Lincoln Financial Group Reports Third Quarter 2011 Results
10% Increase in Book Value per Share excluding AOCI
Positive Net Flows Across All Segments
Share Repurchases Total $150 million in the Quarter
Third Quarter 2011 Segment Results
| Retirement Solutions
| Insurance Solutions
| Other Operations
| Realized Gains and Losses
| Unrealized Gains and Losses
| Annual Review of Assumptions
| Implementation of New Accounting Guidance
| Stock Repurchase
| Book Value
| Reconciliation Table
| Digest of Earnings
PHILADELPHIA, November 2, 2011 — Lincoln Financial Group (NYSE:LNC) today reported net income for the third quarter of 2011 of $143 million, or $0.44 per diluted share available to common stockholders, compared to net income in the third quarter of 2010 of $246 million, or $0.75 per diluted share available to common stockholders.
Third quarter income from operations was $317 million, or $1.00 per diluted share available to common stockholders, compared to $206 million, or $0.63 per diluted share available to common stockholders in the third quarter of 2010. The quarter included a variety of notable items that largely offset each other.
|($ in millions except per share data)
||For the Quarter 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
"Our operating results were very strong while volatile markets negatively impacted net income," said President & CEO Dennis R. Glass. "Investments in our Group Protection and Defined Contribution businesses supported higher sales, improving loss ratios and positive net flows. We focused on driving top line growth, taking pricing actions to increase returns, enhancing risk management and returning capital to shareholders."
Third Quarter 2011 Operating Highlights:
Consolidated deposits of $5.5 billion
Consolidated net flows of $2.0 billion up 13%
Total account balances of $153 billion up 2%
Variable Annuity deposits of $2.2 billion up 7%
Life Insurance sales of $155 million up 4%
Defined Contribution positive net flows of $329 million
Group Protection sales of $75 million up 9%
Third Quarter 2011 — Segment Results
The Individual Annuities segment reported income from operations of $162 million in the third quarter of 2011, versus income from operations of $126 million in the year-ago period.
Total annuity deposits of $2.7 billion were down 9% from the prior-year quarter due to a drop in fixed annuity deposits, while variable annuity deposits of $2.2 billion were up 7%. Total net flows in the current quarter were $0.7 billion. Lincoln's stable results reflect a consistent market presence and comprehensive risk management.
The quarter included $30 million of net positive items attributable primarily to favorable tax true-up and net positive DAC adjustments.
Defined Contribution reported income from operations of $41 million, versus income from operations of $50 million for the same period a year ago, which included an $11 million benefit associated with DAC unlocking and adjustments resulting from model reviews.
Gross deposits of $1.5 billion were up 15% versus the prior-year quarter driven by first-year sales in the mid-to-large case market. Total net flows in the current quarter were $329 million as compared to $(278) million in the 2010 quarter. Investments in distribution and a new administrative platform are driving improved results.
The current quarter included a net positive of $3 million primarily attributable to positive DAC adjustments.
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Life Insurance income from operations was $132 million compared to $60 million in the third quarter of 2010, which included net negative items of $92 million mainly associated with the annual review of assumptions and models underlying life insurance-related assets and liabilities.
Life insurance sales of $155 million increased 4% over the prior-year quarter. Life insurance in force of $574 billion grew 3% and account values of $34 billion increased 5% over the prior-year quarter. The company continued to take product pricing actions in the quarter in response to lower interest rates.
The quarter included $19 million of net negative items attributable primarily to unfavorable mortality and negative unlocking adjustments.
Group Protection's income from operations was $28 million, compared to $9.5 million in the prior-year period. The non-medical loss ratio of 72% in the current quarter declined from 79% in the third quarter of 2010.
Group Protection sales of $75 million for the quarter increased 9% from the same period last year. Non-medical net earned premiums were $410 million in the third quarter, up 7% over the year-ago period. Price increases and the addition of resources to claims management over the past several quarters contributed to Group Protection's strong performance in the period.
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The operating loss in Other Operations was $44 million in the quarter versus a loss of $40 million in the prior-year quarter. The quarter's results included $12 million of net negative items primarily attributable to guaranty association assessments related to the insolvency of Executive Life of New York.
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 $28 million, as compared to $17 million in the prior-year quarter.
A mark-to-market net loss of $69 million versus a net gain of $69 million in the prior-year quarter.
A net loss in the variable annuity hedge program of $62 million, compared to a loss of $10 million in the prior-year quarter.
Unrealized Gains and Losses
The company reported a net unrealized gain of approximately $6.2 billion, pre-tax, on its available-for-sale securities at September 30, 2011. This compares to a net unrealized gain of approximately $5.0 billion at September 30, 2010.
Annual Review of Assumptions
The company's annual comprehensive review of actuarial assumptions resulted in a charge of $79 million, or $0.25 per share to net income, of which a charge of $27 million, or $0.09 per share is included in income from operations.
Implementation of New Accounting Guidance
The company will adopt ASU No. 2010-26, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts", effective January 1, 2012. We estimate that retrospective adoption will result in a cumulative effect adjustment to equity of approximately $950 million to $1.15 billion. Income from operations would have declined by approximately 5% to 7% for the first nine months of 2011 had we applied the guidance during 2011.
During the quarter the company repurchased 6.7 million shares of stock at a cost of $150 million.
As of September 30, 2011, book value per share of common stock, including accumulated other comprehensive income ("AOCI"), increased 16% to $49.43 from a year ago. Book value per share, excluding AOCI, was $41.27 up 10% from $37.54 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 third quarter results with investors in a conference call beginning at 1:00 p.m. (ET) on Thursday, November 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 third 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 $153 billion as of September 30, 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