Lincoln Financial CEO: More Focus on Products Without Long-Dated Guarantees
May 6, 2014 by Fran Matso Lysiak
RADNOR, Pa. – Lincoln National Corp. is increasing its emphasis on products without long-dated guarantees and recently completed repricing most of its product portfolio, said its chief executive officer as the company’s first-quarter profit rose 36.7%.
Net income rose to $329 million. Total revenues increased 11.8% to $3.2 billion.
The company had a very good first quarter, continuing the operating and earnings strength it’s seen develop over the past several years, said Dennis R. Glass, president and CEO of Lincoln Financial Group, the marketing name for Lincoln National, during the earnings call. One of the highlights was the gain in operating revenue, which “reflected continued overall franchise strength, strong sales, positive net flows and equity markets driving higher account balances.”
Operating income for Lincoln’s annuities business rose 36% to $216 million as positive net flows and strong equity markets raised fees on assets under management.
Lincoln said it continues to focus on shifting the balance of sales variable annuities with and without guaranteed living benefits. Net of reinsurance, deposits into these stock market-linked retirement savings and income products without a guaranteed living benefit rider as a percentage of total VA deposits increased to 40%, up from 32% in the fourth quarter of 2013.
Lincoln continued to focus its attention on key strategic actions, Glass said. These include completing the repricing of “essentially” the entire product portfolio and diversifying product risk by balancing sales “with an emphasis on those without long-term guarantees,” he said, noting Lincoln ended the quarter with two-thirds of total sales coming in the form of shorter-duration guarantee products.
Over time, this emphasis will “meaningfully change” Lincoln’s in-force risk profile, Glass said.
VA deposits were flat from the prior year at $2.9 billion. But fixed annuity deposits jumped 54% to $432 million on sales of indexed annuities, the company said.
During the call, an equity analyst said he attended the American Council of Life Insurers’ conference a few months ago, in which ACLI’s president and CEO said more than the half the premium volume of ACLI members will be subject to capital standards from the states, and believe that if they will be regulated differently, that the remainder of the industry is likely to face new standards at some point too.
Glass responded by distinguishing between the primary regulator, the states, and the secondary regulator, the Treasury or some international body, he said. States regulated at the subsidiary level and these others regulate at the holding company level, he said. “That’s a pretty important distinction.”
The industry effort is to get the secondary regulators to use insurance-centric metrics, setting standards for solvency and what makes a strong company, Glass said. “We are working together to accomplish that because it’s the right thing for the industry.”
Lincoln has “no expectation that we will fall under any of the secondary regulators at all,” Glass said.
Total individual life sales, which exclude company-owned life insurance and banked-owned life insurance, rose 14% driven by variable universal life, term life and indexed UL.
John Nadel, an equity analyst with Sterne Agee, wrote in a research note that Lincoln’s life insurance sales were driven by a doubling of variable UL and 44% growth in whole and term life.
Equity analysts with Sandler O’Neill, wrote in a research note that they believe Lincoln National will repurchase more than $400 million of shares in 2014. Previously, management had stated that it plans to deploy approximately $700 million of capital in 2014, they wrote. “We estimate that dividends will account for roughly $215 million of that capital,” the note said. Lincoln has roughly $208 million remaining on its current share repurchase authorization, and management plans to ask for an additional authorization from its board in the near term, it said.
Lincoln National Life Insurance Co. and Lincoln Life & Annuity Company of New York each currently has a Best’s Financial Strength Rating of A+ (Superior). First Penn-Pacific Life Insurance Co., also a member of Lincoln National, currently has a Best’s Financial Strength Rating of A (Excellent).
On the afternoon of May 5, Lincoln National Corp.’s (NYSE: LNC) stock was trading at $49.50 a share, up 0.65% from the previous close
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
BN-NJ-5-5-2014 1454 ET #