Lincoln Financial Group Reports Fourth Quarter and Full Year 2009 Results
Strength in Business Model and Account Values Drive Earnings Increase
Quarterly Deposits and Net Flows Up Year-over-Year
Fourth Quarter 2009 Segment Results
| Retirement Solutions
| Insurance Solutions
| Other Operations
| Alternative Investment Income
| Realized Gains and Losses
| Book Value
| Reconciliation Table
| Digest of Earnings
| General Account Supplement
PHILADELPHIA, February 8, 2010 Lincoln Financial Group (NYSE:LNC) today reported net income of $102 million, or $0.27 per diluted share available to common stockholders, for the fourth quarter of 2009 and a net loss of $485 million, or $1.85 per share available to common stockholders, for the full year of 2009. Net income in the fourth quarter of 2009 included a non-cash charge of $109 million, after tax, for the impairment of intangibles related to the company's media assets and net realized losses of $98 million, after tax, which includes the results of the variable annuity hedge program.
The fourth quarter income from operations was $297 million, or $0.90 per diluted share available to common stockholders, and full-year income from operations was $943 million, or $3.18 per diluted share available to common stockholders. Income from operations in the current quarter reflected growth in average variable account values compared to a year ago and included favorable returns on alternative investments. Income from operations in the 2008 quarter included negative DAC unlocking related to the company's revision of future estimated gross profits and a loss from alternative investments.
||For the Quarter Ended
||For the Year Ended
|($ in millions except per share data)
|Net Income (Loss)
|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
* The per share calculation used in the losses per share represent basic shares.
The 2009 earnings available to common stockholders per share reflect the accrued dividend and accretion of discount on the series B preferred stock, as well as an increase in average common shares outstanding primarily related to the company's equity issuance in June 2009.
Fourth Quarter 2009 Operating Highlights:
Consolidated deposits of $4.9 billion were up 3% versus the 2008 quarter.
Consolidated net flows were up 12% year-over-year to $1.5 billion.
Ending account balances increased 20% to $141 billion since last year, driven by another quarter of double-digit growth in net flows and equity market appreciation.
Entered into a $550 million 10-year letter of credit facility, providing approximately $400 million of initial statutory capital relief as of December 31, 2009.
On January 4, 2010, the company completed the sale of Delaware Investments with estimated proceeds of $410 million, after tax.
Dennis R. Glass, president and CEO, said, "Our results in the quarter and for the full year underscore the quality and resilience of our business model, particularly in a challenging operating environment. The strength of the Lincoln Financial franchise and the successful actions we took last year to increase financial flexibility and sharpen our focus on our core businesses were evident in our operating results. We expanded distribution relationships, produced strong sales and positive net flows, and grew earnings throughout the year, even during the depths of the crisis. In addition to these operational accomplishments, we took deliberate and prudent steps to execute on a comprehensive capital plan that left the company in a strong capital position as we exited 2009."
Fourth Quarter 2009 Segment Results
The Individual Annuities segment reported income from operations of $120 million in the fourth quarter of 2009 versus a loss from operations of $172 million in the year-ago period. The 2009 quarter included a net positive impact of approximately $19 million, after tax, primarily attributable to retrospective DAC unlocking and tax-related items. The current quarter also included alternative investment income of $6 million, after tax. The prior-year period included net negative items of approximately $247 million, after tax, primarily attributable to prospective DAC unlocking related to equity market depreciation.
Gross annuity deposits were $2.5 billion and net flows were $818 million, both up versus the prior year. Gross deposits and net flows declined from the third quarter of 2009, driven by fixed and indexed annuities, reflecting the low interest rate environment. Variable annuity product deposits of $2.1 billion were up 9% versus last year and drove net flows to $838 million, an increase of 42% year-over-year.
For the full year, gross deposits were $10.4 billion versus $11.7 billion in 2008, and net flows were $3.9 billion compared to $4.1 billion.
Defined Contribution reported income from operations of $33 million, versus a loss from operations of $1 million for the same period a year ago. The current quarter included a net negative impact of approximately $3 million, after tax, primarily related to tax and expense true-ups. The 2009 quarter also included alternative investment income of $4 million, after tax. The prior-year period included net negative items of approximately $26 million, after tax, primarily attributable to prospective DAC unlocking related to equity market depreciation.
Gross deposits of $1.2 billion were down 7% versus the prior year. Total net flows were a negative $62 million, reflecting the institutional nature of the business which drives variability in quarterly net flows.
For the full year, gross deposits were $5.0 billion versus $5.5 billion in 2008, and net flows were $1.0 billion compared to $781 million.
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Life Insurance income from operations was $158 million, compared to $83 million in the fourth quarter of 2008. The life insurance segment's results in 2009 included alternative investment income of $7 million, after tax. The prior period's results included a net negative impact of approximately $51 million, after tax, primarily related to DAC unlocking.
Life insurance sales were $195 million, down 8% versus 2008, but up 33% sequentially, reflecting, in part, fourth quarter seasonality. MoneyGuard®, a linked-benefit universal life insurance policy with a long term care rider, and term life insurance continued to post strong results as sales increased 82% year-over-year.
For the full year, life insurance sales were $610 million versus $741 million in 2008.
For the fourth quarter, Group Protection's income from operations was $30 million, compared to $18 million in the prior-year period. The non-medical loss ratio in the current period was 69%, driven by favorable experience in group disability and life. The 2009 period recorded unfavorable seasonal expenses related to fourth quarter production levels of approximately $3 million, after tax. The current quarter also included alternative investment income of $3 million, after tax.
Net earned premiums were $396 million in the fourth quarter, up 4% over the year-ago period and annualized sales of $167 million increased 29% year-over-year.
For the full year, net earned premiums were $1.6 billion versus $1.5 billion in 2008, and annualized sales were $360 million compared to $316 million.
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The operating loss in Other Operations was $44 million in the quarter, versus $55 million in the prior-year quarter. The 2009 quarter included a net negative impact of approximately $15 million, after tax, reflecting a charge of $33 million related to the disability income business review, partially offset by a favorable tax item. The current quarter also included income from alternative investments of $2 million, after tax. The 2008 quarter included net negative items, primarily related to unfavorable expenses.
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Alternative Investment Income
Income from operations in the fourth quarter of 2009 included alternative investment income of $22 million, after tax, compared to a loss of $35 million, after tax, in the 2008 period. The company's alternative investment portfolio of approximately $700 million benefited from favorable performance from limited partnerships, private equity, and hedge funds.
Alternative Investment Income by Segment
|| For the Quarter Ended
|($ in millions)
Realized Gains and Losses
Total gross realized losses in the 2009 quarter on general account investments were $212 million, pre DAC and tax, primarily related to select financial-sector bonds, commercial real estate equity, and residential mortgage backed securities. The variable annuity hedge program had no material net impact on net income in the fourth quarter, with positive hedge performance offset by reserve and model adjustments.
As of December 31, 2009, the book value per share of common stock, including accumulated other comprehensive income (AOCI), was $36.02 compared to $31.15 a year ago. Book value per share, excluding AOCI, was $36.89, compared to $42.09 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, 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 Tuesday, February 9, 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: 888 359-3613 (Domestic)
719 457-2710 (International)
Ask for the Lincoln National Conference Call.
The company will also post its fourth quarter 2009 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 $141 billion as of December 31, 2009. 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