincoln National since 1937. Menge was a systematic chief executive who understood how to manage a large and complex business and could delegate authority. He planned carefully and made effective use of Lincoln National's large capital base while recognizing its problems. Lincoln National faced lagging sales of ordinary life insurance and a decreasing market share in a highly competitive market. He increased efforts in group insurance and continued to seek attractive acquisitions. In 1957 Lincoln National made its first move beyond the United States, acquiring the Dominion Life Assurance Company of Waterloo, Ontario.

New York had long been known for the rigor of its insurance regulation, and only in 1960 did Lincoln National begin to write insurance there, through a new subsidiary. The effort eventually proved unsuccessful. Two years later it acquired American States Insurance Company of Indianapolis--a property and casualty specialist--in an effort to broaden its business beyond life insurance. This was also a defensive acquisition, to help protect Lincoln National's position as the largest reinsurer of life insurance policies in the country. General Reinsurance Corporation, a large non-life reinsurance company had recently entered the life reinsurance market, and Menge believed that his firm should offer a full line of coverage in both the insurance and reinsurance markets in order to remain fully competitive. A year later Lincoln National made its first direct move into the European reinsurance market, although it had long written reinsurance for European firms. The company established a new subsidiary in Paris, the Compagnie de Reassurance Nord-Atlantique, and soon extended its business into Asian and African markets. Lincoln National agents sometimes complained that the firm's extensive reinsurance business only encouraged new competitors in the life insurance field, but reinsurance was a large and very profitable part of Lincoln National's business, more successful in many ways than its agency business.

1960s Reorganization

As Lincoln National grew larger and more complex, becoming a major competitor in the international reinsurance market, Walter Menge and his associates began to plan a reorganization. There was no thought of leaving Fort Wayne, but there were plans for a holding company structure. Before this could be achieved Menge moved up to chairman in 1964, and was succeeded as president by actuary Henry F. Rood. Rood pushed forward with plans to form the holding company, hoping Lincoln National would become a financial department store of sorts. He established subsidiaries in the Philippines and Great Britain. The Lincoln Philippine Life Insurance Company was established for legal reasons in a nation where the company already did business, but the British market was vastly different, and Lincoln National's methods were resented widely.

Henry Rood served as president of Lincoln National for four years before becoming chairman, although he would remain chief executive officer for an additional three years. Thomas A. Watson assumed the office of president in 1968. A marketing expert in group insurance, he had joined the firm in 1945. Rood carried through the 1968 creation of the Lincoln National Corporation as the holding company for all of the firm's operating companies, but Watson had the responsibility for implementing the reorganization.

In 1969 Lincoln National Corporation was listed for trading on the New York Stock Exchange, the new name an appropriate symbol of the new holding company's wider outlook. So too was its acquisition of Chicago Title and Trust Company in 1969. However, this purchase brought unexpected problems. Title insurance was a new line of business for Lincoln National, and far more troublesome was Chicago Title's bond-brokerage subsidiary, Halsey, Stuart & Company. The bond business was completely unfamiliar to Lincoln National, and Halsey Stuart's investment-banking salaries were far higher than those paid in the insurance industry. Thus Halsey, Stuart & Company was sold in 1973. That same year the holding company also divested its British subsidiary, which had never met expectations. Selling insurance in Great Britain was a business which the Fort Wayne executives admitted they had never fully mastered. Watson also withdrew from other overseas operations, for business reasons in France and to avoid local political trouble in the Philippines. At home Watson sharply increased investment in sales agencies in an effort to improve the basic life insurance business.

During this time, Thomas Watson moved to open Lincoln National's offices and agencies to female and African American employees. Commitment to community involvement was evidenced in 1973, when the company established Lincoln Life Improved Housing, to rehabilitate abandoned dwellings near its Fort Wayne headquarters.

Watson planned carefully for an early retirement and in 1977 passed the presidency to Ian M. Rolland, a Fort Wayne native who had joined Lincoln National in 1956. Like most of his predecessors, Rolland was an actuary, although he had a wide range of experience within the company.

