Lincoln Financial Group Reports Fourth Quarter and Full Year 2010 Results
Revenue Growth Reflects Strength of Franchise
Total Account Balances Rise 11% to $157 billion Reflecting Improved Markets and Positive Net Flows
Consolidated Deposits of $5.5 Billion up 12% in the Quarter, Full Year of $20.9 billion up 6%
Fourth Quarter 2010 Segment Results
| Retirement Solutions
| Insurance Solutions
| Other Operations
| Realized Gains and Losses
| Unrealized Gains and Losses
| Book Value
| Reconciliation Table
| Digest of Earnings
| General Account Supplement
PHILADELPHIA, February 2, 2011 — Lincoln Financial Group (NYSE:LNC) today reported net income of $196 million, or $0.60 of net income per diluted share, for the fourth quarter of 2010. By comparison, net income for the fourth quarter of 2009 was $102 million, or $0.27 per diluted share available to common stockholders. For the full year of 2010, net income was $980 million, or $2.54 per diluted share available to common stockholders, versus a net loss of $485 million, or a loss of $1.85 per share available to common stockholders, in 2009.
For the fourth quarter of 2010 income from operations was $266 million, or $0.82 per diluted share, compared to $297 million, or $0.90 per diluted share available to common stockholders, in the fourth quarter of 2009. Earnings this quarter included a charge of $41 million, or $0.13 per share associated with litigation and settlement expenses. This charge was partially offset by $9 million, or $0.03 per share of net positive items in the quarter, including better than expected investment income results. For the full year of 2010, income from operations reached $1.0 billion, or $3.13 per diluted share available to common stockholders, compared to $943 million, or $3.18 per diluted share available to common stockholders, in 2009.
"The fourth quarter caps a year of solid growth in operating revenues and income from operations, which showcase the earnings power of our franchise," said Dennis R. Glass, president and chief executive officer. "With a strong, flexible capital structure in place, healthy retirement account balances going into the year, and much of the noise from the crisis behind us, we believe Lincoln is well-positioned to deliver value to our shareholders in 2011."
Fourth Quarter 2010 Operating Highlights:
Consolidated deposits of $5.5 billion up 12% compared to the prior-year quarter.
Total account balances increased 11% year-over-year to $157.3 billion, driven by positive equity markets and net flows.
Variable annuity deposits of $2.2 billion up 7% over the prior-year quarter.
Defined Contribution gross deposits of $1.4 billion up 17% over the prior-year quarter.
MoneyGuard® sales up 74% over the prior-year quarter.
Full Year 2010 Operating Highlights:
Consolidated deposits of $20.9 billion up 6% compared to the prior year.
Variable annuity deposits of $8.3 billion up 15% over the prior year.
Defined Contribution gross deposits of $5.3 billion up 7% over the prior year.
Gross life insurance deposits of $4.9 billion up 11% over the prior year.
Life insurance in force up 4% to $563 billion including 7% increase in term insurance.
Fourth Quarter 2010 — Segment Results
The Individual Annuities segment reported income from operations of $123 million in the fourth quarter of 2010 versus income from operations of $120 million in the year-ago period, reflecting a 16% increase in the average daily variable annuity account values. The current quarter included net positive items of $2 million including $6 million of alternative investment income and prepayment and make whole premiums in excess of expected levels partially offset by higher DAC amortization. The 2009 quarter included net positive items of approximately $19 million, after tax.
Gross annuity deposits in the fourth quarter were $2.6 billion, up 5% from the prior year's quarter. For the full year, gross deposits were $10.7 billion versus $10.4 billion in 2009, and net flows were $3.6 billion compared to $3.9 billion in 2009.
Variable annuity deposits in the quarter of $2.2 billion were up 7% over the prior-year quarter reflecting improved wholesaler productivity and channel expansion.
Defined Contribution reported income from operations of $33 million, flat with the prior-year quarter. The current quarter included net negative items of $3 million. Better than expected alternative investment income and prepayment and make whole premiums of $4 million after-tax was offset by negative $7 million after-tax of various items, primarily DAC unlocking.
Gross deposits in the quarter of $1.4 billion were up 17% versus the prior-year quarter driven by strong new sales in both our mid-to-large case market and our small case market. Total net flows in the current quarter were a negative $304 million as compared to a negative $62 million in the 2009 quarter, driven primarily by a large plan termination. For the full year, gross deposits were $5.3 billion versus $5.0 billion in 2009, and net flows were a negative $291 million versus $995 million in 2009.
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Life Insurance income from operations was $166 million, compared to $158 million in the fourth quarter of 2009. The current quarter's results included net positive items totaling $10 million, primarily attributable to alternative investment income and prepayment and make whole premiums in excess of expected levels.
Life insurance sales of $206 million increased 6% over the prior-year quarter reflecting strong double-digit sales increases of MoneyGuard® and increased production in our Executive Benefits division. Full-year life insurance sales were $637 million, up 4% year-over-year.
For the fourth quarter, Group Protection's income from operations was $18 million, compared to $30 million in the prior-year period.
The non-medical loss ratio of 76% in the current quarter compared to 69% in the fourth quarter of 2009 and 79% in the third quarter 2010.
Net earned premiums for the fourth quarter were $424 million, up 7% year-over-year. Quarterly sales totaled $156 million versus $167 million in 2009. For the full year, net earned premiums were $1.7 billion versus $1.6 billion in 2009, and annualized sales were $353 million compared to $360 million.
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The operating loss in Other Operations was $74 million in the quarter versus a loss of $44 million in the prior-year quarter. The current quarter included a $41 million charge primarily related to the settlement of our previously disclosed litigation with Transamerica.
Realized Gains and Losses
In the quarter, insurance general account realized losses and impairments, net of gains, totaled $83 million pre-tax, compared to $159 million in prior-year quarter.
Unrealized Gains and Losses
The company reported a net unrealized gain of approximately $2.9 billion, pre tax, on its available-for-sale securities at December 31, 2010. This compares to a net unrealized loss position of $43 million at December 31, 2009.
During the quarter, the company completed a series of capital-related transactions:
Raised the quarterly common stock dividend to $0.05 per share.
Announced the intent to repurchase up to $125 million of its common stock over a 15-month period and repurchased $25 million of stock in the fourth quarter.
Redeemed all $150 million in outstanding 6.75% Series F Trust Preferred Securities.
As of December 31, 2010, the book value per share of common stock, including accumulated other comprehensive income ("AOCI"), was $40.54 compared to $36.02 a year ago. Book value per share, excluding AOCI, was $38.17, compared to $36.89 a year ago.
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 ("ROE"), 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 fourth quarter results with investors in a conference call beginning at 1:00 p.m. (ET) on Thursday, February 3, 2011. 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 fourth 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 $157 billion as of December 31, 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