Lincoln Financial Group Reports Fourth Quarter and Full Year 2011 Results
Full Year 2011 Income from Operations of $1.3 Billion up 27% from 2010
Full Year 2011 Net Income of $290 Million down from $812 Million in 2010
Full Year Share Repurchases Totaled $575 Million
Fourth Quarter 2011 Segment Results
| Individual Annuities
| Retirement Plan Services
| Life Insurance
| Group Protection
| Other Operations
| Realized Gains and Losses
| Unrealized Gains and Losses
| Annual Review of Goodwill
| Book Value
| Reconciliation Table & Digest of Earnings
PHILADELPHIA, February 7, 2012 — Lincoln Financial Group (NYSE:LNC) today reported a fourth quarter net loss of $514 million, or $1.73 per share, compared to net income of $196 million, or $0.60 per diluted share available to common stockholders, in 2010. The company also reported fourth quarter 2011 income from operations of $303 million, or $1.00 per diluted share, compared to $266 million, or $0.82 per diluted share available to common stockholders in the fourth quarter of 2010. The primary difference between net income and income from operations resulted from a $747 million non-cash goodwill impairment charge related to the life insurance and media businesses.
Net income for the full year of 2011 was $290 million, or $0.92 per diluted share, compared to $812 million, or $2.54 per diluted share available to common stockholders, in 2010. For the full year 2011, income from operations was $1.3 billion, or $4.17 per diluted share, compared to $1.0 billion, or $3.13 per diluted share available to common stockholders, for the full year of 2010.
"Lincoln's 2011 operating results reflect continued strength in flows and deposits across our businesses, ongoing product repricing to achieve targeted returns, and significant capital management activities," said President & CEO Dennis R. Glass. "We continue to give priority to relative returns in our capital allocation and business decisions, balancing reinvestment in our core businesses with the opportunity to create value through increased share repurchases."
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||For the Quarter Ended
||For the Year Ended
|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
Fourth Quarter 2011 Operating Highlights:
Consolidated deposits of $5.5 billion
Consolidated net flows of $1.6 billion up 21%
Total account balances of $160 billion
Life Insurance sales of $229 million up 11%
Retirement Plan Services net flows of $219 million
Group Protection sales of $207 million up 33%
Full Year 2011 Operating Highlights:
Consolidated deposits of $21.6 billion
Variable annuity deposits of $8.7 billion up 6%
Retirement Plan Services net flows of $0.5 billion versus $(0.3) billion in 2010
Life Insurance sales of $0.7 billion up 10%
Group Protection loss ratio of 72.9% versus 76.2% in 2010
The quarter included several notable items that in the aggregate offset each other.
Fourth Quarter 2011 — Segment Results
The Individual Annuities segment reported income from operations of $134 million in the fourth quarter of 2011 compared to $123 million in the year-ago period.
Sales and flows for the year and quarter continued to reflect the company's consistent market presence through a multi-channel, multi-product strategy and a focus on disciplined product design.
Gross annuity deposits in the fourth quarter of $2.4 billion were down 8% from the prior-year quarter with low interest rates reducing demand for fixed annuities. Net annuity flows of $345 million were down 37% on lower deposits.
For the full year, gross annuity deposits of $10.7 billion included $8.7 billion of variable annuity deposits that were up 6% over the prior year. Annuity net flows were $2.2 billion, almost entirely attributable to variable annuities.
Retirement Plan Services (Formerly Defined Contribution)
Retirement Plan Services reported income from operations of $35 million compared to $33 million in the year-ago period.
Gross deposits of $1.6 billion were up 16% versus the prior-year quarter driven by strong first-year and renewal deposits in the mid-to-large case market as investments in technology and distribution gained traction. Total net flows in the current quarter were $219 million as compared to $(304) million in the 2010 quarter. For the full year, gross deposits were $5.6 billion up 5% driving net flows of $504 million.
Life Insurance income from operations was $154 million compared to $166 million in the fourth quarter of 2010. The decrease in earnings was primarily attributable to lower than expected net investment income related to alternative investment and prepayment income.
Life insurance sales of $229 million increased 11% over the prior-year quarter and sales for the full year of $700 million increased 10% compared to 2010. Both periods' results reflect a decline in secondary guarantee universal life sales as we adjusted pricing to deemphasize single premium policies and shifted our focus to other products.
Life insurance in force of $580 billion grew 3% and account values of $35 billion increased 5% over the prior-year quarter.
The quarter included net positive items of $4 million primarily attributable to favorable DAC adjustments. The prior-year quarter included net positive items of approximately $10 million, after tax.
Group Protection's income from operations was $22 million, compared to $18 million in the prior-year period. The non-medical loss ratio of 72.2% in the current quarter declined from 75.5% in the fourth quarter of 2010. Improvements to claims management processes and disciplined pricing actions have contributed to the favorable reduction in the non-medical loss ratio.
Group Protection sales of $207 million for the quarter increased 33% from the same period last year. Non-medical net earned premiums were $412 million in the fourth quarter, up 5% over the year-ago period. For the full year, non-medical net earned premiums were $1.6 billion versus $1.5 billion in 2010, and annualized sales of $395 million increased 12% from $353 million.
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The operating loss in Other Operations was $42 million in the quarter versus a loss of $74 million in the prior-year quarter. The quarter's results included net negative items of $7 million primarily attributable to the true-up of guaranty association assessments related to the insolvency of Executive Life of New York. The 2010 quarter included net negative items of approximately $41 million, after tax, primarily related to legal expenses.
Realized Gains and Losses
Realized gains/losses (after-tax) in the quarter included:
A net loss from the sale and impairment of general account investments of $37 million, as compared to a $61 million loss in the prior-year quarter
A $42 million variable annuity net derivatives loss including a $47 million negative non-performance risk factor adjustment due to narrowing credit default spreads
Unrealized Gains and Losses
The company reported a net unrealized gain of approximately $6.5 billion, pre-tax, on its available-for-sale securities at December 31, 2011. This compares to a net unrealized gain of approximately $2.9 billion at December 31, 2010.
Annual Review of Goodwill
The company's annual review of each business's goodwill asset resulted in a non-cash, after-tax charge of $747 million, or $2.51 per share, to net income.
Based on life insurance market dynamics and lower expected sales associated with product pricing changes, we recorded a $650 million impairment of life insurance goodwill. A $97 million impairment of the remaining Media goodwill asset reflects the challenging operating environment and outlook for the business, which drove the reduction in the valuation of the media properties.
During the quarter, the company completed a series of capital-related transactions:
Raised the quarterly common stock dividend 60% to $0.08 per share.
Repurchased 10.4 million shares of stock at a cost of $200 million. As a result of cumulative 2011 share repurchases of $575 million, fourth quarter 2011 average diluted share count was down 6% from fourth quarter 2010.
Repaid $250 million of 6.20% Senior Notes that matured on December 15, 2011.
As of December 31, 2011, book value per share of common stock, including accumulated other comprehensive income ("AOCI"), increased 20% to $48.59 from a year ago. Book value per share, excluding AOCI, was $40.19 up 5% from $38.17 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 capital markets 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 11:00 a.m. (ET) on Wednesday, February 8, 2012. 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 2011 statistical supplement on its website, 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 $160 billion as of December 31, 2011. Through its affiliated companies, Lincoln Financial Group offers: annuities; life, group life, disability and dental 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