Lincoln: Group Protection, Disability On Cusp Of Turnaround

By Cyril Tuohy
InsuranceNewsNet

Executives from Lincoln Financial Group hinted at further price hikes in the company’s Group Protection and disability insurance segment in the wake of losses. The company blamed those losses on higher long-term disability loss ratios and the integration of a claim system.

Dennis R. Glass, president and CEO of Lincoln Financial, said in a conference call with analysts earlier this month that the company would be taking “aggressive pricing actions, primarily aimed at our employee-paid and employer-paid businesses.”

In the employer-paid model, the employer pays the premium for employee coverage. In the employee-paid model, the employee pays the premium but at a price that benefits from the group rate negotiated by the employer.

The company reported a fourth-quarter loss from operations of $7 million compared to income from operations of $11 million in the year-ago period for its Group pPotection business unit.

Group Protection fourth-quarter sales of $250 million declined 7 percent from the year-ago period. Full-year sales were $479 million, a drop of 11 percent from 2013, the company also reported.

Company officials said the quarterly and annual sales declines were due to higher prices.

Plummeting employer-paid product sales couldn’t be recouped by a corresponding increase in higher-margin, employee-paid product sales, according to the company’s financial report.

Glass said, however, that many employer-paid clients are accepting the company’s price increases at renewal. Clients the company considers unprofitable are not being renewed.

Management is “in control of turning this business around,” Glass said. “There’s nothing in this market that’s going to stand in our way.”

Glass also said the company expects to generate Group Protection profit margins of 5 percent to 7 percent “in the 2015-2016 time frame.”

Lincoln Financial moved to a new claim system in July, and integration issues have affected profitability in a business where margins are razor thin.

Randal J. Freitag, chief financial officer and executive vice president, said the scope of the changes has meant retraining claim examiners in new processes and introducing them to new technology. Caseloads and loss ratios tend to “tick up” as a result, he said.

 “I think anytime you make changes to the claims area you’re going to see some dissonance,” Freitag said.

In a response to analyst Randy Binner of FBR Capital Markets & Co., Freitag said the implementation of the claim system could have gone more smoothly.

“I think that we could have done a better job of managing that whole process around the introduction of the claims system, and that’s partly why we’ve seen some changes in management in the group business,” Freitag said.

Company executives also said staffing levels and processes with regard to the new claims system should be solved by midyear.

Despite the loss in its group protection and disability segment, Lincoln reported higher fourth-quarter net income in each of its other operating segments, annuities, life and retirement plan services.

Each generated higher quarterly revenue in the fourth quarter compared to the year-ago quarter as money poured in from fees generated by more assets under management, higher average account balances and higher investment income, the company said.

Fourth-quarter net income was flat, on higher revenue, the company said.

Lincoln Financial reported fourth-quarter net income of $348 million, on revenue of $3.68 billion, compared to net income of $351 million, on revenue of $3.12 billion, in the year-ago period.

Fourth-quarter net income per share rose to $1.32, from $1.29 in the year ago period, the company also said.

The company reported full-year net income of $1.51 billion, on revenue of $13.55 billion, compared to net income of $1.24 billion, on revenue of $11.96 billion, in 2013.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

© Entire contents copyright 2015 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].