Continuing to Expand: Late 1970s and 1980s

As chief executive officer Ian Rolland stressed systematic organization and sophisticated planning as essential for a large and complex corporation. He continued Lincoln National's policy of acquisitions, most notably Security Connecticut Life Insurance Company in 1979. Security Connecticut had no agents of its own and sold its life insurance policies entirely through independent agents and brokers. The combination of company-employed and independent agents has been successful for Lincoln National, despite the potential for conflict between agents. In 1981 Lincoln National acquired First Penn-Pacific Life Insurance Company, an Illinois firm. First Penn-Pacific brought with it growing sales in universal life policies, which quickly became a major part of Lincoln National's life insurance business. By 1983 Lincoln National, through its various subsidiaries, had $100 billion of life insurance in force, and it continued to expand by acquiring both life and property and casualty insurance companies. The larger but less visible reinsurance business grew more by internal expansion, but the firm did acquire National Reinsurance Corporation in 1984, which brought important additions in property and casualty reinsurance. Lincoln National also cautiously reentered the British market in 1984, this time by purchasing an established British company, Cannon Assurance Limited. The following year it sold both its Canadian life insurance subsidiary and Chicago Title and Trust, withdrawing entirely from the title insurance business.

In the mid- to late 1980s, in response to trends in the medical insurance industry, Lincoln National greatly increased its activity in group health insurance and established its own health maintenance organizations (HMOs) in Indiana and Florida. Despite early problems, the HMOs were profitable by 1990 and had grown in size and in geographical scope, expanding into Texas and California. Also during this time, the company developed a variety of investment programs, particularly individual annuities and corporate pension plans.

By the end of the 1980s Lincoln National--then ranked as the nation's seventh-largest publicly held insurance company--organized its business along five major lines: property and casualty; group life and health; individual life; life, health, and property/casualty reinsurance; and pensions and annuities.

1990s Transformation

The 1990s brought major changes to Lincoln National's mix of businesses, as senior management determined that the company needed to pare back to those core operations in which it excelled. The company thus sold National Reinsurance in May 1990 for $316 million, in the process withdrawing by and large from the property and casualty reinsurance business. Life and health reinsurance continued as a core company offering, however. Also divested were smaller, noncore operations, including Preferred Financial Corporation, sold in 1990; Western Security Life, sold in 1991; and K & K Insurance Agency--an insurer of sports and recreational activities--sold in 1993. Meanwhile, Lincoln National received a boost to its financial strength when Dai-Ichi Mutual Life Insurance Company in 1990-91 purchased a 9.6 percent stake, in new convertible preferred stock, for $312 million. The Japanese firm planned to work closely with Lincoln National and to form several joint ventures but was committed to a long-term holding and pledged not to acquire more than 9.8 percent of the voting shares or to cooperate with any group accumulating shares.

The divestments continued as the 1990s progressed. Next to go were the health insurance businesses, including the HMOs, as the company concluded that it could not compete with the giants of the industry, such as CIGNA and Aetna. In several transactions in 1992, 1994, and 1995 Lincoln National jettisoned its various health insurance units, bringing in an aggregate total of $670 million. The company also sold Security-Connecticut Corporation in 1994 for $238 million.

In 1993 Lincoln National finally began to spend some of the vast sums of money it had accumulated through these sales. That year the company's first major acquisition in six years came in the form of Citibank's life insurance operations in the United Kingdom. Citibank Life was consolidated with Cannon Assurance to form Lincoln National (UK) PLC. This subsidiary was further bolstered in 1995 through the purchase of Liberty Life Assurance Company Limited and Laurentian Financial Group PLC (renamed Lincoln Financial Group PLC), which was bought for $237 million. By this time Lincoln National (UK) had grown into the 12th-largest life insurer in the United Kingdom and also offered investment and retirement products. In other foreign activity, Lincoln National in 1997 purchased a 49 percent stake in Seguros Serfin S.A., a life insurance company based in Mexico.

