Lincoln Financial Group Reports First Quarter 2012 Results
Operating Return on Equity of 11.2% on Book Value Per Share Growth of 4.5%
Strong Sales Increases in Retirement Plan Services and Group Protection Reflect Strategic Investments
Repurchased $150 million of Shares in the Quarter
First Quarter 2012 Segment Results
| Retirement Plan Services
| Life Insurance
| Group Protection
| Other Operations
| Realized Gains and Losses
| Unrealized Gains and Losses
| ASU 2010-26
| Book Value
| Reconciliation Table & Digest of Earnings
PHILADELPHIA, May 2, 2012 — Lincoln Financial Group (NYSE:LNC) today reported net income for the first quarter of 2012 of $245 million, or $0.83 per diluted share, compared to net income in the first quarter of 2011 of $314 million, or $0.97 per diluted share.
First quarter income from operations was $296 million, or $1.00 per diluted share, compared to $322 million, or $1.00 per diluted share, in the first quarter of 2011.
|($ in millions except per share data)
||For the Quarter Ended
|Net Income (Loss)
|Net Income (Loss) Per Diluted Share
|Income (Loss) from Operations
|Income (Loss) from Operations Per Diluted Share
|Average Diluted Shares
|ROE (Income from Operations)
|ROE (Net Income)
|Book value per share, including AOCI
|Book value per share, excluding AOCI
"Our strong first quarter operating results continue to reflect the actions we have taken to grow our top line and protect margins across our businesses." said Dennis R. Glass, president and CEO of Lincoln Financial Group. "Sales increases in Retirement Plan Services and Group Protection are the direct result of strategic investments we have made in these areas, while strong capital generation drove higher share repurchases."
First Quarter 2012 Highlights:
Total account balances increased 5% and reached a record $170 billion.
Positive net flows helped drive record annuity account balances of $92 billion.
Retirement Plan Services deposits of $1.5 billion, up 13%, helped drive a 58% increase in net flows to $212 million.
Moneyguard® increased 19% to $41 million.
Group Protection sales increased 47% to $67 million in response to investments in distribution and product expansion.
The current quarter included no items of note while the prior year quarter included $34 million (as adjusted for ASU 2010-26) of net positive notable items.
First Quarter 2012 — Segment Results
The Annuities segment reported income from operations of $137 million in the first quarter of 2012 compared to $144 million in the year-ago period which included $18 million of net positive notable items.
Variable annuity deposits of $2.2 billion were flat with the prior-year quarter and up 8% from the fourth quarter driven by strong equity market performance and consistent with industry growth. Variable annuity net flows of $0.5 billion were in line with the prior-year quarter.
Fixed annuity deposits of $295 million were down 35% from the first quarter of last year as low interest rates continued to dampen demand. Fixed annuity net outflows were $170 million compared to net inflows of $31 million in the prior-year quarter.
Account values ended the quarter at a record $92 billion, up 4% from the prior-year quarter and up 7% from the fourth quarter.
Retirement Plan Services
Retirement Plan Services reported income from operations of $35 million compared to $48 million in the year-ago period, which included $9 million of net positive notable items.
Our investments in technology and distribution continue to advance business results. Gross deposits of $1.5 billion were up 13% versus the prior-year quarter and benefitted from a 74% increase in small case sales. These strong deposits, along with improved retention and market growth, drove quarter end account balances to a record high $42 billion. Total net flows in the current quarter were $212 million, up 58% as compared to the 2011 quarter.
Life Insurance income from operations was $142 million compared to $142 million in the first quarter of 2011 which included $2 million of net positive notable items.
Life insurance sales of $122 million decreased 24% over the prior-year quarter reflecting a decline in secondary guarantee universal life sales in response to pricing actions. The company's strategy to direct sales to higher return products, including indexed universal life, variable universal life and term insurance, was successful as the aggregate sales of these products increased 11% over the prior-year quarter.
Life insurance in force of $580 billion grew 2% and account values of $36 billion increased 5% over the prior-year quarter.
For the first quarter, Group Protection income from operations was $16 million, compared to $24 million in the prior-year period, which included $5 million of notable items. The non-medical loss ratio of 75% in the current quarter increased from 74% in the first quarter of 2011 due to a fluctuation in mortality, which led to higher than expected claims.
Group Protection sales of $67 million for the quarter increased 47% from lower than expected sales in the prior-year quarter. Non-medical net earned premiums were $431 million in the first quarter, up 7% over the year-ago period on strong sales.
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The operating loss in Other Operations was $34 million in the quarter versus a loss of $37 million in the prior-year quarter.
Realized Gains and Losses
Realized gains/losses (after-tax) in the quarter included:
A net gain from general account investments of $6 million, as compared to a $3 million net loss in the prior-year quarter.
Strong performance by the variable annuity hedge program of $19 million was offset by a non-economic adjustment of $84 million related to the non-performance risk reserve component, which is unhedged.
Unrealized Gains and Losses
The company reported a net unrealized gain of $6.4 billion, pre-tax, on its available-for-sale securities as of March 31, 2012, compared to a net unrealized gain of $2.8 billion as of March 31, 2011, and $6.5 billion as of December 31, 2011.
During the quarter, the company completed the following capital-related transactions:
Repurchased 6 million shares of stock at a cost of $150 million.
Issued $300 million of 4.20% Senior Notes due 2022 with proceeds to be used to refinance $300 million of 5.65% senior debt maturing in August.
ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts
The financial results reported for the quarter reflect the retrospective adoption of ASU 2010-26, effective January 1, 2012. In accordance with ASU 2010-26, which modifies the accounting guidance for deferred acquisition costs ("DAC"), the company has adjusted its financial results for the periods prior to the first quarter of 2012.
As of March 31, 2012, book value per share of common stock, including accumulated other comprehensive income ("AOCI"), increased 21% to $46.43 from a year ago. Book value per share, excluding AOCI, was $37.25 up 4.5% from $35.67 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 first quarter results with investors in a conference call beginning at 10:00 a.m. (ET) on Thursday, May 3, 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 first quarter 2012 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 $170 billion as of March 31, 2012. 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