Lincoln Financial Group Reports Third Quarter 2010 Results
Consolidated Deposits of $5.5 Billion Benefit from Strong Retirement Product Sales
Total Account Balances Rise 10% to $150 billion Reflecting Positive Flows and Improved Markets
Third Quarter 2010 Segment Results
| Retirement Solutions
| Insurance Solutions
| Other Operations
| Alternative Investment Income
| Realized Gains and Losses
| Unrealized Gains and Losses
| Book Value
| Reconciliation Table
| Digest of Earnings
| General Account Supplement
PHILADELPHIA, November 2, 2010 Lincoln Financial Group (NYSE:LNC) today reported net income for the third quarter of 2010 of $246 million, or $0.75, of net income per diluted share available to common stockholders, compared to a net income in the third quarter of 2009 of $153 million, or $0.44 per diluted share.
The third quarter income from operations was $206 million, or $0.63 per diluted share available to common stockholders, compared to $276 million, or $0.84 per diluted share, in the third quarter of 2009. Third quarter earnings included the results of Lincoln's annual comprehensive review of actuarial assumptions and model work. The review resulted in a net charge to income from operations of $72 million, or $0.22 per share, and included an adjustment to reflect the current low interest rate environment.
|($ in millions except per share data)
||For the Quarter
|Net Income (Loss)
|Net Income (Loss) Available to Common Stockholders
|Net Income (Loss) Per Diluted Share Available to Common Stockholders
|Income (Loss) from Operations
|Income (Loss) from Operations Per Diluted Share Available to Common Stockholders
|Average Diluted Shares
Dennis R. Glass, president and CEO said, "In the quarter we saw good indicators of growth continuing including strong double-digit growth in retirement deposits and net flows driving half of the year-over-year increase in total account balances. Sales overall reflected ongoing distribution expansion and our strong portfolio of products, which was enhanced this quarter with new product introductions. Adjusting for notable items in the quarter, earnings benefited from growth in account values offset by elevated group disability loss ratios, which we expect to recover in time. While economic conditions continue to influence parts of our business, steady consumer demand for our insurance and retirement products has contributed to consistent sales and positive aggregate net flow results."
Third Quarter 2010 Operating Highlights:
Consolidated deposits of $5.5 billion up 4% compared to the prior-year quarter driving consolidated net flows of $1.7 billion in the period.
Total account balances increased 10% year-over-year to $150 billion, driven by continued strong net flows and improved equity markets.
Variable annuity deposits of $2 billion up 11% over the prior-year quarter.
Defined Contribution gross deposits of $1.3 billion up 14% over the prior-year quarter.
Repurchased $48 million of warrants from the U.S. Treasury reflecting strength in excess capital position.
Third Quarter 2010 — Segment Results
The Individual Annuities segment reported income from operations of $126 million in the third quarter of 2010 versus income from operations of $95 million in the year-ago period, reflecting a 14% increase in the average annuity account values. The current quarter includes net positive items of approximately $12 million, primarily attributable to favorable tax true ups in the quarter.
Variable annuity deposits of $2.0 billion were up 11% over the prior-year quarter reflecting improved wholesaler productivity and shelf space expansion. Total net flows in the current quarter were $1.3 billion as compared to $1.6 billion in the 2009 quarter, the result of reduced fixed annuity flows.
Defined Contribution reported income from operations of $50 million, versus income from operations of $43 million for the same period a year ago, reflecting a 10% increase in the average account values. The quarter's results included an $11 million benefit associated with DAC unlocking and model review work.
Gross deposits of $1.3 billion were up 14% versus the prior-year quarter driven by sales and renewals in the mid- to large-case market. Total net flows in the current quarter were $(278) million as compared to $144 million in the 2009 quarter, primarily attributable to the loss of a few large cases in the quarter.
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Life Insurance income from operations was $60 million, compared to $137 million in the third quarter of 2009. The 2010 quarter included net negative items of $82 million associated with the comprehensive review of actuarial assumptions and models underlying life insurance-related assets and liabilities. The most significant impact was a result of changing long-term portfolio yield assumptions totaling $114 million to reflect current low interest rates. The quarter experienced unfavorable net mortality of approximately $10 million due primarily to the lower level of reinsurance on claims in the quarter.
