Lincoln Financial Group Releases 2Q Earnings

Lincoln Financial Group reported net income for the second quarter of 2014 of $398 million, or $1.48 per diluted share available to common stockholders, compared to net income in the second quarter of 2013 of $317 million, or $1.15 per diluted share available to common stockholders.

In its release on July 30, the company noted that second quarter income from operations was $394 million, or $1.47 per diluted share available to common stockholders, compared to $351 million, or $1.27 per diluted share available to common stockholders, in the second quarter of 2013.

"Lincoln delivered another strong quarter, achieving record levels of operating revenues, operating earnings and assets under management," said Dennis R. Glass, president and CEO of Lincoln Financial Group. "The overall strength of our performance reflects the diversity of earnings drivers across our businesses as results in Annuities, Life Insurance and Retirement Plan Services more than offset Group Protection results, which fell short of expectations."

Operating Highlights - Second Quarter 2014 versus Second Quarter 2013

-Consolidated total account balances of $216 billion up 15 percent

-Annuities total account balances of $121 billion up 18 percent

-Retirement Plan Services total deposits of $1.8 billion up 12 percent

-Individual Life Insurance sales of $158 million up 7 percent

-Group Protection non-medical earned premiums of $528 million up 10 percent

The quarter included net favorable items of approximately $0.04 related primarily to taxes and expenses.

Second Quarter 2014 - Segment Results

Annuities

The Annuities segment reported income from operations of $227 million in the quarter, up 16 percent from $195 million in the prior- year quarter. Positive net flows and equity market performance increased assets under management and related fees, which contributed to the growth in revenues and earnings.

Gross annuity deposits in the second quarter were $3.6 billion, contributing to net flows of $831 million. Account values increased 18 percent to $121 billion compared to the prior-year quarter. Variable annuity deposits of $3.2 billion were down from $3.9 billion in the second quarter of last year, which were elevated ahead of benefit reductions in response to competitor dynamics. Fixed annuity deposits of $393 million increased 49 percent on the strength of indexed annuity sales.

The company continues to focus on shifting the mix of variable annuity sales with and without guaranteed living benefits. Net of reinsurance, variable annuity deposits without a guaranteed living benefit rider as a percentage of total variable annuity deposits were 42 percent, compared to 40 percent in the first quarter of 2014.

In July, the company amended and restated its reinsurance treaty covering new sales of its variable annuity guaranteed living benefit product. The treaty will provide an additional $4 billion of reinsurance capacity through December 31, 2015. The company will retain 100 percent of the product cash flows excluding the living benefit guarantee.

Retirement Plan Services

Retirement Plan Services reported income from operations of $39 million, flat with the prior-year quarter.

Total deposits for the quarter of $1.8 billion were up 12 percent versus the prior-year quarter, reflecting strong sales in both the small and mid-large markets. Total net flows in the quarter were $366 million compared to $337 million in the second quarter of 2013. Along with equity market performance, positive net flows led to a 14 percent increase in account values to $54 billion.

Life Insurance

Life Insurance income from operations increased 10 percent to $148 million from $135 million in the prior-year quarter.

Life insurance sales in the quarter were $172 million compared to $186 million in the prior-year quarter. Individual life sales, which exclude COLI and BOLI, increased 7 percent from the prior-year period, driven by strong sales results in indexed universal life and variable universal life. COLI sales were down from a strong prior- year quarter and will vary in any given period.

Life insurance average in-force of $626 billion grew 5 percent and average account values of $41 billion increased 7 percent over the prior-year quarter.

The quarter's results included net favorable items of $5 million related primarily to expenses.

Group Protection

For the second quarter, Group Protection income from operations was $2 million compared to $22 million in the prior-year period. The decrease in earnings was primarily the result of higher disability claims in the quarter. The non-medical loss ratio increased to 80.3 percent compared to 73.5 percent in the prior-year quarter.

Group Protection second quarter sales of $73 million were down 23 percent from the same period last year and up 14 percent from the first quarter. As expected, pricing changes implemented during the first half of the year and that remain ongoing have affected sales levels. The company made good progress on increasing the percentage of sales from employee-paid products, which represented 43 percent of total sales compared to 39 percent in the prior-year quarter.

Non-medical net earned premiums were $528 million in the second quarter, up 10 percent over the year-ago period.

Other Operations

Other Operations reported a loss from operations of $22 million in the quarter versus a loss of $40 million in the prior-year quarter.

The quarter's results included net favorable items of $6 million related to taxes.

Realized Gains and Losses

Realized gains/losses (after-tax) in the quarter included:

-A net gain from general account investments of $5 million as compared to a $22 million net loss in the prior-year quarter.

-A $7 million variable annuity net derivatives gain, comprising positive hedge program performance of $16 million and a $9 million loss associated with the non-performance risk component.

Unrealized Gains and Losses

The company reported a net unrealized gain of $7.5 billion, pre- tax, on its available-for-sale securities at June 30. This compares to a net unrealized gain of $4.8 billion at June 30, 2013.

Capital

During the quarter, the company repurchased 3.1 million shares of stock at a cost of $150 million. The quarter's average diluted share count of 268.9 million shares was down 2 percent from the second quarter of 2013, the result of repurchasing 10.4 million shares of stock at a cost of $500 million since June 30, 2013.

Book Value

As of June 30, book value per share, including accumulated other comprehensive income ("AOCI"), of $59.24 increased 18 percent from a year ago. Book value per share, excluding AOCI, of $46.97 increased 9 percent from the prior-year period.

More information and complete details:

LincolnFinancial.com

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