Lincoln National Corp. (LNC) reported first-quarter 2014 operating earnings of $1.34 per share. The results comfortably surpassed the Zacks Consensus Estimate of $1.29 and the prior-year quarter number of $1.04 a share.
Further, Lincoln National’s operating net income spiked 28.1% year over year to $365 million. Meanwhile, reported net income, including extraordinary items, stood at $328 million or $1.21 per share against $239 million or 86 cents per share in the year-ago quarter.
The year-over-year improvement was driven by growth in account balances and deposits 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 higher expenses.
Lincoln National’s total operating revenue increased 11.9% over the prior-year quarter to $3.18 billion, edging past the Zacks Consensus Estimate of $3.17 billion. Consolidated account balances of Lincoln National increased 12.5% year over year to $185.9 billion, while net flow tumbled 44% to $1.16 billion, reflecting underperformance across segments except the Group Protection segment. Total deposits improved 4.5% to $6.4 billion. Total expenses climbed 8.5% to $2.75 billion.
Segment Analysis
Operating income from the Annuities segment stood at $216 million, surging 35.8% from $159 million in the prior-year quarter, driven by higher fixed annuity deposit sales. Even account values and gross deposits showcased improvement, although net flows plunged 21.5% over the prior-year quarter.
Operating income from Retirement Plan Services was $39 million, up 11.4% from $35 million in the prior-year period. The upside was driven by growth in deposits, equity market appreciation, lower withdrawal rates and account balances. However, termination of several large cases in the mid-large market segment led to total net outflows of $361 million.
Operating income from Life Insurance was $120 million, up 7.1% year over year, although life insurance sales reduced 4% year over year to $145 million. Life insurance in force improved 5% year over year to $620 billion, while aggregate sales of higher return products, including indexed universal life, variable universal life, flexible premium MoneyGuard and term life insurance, increased 14% over the prior-year quarter. These resulted in higher deposits although net flows declined.
Operating income from Group Protection jumped to $20 million from $14 million in the prior-year period. Non-medical loss ratio was in line with the year-ago quarter at 74.8%. Further, non-medical net earned premiums were $533 million, up 12.2% over the year-ago period, while Group Protection sales declined 10% to $64 million.
Operating loss in Other operations were $30 million, narrowing from a loss of $35 million in the prior-year quarter.
Investment Position
Lincoln National’s net realized losses included a net gain from account investments of $17 million compared with loss of $4 million in the prior-year quarter. Additionally, net realized losses included variable annuity net derivatives loss of $7 million during the reported quarter.
As of Mar 31, 2014, pre-tax net unrealized gain on Lincoln National’s available-for-sale securities was approximately $5.8 billion, down from $8.7 billion in the year-ago period, primarily driven by higher Treasury rates.
Financial Update
At the end of Mar 2014, Lincoln National’s book value per share came in at $54.94, down 0.7% year-over- year. Excluding accumulated other comprehensive income (AOCI), book value climbed 8.6% year over year to $45.63 per share. Operating ROE stood at 12.2% at the end of Mar 2014, up from 10.2% in the year-ago period.
Additionally, Lincoln National bought back 3.0 million shares for $150 million during the reported quarter.
Dividend Update
On May 1, the board of Lincoln National will pay a regular quarterly dividend of 16 cents per share to shareholders of record as on Apr 10.
On Feb 1, 2014, Lincoln National paid a regular quarterly dividend of 16 cents per share to shareholders of record as on Jan 10. This represented an increase of 33% from the prior 12 cents, marking the 4th dividend hike since 2007.
Others
While Lincoln National carries a Zacks Rank #3 (Hold),some better-ranked life insurers Symetra Financial Corp. (SYA), Protective Life Corp. (PL) and Primerica Inc. (PRI), all bearing a Zacks Rank #2 (Buy), are worth reckoning.
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