Life insurance sales of $148 million increased 2% over the prior-year quarter reflecting strong double-digit sales increases of MoneyGuard® and variable universal life insurance offset by a decline in UL sales.
For the third quarter, Group Protection's income from operations was $9.5 million, compared to $35 million in the prior-year period and included $3 million of negative items.
The non-medical loss ratio of 79% in the current quarter compared to 68% in the third quarter of 2009 and our targeted range of 71% to 74%. The unfavorable non-medical loss ratio was primarily due to the elevated incidence of disability income claims. While elevated from our target range, loss ratios are expected to recover modestly in the fourth quarter.
Non-medical net earned premiums were $383 million in the third quarter, up 9% over the year-ago period. Annualized sales of $68 million decreased 14% year-over-year due to competitive market conditions.
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The operating loss in Other Operations was $40 million in the quarter versus a loss of $33 million in the prior-year quarter. The quarter had $4 million of negative expense items including an unfavorable tax adjustment.
Alternative Investment Income
Income from operations in the third quarter of 2010 included alternative investment income of $7 million, after DAC, after tax, compared to a loss of $1 million in the year-ago quarter. The company's alternative investment portfolio, of approximately $725 million of book value, performed consistent with our long-term return expectations.
Realized Gains and Losses
Total gross realized losses from the sale and impairment of general account investments in the quarter were $65 million, pre tax, as compared to $174 million in the prior-year quarter and $37 million in the second quarter of 2010.
Realized gains and losses also include the change in value of certain securities subject to mark-to-market accounting and the results of the variable annuity hedge program. The net change in value in the quarter was a gain of $106 million, pre tax, versus a gain of $58 million in the year-ago quarter.
Unrealized Gains and Losses
The company reported a net unrealized gain of approximately $5.0 billion, pre tax, on its available-for-sale securities at September 30, 2010. This compares to a net unrealized gain of $114 million at September 30, 2009.
As of September 30, 2010, the book value per share of common stock, including accumulated other comprehensive income ("AOCI"), was $42.78 compared to $35.91 a year ago. Book value per share, excluding AOCI, was $37.54, compared to $36.64 a year ago. During the quarter, Lincoln paid $3 million in common stock dividends to its shareholders and paid $48 million for 2.9 million warrants from the U.S. Treasury, which were retired.
This press release may contain statements that are forward looking, and actual results may differ materially, especially given the current economic and credit conditions. Please see the Forward Looking Statements Cautionary Language that follow for additional factors that may cause actual results to differ materially from our current expectations.
The tables attached to this release define and reconcile income from operations, return on equity ("ROE7quot;), and book value per share excluding AOCI, non-GAAP measures, to net income, ROE, and book value per share including AOCI calculated in accordance with GAAP.
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Lincoln Financial Group will discuss the company's third quarter results with investors in a conference call beginning at 11:00 a.m. (ET) on Wednesday, November 3, 2010. Interested persons are invited to listen through the internet. Please go to www.LincolnFinancial.com/webcast at least fifteen minutes prior to the event to register, download and install any necessary streaming media software. Interested persons may also listen to the call by dialing the following numbers:
Dial: 877 776-4049 (Domestic)
914 495-8602 (International)
Ask for the Lincoln National Conference Call.
The company will also post its third quarter 2010 statistical supplement and a general account supplement on its Web site, www.LincolnFinancial.com/earnings.
Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. With headquarters in the Philadelphia region, the companies of Lincoln Financial Group had assets under management of $150 billion as of September 30, 2010. Through its affiliated companies, Lincoln Financial Group offers: annuities; life, group life and disability insurance; 401(k) and 403(b) plans; savings plans; and comprehensive financial planning and advisory services. For more information, including a copy of our most recent SEC reports containing our balance sheets, please visit www.LincolnFinancial.com.
Financial data will be posted at www.LincolnFinancial.com/earnings