Lincoln National Corporation’s (LNC) third quarter operating earnings of $1.00 per share came in modestly ahead of the Zacks Consensus Estimate of 93 cents and 63 cents recorded in the prior-year quarter. Meanwhile, operating net income surged 53.9% year over year to $317.3 million.
Conversely, net income available to common shareholders dipped to $138.5 million or 44 cents per share against $245.1 million or 75 cents per share in the year-ago quarter. GAAP net income also came in at $143.3 million, down from $246.1 million in the year-ago period.
Results were impacted by the company's annual comprehensive review of actuarial assumptions that resulted in a charge of $79 million or 25 cents per share to net income available to common shareholders, while a charge of $27 million or 9 cents per share is included in operating net income.
Lincoln’s total revenue slipped down 2.5% to $2.55 billion from $2.61 billion in the prior-year quarter. This also lagged the Zacks Consensus Estimate of $2.77 billion. Segment-analysis is as follows:
Retirement Solutions
Operating income from Individual Annuities was $162 million compared with $126 million in the prior-year quarter. Total annuity deposits were $2.7 billion (down 9% year over year), reflecting a drop in fixed annuity deposits, although variable annuity deposits were up 7% year over year, while net flows were flat over prior quarter at $0.7 billion.
The reported quarter also included $30 million of net positive items attributable primarily to favorable tax true-up and net positive DAC adjustments.
Operating income from Defined Contributions was $41 million, down from $50 million in the prior-year period, and included $11 million of benefit associated with DAC unlocking and adjustments from model reviews. Gross deposits of $1.5 billion were up 15% versus the prior-year period while total net inflows were $329 million versus net outflows of $278 million in the year-ago quarter, reflecting improvement from investments in distribution and a new administrative platform.
The reported quarter also included $3 million of net positive items attributable to positive DAC adjustments.
Insurance Solutions
Operating income from Life Insurance of $132 million increased significantly from $60 million recorded in the year-ago period. The life insurance segment's results included net negative items of $92 million mainly associated with the annual review of assumptions and models and $19 million of net negative items attributable primarily to unfavorable mortality and negative unlocking adjustments.
Life insurance sales were $155 million, up 4% year over year. Life insurance in force grew 3% year over year to $574 billion while account values of $34 billion increased 5% over the prior-year quarter, reflecting improvement from product pricing initiatives taken against low interest rate environment.
Operating income from Group Protection increased to $28 million, compared with $9.5 million in the prior-year period. Non-medical loss ratio was 72%, down from 79% in the year-ago quarter. Net earned premiums were $410 million, up 7% over the year-ago period, while Group Protection sales of $75 million improved 9% year over year. Results reflected price increases and additional resources to claims management.
Other
Operating loss from Other operations was $44 million, up from $40 million in the year-ago quarter. The reported quarter included $12 million of net negative items primarily attributable to guaranty association assessments.
Net realized losses and impairments totaled $159 million compared to a gain of $42 million in the prior-year quarter. As of September 30, 2011, net unrealized gain was approximately $6.2 billion (pre tax) on its available-for-sale securities as compared with $5.0 million as of September 30, 2010.
Lincoln reported improved consolidated deposits of $5.5 billion, up from $5.4 billion in the prior quarter. Total account balances increased 2% year over year to $153 billion, primarily driven by positive net flows and equity market appreciation. Total net flows were up 13% year over year at $2.0 billion.
Financial Update
On September 30, 2011, book value per share came in at $49.43, up 16% over the prior-year quarter. Excluding accumulated other comprehensive income (AOCI), book value increased 10% year over year to $41.27 per share. The quarterly operating ROE, excluding AOCI and goodwill, was 13.4%, up from 9.4% at the end of prior-year quarter. Additionally, Lincoln bought back 6.7 million shares for a cost of $150 million during the reported quarter.
Peer Take
Last week, one of the peers, MetLife Inc. (MET), reported third quarter operating earnings per share of $1.11, triple pennies ahead of both the Zacks Consensus Estimate and the year-ago quarter. As a result, operating earnings jumped 23% year over year to $1.18 billion from $958 million in the year-ago period.
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