Lincoln 4Q Report: Strong On Sales, Weak On Earnings

Strong sales of variable annuities without living benefits helped Lincoln Financial to a big fourth quarter, executives said this morning.

The shift toward products without living benefits began "several years ago," Lincoln president and CEO Dennis R. Glass told analysts on the quarterly call.

"We further advanced that effort by launching an index variable annuity in 2018," he explained. "We supported the launch with increased shelf space and have since continued to innovate, adding new investment options to both our indexed VA and our traditional VA without living benefits. As a result, VAs without living benefits have risen to over 70% of VA sales, more than twice their percentage in 2018."

In addition, life insurance sales were strong in the fourth quarter, up 121% over the prior quarter, and for the year -- with sales of $660 million representing a 5% increase. Lincoln introduced seven new life insurance products, Glass noted.

"This sales strength was broad based with every major product category reporting double-digit growth, including record term life sales, and substantial growth in executive benefits," Glass said. "Even more significantly, nearly 30% of our sales this quarter consisted of solutions and features that didn't exist before 2021. For instance, variable MoneyGuard represented 42% of total MoneyGuard sales."

Earnings Miss

Despite the good sales news, Lincoln did not deliver on the bottom line. The insurer reported quarterly earnings of $1.56 per share, missing the Zacks Consensus Estimate of $1.98 per share.

Fourth quarter adjusted income from operations was $286 million, compared to adjusted income from operations of $346 million, or $1.78 per diluted share available to common stockholders, in the fourth quarter of 2020.

“In the midst of a challenging claims environment for the industry, we demonstrated strong underlying earnings power in the fourth quarter and throughout 2021 as well as robust capital returns to shareholders,” Glass said.

The CEO focused on growth areas and foundational matters. For example, Lincoln added more than 12,000 new producers "who had never sold a Lincoln life policy before," Glass said.

"We continued to build our digital capabilities," he added. "In 2021, our cost per life application continued to decline, as our automated underwriting and digital processing capabilities are driving efficiencies, while improving the customer experience. In 2022, we'll continue to innovate with product launches planned for the first half that year, expand our distribution franchise and enhance our operations with digital investments."

The Segment Details

Lincoln reported the following from its business segments:

Annuities

Annuities reported income from operations of $332 million, up 15% compared to the prior-year quarter. The increase was primarily driven by higher account values from strong equity market performance and continued expense efficiency.

Total annuity deposits of $3.0 billion were up 20% from the prior-year quarter as sales growth in fixed annuities and variable annuities with guaranteed living benefits more than offset a decline in variable annuity sales without guaranteed living benefits. For the full year, total annuity sales of $11.7 billion were up 4% from the prior-year driven by 16% growth in variable annuity sales without guaranteed living benefits.

Net outflows were $655 million in the quarter. For the full year, net outflows totaled $2.6 billion. Average account values for the quarter of $171 billion were up 13% over the prior-year quarter. 50% of total annuities account value at quarter end were without guaranteed living benefits, up 3 percentage points over the prior-year period.

Retirement Plan Services

Retirement Plan Services reported income from operations of $57 million, up 16% compared to the prior-year quarter, with the increase driven by higher account values from strong equity market performance, full year positive net flows, and continued expense efficiency.

Total deposits for the quarter of $3.0 billion were up 17% compared to the prior-year quarter, and for the full year, total deposits of $10.8 billion were up 8%. In both periods, growth was driven by increases in both first-year sales and recurring deposits.

Net outflows totaled $380 million for the quarter while for the full year, net flows were positive $464 million. Average account values for the quarter of $98 billion were up 17% over the prior-year quarter.

Life Insurance

Life Insurance reported income from operations of $80 million compared to $144 million in the prior-year quarter, primarily driven by strong returns within the company’s alternative investment portfolio that were not as favorable as last year and the previously communicated $10 million impact from the block reinsurance transaction executed in the third quarter of 2021.

Total Life Insurance sales for the quarter of $254 million more than doubled, up 121%, compared to the prior-year quarter driven by sales growth across all key products. For the full year, sales of $660 million were up 5% driven primarily by growth in executive benefits and term sales.

Average Life Insurance in-force of $959 billion grew 8% over the prior-year quarter. Average account values for the quarter were $51 billion compared to $56 billion in the prior-year quarter as a result of the recent block reinsurance transaction.

Group Protection

Group Protection reported a loss from operations of $115 million in the quarter compared to a loss from operations of $42 million in the prior-year quarter. This decrease was primarily driven by higher mortality and morbidity impacts related to the pandemic.

The total loss ratio was 96% in the current quarter compared to 88% in the prior-year quarter with the increase driven primarily by unfavorable pandemic-related mortality and morbidity.

Group Protection sales for the quarter were $385 million compared to $450 million in the prior-year quarter. Full-year sales were $586 million compared to $706 million in the prior year with employee-paid sales representing 43% of total sales versus 39% in the prior year. Insurance premiums of $1.1 billion in the quarter were up 6% compared to the prior-year quarter, and full-year premiums of $4.5 billion were up 4% from the prior year.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.