COVID Deaths, Product Shift Slow Lincoln Financial In 4Q

Lincoln Financial revenue grew in the fourth quarter but COVID-19 deaths dragged on the carrier’s life insurance and group protection segment.

The company’s adjusted operating earnings per share were $1.78 per share, down from $2.41 year over year, and undershooting the $1.91 analysts’ EPS estimate.

The company is confident that its business is sound and will bounce back with an 8% to 10% growth in earnings per share as the year unfolds, according to Lincoln CEO Dennis R. Glass.

A key reason for his optimism is that the carrier expects pandemic-related deaths to peak in the first quarter and drop over the year as vaccines roll out. Glass also cited federal economic relief and subsequent recovery.

Lincoln accelerated its shift from fixed to variable products over the past year, one of the moves that helped shore up the company’s bottom line.

“Lincoln responded well to the immediate health, economic and capital market challenges,” Glass said during an earnings call today. “We also took steps to add new products and build distribution, improve cost-effectiveness, and strengthen the balance sheet.”

Glass outlined three initiatives:

• Repricing products and executing product strategy.
• Reducing expenses while improving the customer experience.
• Maintaining a strong balance sheet and maximizing our financial flexibility.

Glass cited an uptick in returns generated by new business as a positive sign in the fourth quarter.

“As we exited fourth quarter, we generated at least a 12% return on new business in our current portfolio based on the board for across all our businesses,” Glass said, adding that it helped offset losses. “As expected sales decreased for most businesses with growth expected to reemerge over the course of the year based on the shift and add new components of our strategy. Also, several competitors followed our repricing actions, making our repriced products more competitive as we enter 2021.”

Lincoln will be introducing eight products this year that will expand deeper into the broker-dealer and financial advisor space.

“Turning to business segments, starting with annuities, where we've successfully leveraged our unique manufacturing and distribution capabilities,” Glass said. “We expanded shelf space, and the number of producers selling Lincoln's indexed variable annuity products doubled in 2020, which helped cement our leadership position in the IVA marketplace, which is the fastest growing segment of the annuity market. In total, IVA sales were $5 billion for the year. asset protection products like IVAs are resonating with consumers and producers. This is contributing to our sales shift for variable annuities without living benefits. These sales also represented more than two-thirds of total VA sales in 2020.”

Operating highlights from the fourth quarter and full year

• Operating revenues increased in all four business segments over the prior-year quarter.
• Total general and administrative expenses, net of amounts capitalized, declined $100 million in the year, driving a 60-basis point improvement in the expense ratio.
• Annuities average account values of $151 billion rose 9 percent over the prior-year quarter.
• Retirement Plan Services net flows of $340 million in the quarter drove positive flows for the full year
• Life Insurance expense ratio improved 140 basis points compared to the prior-year quarter and 60 basis points for the full year.
• Group Protection insurance premiums increased 1% compared to the prior-year quarter and 4% for the full year.

Annuities

Annuities reported income from operations of $289 million, up 7% over the prior-year quarter. The increase was primarily driven by higher account values from strong equity market performance. For the full year, total annuity sales of $11.3 billion compared to $14.5 billion for the prior year were driven by a decrease in fixed annuity sales as variable annuity sales grew 3% year over year.

Total annuity deposits of $2.5 billion were down 36% from the prior-year quarter.

Variable annuity sales without guaranteed living benefits were up 48% versus the prior-year quarter while total variable annuity sales were down 11%.

Fixed annuity sales of $82 million compared to $1.2 billion in the prior-year period with the change due to product actions taken to reflect lower interest rates.

For the full year, total annuity sales of $11.3 billion compared to $14.5 billion for the prior year were driven by a decrease in fixed annuity sales as variable annuity sales grew 3% year over year.

Retirement Plan Services

Retirement Plan Services reported income from operations of $49 million, up 4% from the prior-year quarter with the increase primarily driven by favorable returns within the company’s alternative investment portfolio and higher account values from strong equity market performance.

Life Insurance

Life Insurance reported income from operations of $144 million compared to $179 million in the prior-year quarter as favorable returns within the company’s alternative investment portfolio and expense management were more than offset by unfavorable mortality related to the pandemic.

Total Life Insurance sales were $115 million for the quarter and $630 million for the full year, down as a result of repricing actions to reflect lower interest rates and regulatory changes. Total Life Insurance in-force of $894 billion grew 8% over the prior-year quarter, and average account values of $56 billion increased 6% over the same period.

Group Protection

Group Protection reported a loss from operations of $42 million in the quarter compared to income from operations of $54 million in the prior-year quarter. This change was primarily driven by unfavorable mortality and morbidity experience associated with the pandemic.

The total loss ratio was 88% in the current quarter compared to 74% in the prior-year quarter, driven primarily by the pandemic. Group Protection sales were $450 million in the quarter compared to $297 million in the prior-year quarter with the increase driven by timing of sales.

Full-year sales were $706 million, down 6% from the prior year with employee-paid sales representing 39% of total sales. Insurance premiums of $1.0 billion in the quarter were up 1% compared to the prior-year quarter, and full-year premiums of $4.3 billion were up 4% from the prior year.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].