(Bloomberg) --Lincoln National Corp. is in advanced talks with Talcott Financial Group for a reinsurance deal that would shift billions of dollars of life insurance reserves off its balance sheet, according to people familiar with the deliberations.
The deal is expected to focus on roughly $5 billion of universal life with secondary-guarantee policies, the people said, asking not to be identified because the discussions are private. Secondary guarantees prevent life insurance policies from lapsing, regardless of their value.
An agreement hasn't been reached yet and the parties may eventually decide against a deal, the people said.
A spokesperson for Talcott declined to comment. Lincoln said in an emailed statement to Bloomberg News that transferring risk off its balance sheet is one of several options to help improve free cash flow in its life insurance business.
"We routinely evaluate options that support our strategic objectives and will share information on any transaction decisions when we are able," Lincoln said in the statement.
Policies with secondary guarantees are attractive to policyholders because they don't lapse, but they can be costly for insurers to keep on their balance sheets. Reinsurance deals help carriers mitigate that cost and free up capital, which can then be invested to underwrite new annuities and life insurance products.
Recently, Massachusetts Mutual Life Insurance Co. reinsured $6 billion of such products with secondary guarantees through reinsurance with Nationwide Mutual Insurance Co.
In 2023, Lincoln reinsured a $28 billion book with Fortitude Re that included similar policies, along with fixed annuities and other life insurance products with so-called long-term care benefits. These allow customers to access part of their policies to cover care costs as they age.
Talcott, which is owned by investment firm Sixth Street Partners, reinsured $10 billion of variable annuities from MetLife Inc.
