Lincoln National Corp. (LNC) reported fourth-quarter 2013 operating earnings of $1.40 per share. The results noticeably outpaced the Zacks Consensus Estimate of $1.28 and breezed past the prior-year quarter figure of $1.10 per share.
Further, Lincoln National’s operating net income increased 23.2% year over year to $382 million. Meanwhile, reported net income, including extraordinary items, stood at $351 million or $1.29 per share against $320 million or $1.14 per share in the year-ago quarter.
Lincoln National’s total operating revenue climbed 5% over the prior-year quarter to $3.12 billion, but was in line with the Zacks Consensus Estimate. The year-over-year improvement was driven by growth in account balances across all of its operating segments. Further, sales growth of re-priced products as well as change in the business mix to higher return products also aided the upside. These were partially offset by lower net flows and deposits in all segments except Annuities.
Consolidated account balances of Lincoln National increased 15.4% year over year to $202.1 billion, while net flow decreased 14.1% to $2.2 billion, reflecting underperformance from retirement and life insurance segments.
Segment Analysis
Operating income from Annuities segment was $199 million, increasing 22.8% from $162 million in the prior-year quarter, driven by higher variable annuity deposit sales. Even account values, gross deposits and net flow showcased improvement over the prior-year quarter.
Operating income from Retirement Plan Services was $34 million, up from $28 million in the prior-year period. The upside was driven by growth in deposits, equity market appreciation, lower withdrawal rates and account balances.
Operating income from Life Insurance was $157 million, up 6.8% year over year, although life insurance sales reduced 19.9% year over year to $181 million. Life insurance in force improved 4% year over year to $617 billion, while aggregate sales of higher return products, including indexed universal life, variable universal life, flexible premium MoneyGuard and term life insurance, decreased 11.1% over the prior-year quarter. These resulted in lower net flows and deposits.
Operating income from Group Protection decreased to $11 million from $13 million in the prior-year period. Non-medical loss ratio increased to 77% from 74.7% in the prior quarter. Further, non-medical net earned premiums were $502 million, up 9% over the year-ago period, while Group Protection sales grew 30% to $268 million.
Operating loss in Other operations was $19 million, narrowing from a loss of $40 million in the prior-year quarter.
Full-Year 2013 Highlights
For full-year 2013, Lincoln reported operating earnings of $5.03 a share, topping the Zacks Consensus Estimate of $4.91 and the 2012 equivalent of $4.47 per share. Operating net income jumped 10.4% year over year to $1.38 billion.
However, reported net income stood at $1.24 billion or $4.52 per share against $1.31 billion or $4.56 per share in 2012. Total revenue climbed 3.8% over 2012 to $11.97 billion. Consolidatedaccount balances of Lincoln National increased 13% year over year to $191.9 billion, while net flow surged 41.4% to $9.51 billion, both reflecting growth across segments.
Investment Position
Lincoln National’s net realized losses included a net gain from account investments of $2 million compared with loss of $2 million in the prior-year quarter. Additionally, net realized losses included variable annuity net derivatives loss of $27 million during the reported quarter.
As of Dec 31, 2013, pre-tax net unrealized gain on Lincoln National’s available-for-sale securities was approximately $3.8 billion compared with $9.4 billion in the year-ago period, primarily driven by higher Treasury rates.
Financial Update
At the end of Dec 2013, Lincoln National’s book value per share came in at $51.17, down 7% year-over- year. Excluding accumulated other comprehensive income (AOCI), book value climbed 10% year over year to $45.23 per share. Operating ROE stood at 12.1% at the end of 2013, marginally up from 12.0% at the end of 2012.
Additionally, Lincoln National bought back 2.0 million shares for $100 million during the reported quarter. This amounts to a total of 12 million shares being bought back for $450 million over 2013.
Dividend Update
On Nov 14, 2013, the board of Lincoln National hiked its regular quarterly dividend by 33% to 16 cents per share, from the prior 12 cents a share. The raised dividend was paid on Feb 1, 2014, to shareholders of record as on Jan 10. The hike also expanded the annual dividend to 64 cents a share from the prior 48 cents. This marks 4th dividend hike since 2007.
Others
Along with Lincoln National, Symetra Financial Corp. (SYA), Protective Life Corp. (PL) and Primerica Inc. (PRI) also carry a Zacks Rank #2 (Buy) and are worth reckoning.
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