Of equal, if not more, importance to these international moves was the company's shift in positioning, from traditional insurer to financial services company, a shift reflecting the impact of deregulation, which had blurred the lines between insurance companies, banks, and investment firms. As evidenced by the 1995 $510 million acquisition of Delaware Management Holdings, Inc., a specialist in mutual funds and institutional money management, Lincoln National intended to focus on asset accumulation businesses--annuities, life insurance, 401(k) plans, mutual funds, and institutional investment management. Subsequent acquisitions aimed to build up these areas: the $72 million purchase of UNUM Corp.'s group tax-sheltered annuity unit in 1996; the $70 million purchase of Voyaguers Fund Managers, Inc., another mutual fund and institutional money management firm, in 1997; the $1.4 billion acquisition of the individual life insurance and annuity businesses of CIGNA Corporation, also in 1997; and the $1 billion purchase of the domestic individual life insurance business of Aetna Inc. in 1998. Meanwhile, Lincoln National exited from property and casualty insurance--which did not fit into the new strategy--when it divested American States Financial through two transactions in 1996 and 1997 that brought in nearly $3 billion. Part of the proceeds from the sale of American States went toward a late 1997 $500 million stock repurchase.

Though the company had divested its property and casualty line, it retained its strong--though seemingly noncore--life and health reinsurance business. Thus, Lincoln National in the late 1990s had four principal business segments: life insurance and annuities, Lincoln UK, reinsurance, and investment management. In 1998 Rolland retired after more than 20 years as CEO. His successor--the man who would lead the new look Lincoln National into the 21st century--was Jon A. Boscia, who had been president of subsidiary Lincoln National Life Insurance. Boscia aimed to increase earnings growth from eight to nine percent per year to 12 percent per year over a three-year period by making additional acquisitions and boosting sales.

Principal Subsidiaries: Delaware Management Holdings, Inc.; LincAm Properties, Inc. (50%); Lincoln Financial Group, Inc.; Lincoln Investment Management, Inc.; Lincoln National Financial Institutions Group, Inc.; Lincoln National Investments, Inc.; The Lincoln National Life Insurance Company; Lincoln National Management Services, Inc.; Lincoln National Realty Corporation; Lincoln National Reinsurance Company (Barbados) Limited; Lincoln National Reinsurance Company Limited (Bermuda); Lincoln National Risk Management, Inc.; Lincoln National Structured Settlement, Inc.; Lincoln National (UK) PLC; Linsco Reinsurance Company; Lynch & Mayer, Inc.; Old Fort Insurance Company, Ltd. (Bermuda); Seguros Serfin Lincoln, S.A. (Mexico; 49%); Servicos de Evaluacion de Riesgos, SRL de CV (Mexico); Underwriters & Management Services, Inc.; Vantage Global Advisors, Inc.

Further Reading:

• Burton, Thomas M., "Lincoln Agrees to Buy Units from Cigna," Wall Street Journal, July 29, 1997, pp. A3, A8.
• Byrne, Harlan S., "Lincoln National Corp.," Barron's, April 29, 1991, pp. 39-40.
• Connolly, Jim, "Lincoln Turns to the Task of Integrating Its Life Purchases," National Underwriter Life & Health-Financial Services Edition, June 8, 1998, p. 59.
• David, Gregory E., "Emancipation (1994-Style)," Financial World, July 5, 1994, pp. 24+.
• Fraser, Katharine, "Lincoln Plans New Push in Bank Channel after Buying Cigna Unit," American Banker, August 12, 1997, p. 14.
• Garcia, Beatrice E., "Japanese Insurer to Pay $312 Million for 9.6% Interest in Lincoln National," Wall Street Journal, June 27, 1990, p. A3.
• Hawfield, Michael C., Ninety Years and Growing: The Story of Lincoln National, Indianapolis: Guild Press of Indiana, 1995, 161 p.
• Lohse, Deborah, "Aetna to Sell Some Assets to Lincoln," Wall Street Journal, May 22, 1998, pp. A3, A6.
• Neely, Mark E., Jr., Easy to Remember: A Brief History of the Lincoln National Life Insurance Company, Fort Wayne, Ind.: Lincoln National Corporation, 1980.
• Pulliam, Susan, "Lincoln National Seeks to Sell Large Part of Health Maintenance, Insurance Units," Wall Street Journal, September 23, 1991, p. A6.
• Scism, Leslie, "Lincoln National Seeks Bigger Role in Financial Services," Wall Street Journal, June 10, 1997, p. B4.
• Skertic, Mark, "When Lincoln Speaks, Fort Wayne Listens," Indiana Business Magazine, June 1991, pp. 8+.

Source: International Directory of Company Histories, Vol. 25. St. James Press, 1999.

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