RADNOR, Pa.–(BUSINESS WIRE)–Lincoln Financial Group (NYSE: LNC) today reported net income for the third quarter of 2017 of $418 million, or $1.87 per diluted share available to common stockholders, compared to net income in the third quarter of 2016 of $467 million, or $2.00 per diluted share available to common stockholders. Third quarter income from operations was $454 million, or $2.03 per diluted share available to common stockholders, compared to $441 million, or $1.89 per diluted share available to common stockholders, in the third quarter of 2016.

The board of directors of Lincoln National Corporation approved raising the quarterly dividend on its common shares to $0.33 per share. The dividend represents a 14% increase over the prior-year level. The increased dividend on the common stock will be payable on February 1, 2018, to shareholders of record at the close of business on January 10, 2018.

“Strong results continued in the third quarter as we reported record operating earnings and EPS while ROE exceeded 13%,” said Dennis R. Glass, president and CEO of Lincoln Financial Group. “The quarter’s high quality earnings were well balanced as underwriting results were strong in Group Protection and Life Insurance, and record account values benefited our Annuity and Retirement Plan Services businesses.”

Operating Highlights – Third Quarter 2017 versus Third Quarter 2016

• Operating EPS, up 7%
• Record average account values of $244 billion, up 8%
• Variable annuity sales up 1% marking first year-over-year growth since 2014
• Retirement Plan Services net flows of $415 million and $1.3 billion over trailing twelve months
• Group Protection after tax margin of 8%, up 2 percentage points

Notable items in the current quarter included net favorable items of approximately $0.09 per share related primarily to tax adjustments. The prior-year quarter included net favorable items of $0.06 per share primarily related to tax adjustments.

Third Quarter 2017 – Segment Results

Annuities

The Annuities segment reported income from operations of $277 million, up 15% versus the prior-year quarter. Excluding notable items in both periods, income from operations increased 5% primarily driven by higher fee income.

Total annuity deposits of $1.9 billion were consistent with the prior year as a 1% increase in variable annuity deposits was offset by a 9% decline in fixed annuity deposits.

Total average account values grew 6% to a record $132 billion as annuity outflows were more than offset by favorable equity performance.

This quarter included net favorable items of $15 million related to the company’s annual review of DAC and reserve assumptions. The prior-year quarter included net unfavorable items of $10 million related to the company’s annual review of DAC and reserve assumptions.

Retirement Plan Services

Retirement Plan Services reported income from operations of $35 million, up 9% compared to the prior-year quarter. The increase in earnings is primarily due to growth in fee income driven by higher average account values and expense ratio improvement.

Total deposits for the quarter of $1.9 billion were up 6% versus the prior-year period driven by an 11% increase in first-year sales and a 4% increase in recurring deposits.

Net flows totaled $415 million in the quarter compared to $97 million in the prior-year quarter. Over the past twelve months, net flows have totaled $1.3 billion, and when combined with favorable market performance, average account values increased 13% to $64 billion.

This quarter included net unfavorable items of $1 million related to the company’s annual review of DAC assumptions. The prior year included net unfavorable items of $2 million related to the company’s annual review of DAC assumptions.

Life Insurance

Life Insurance reported income from operations of $121 million versus $167 million in the prior-year quarter. Excluding notable items in both periods, earnings decreased 9% reflecting higher variable investment income in the prior-year quarter.

Total Life Insurance sales were $178 million versus $193 million in the prior-year quarter. Growth in Executive Benefits and MoneyGuard® were more than offset by declines in UL and IUL. Year-to-date sales have increased 10%.

Total Life Insurance in-force of $712 billion grew 4% over the prior-year quarter, and average account values of $48 billion increased 6% over the prior-year quarter.

This quarter included net unfavorable items of $16 million related to the company’s annual review of DAC and reserve assumptions. The prior-year quarter included net favorable items of $17 million related to the company’s annual review of DAC and reserve assumptions.

Group Protection

Group Protection income from operations was $41 million in the quarter, up 46% versus the prior-year period. The increase in earnings was driven by improvement in the non-medical loss ratio and premium growth. The total non-medical loss ratio was 63.7% in the current quarter compared to 70.2% excluding the impact of a reserve refinement in the prior-year period.

Group Protection sales of $94 million increased 21% from the prior-year period with growth across all product lines and in both employer and employee-paid sales.

Non-medical net earned premiums were $500 million in the third quarter, up 3% from the prior-year quarter as sales and persistency continue to improve.

The current quarter included net favorable items of $3 million related to the recapture of previously reinsured business. The prior-year quarter included net favorable items of $5 million from a review of disability reserves and DAC assumptions.

Other Operations

Other Operations reported a loss from operations of $20 million versus a loss of $26 million in the prior-year quarter. The current quarter included a $7 million after-tax expense related to the strategic digitization initiative.

This quarter included net favorable items of $20 million related to tax adjustments. The prior-year results included net favorable items of $4 million primarily related to tax adjustments, partially offset by higher benefits from a legacy business.

Realized Gains and Losses / Impacts to Net Income

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

• A $13 million net loss from general account investments compared to a $28 million net loss in the prior-year quarter.
• A $21 million variable annuity net derivative loss in the quarter compared to a $50 million net gain in the prior-year quarter.

Unrealized Gains and Losses

The company reported a net unrealized gain of $7.2 billion, pre-tax, on its available-for-sale securities at September 30, 2017. This compares to a net unrealized gain of $8.9 billion at September 30, 2016, with the year-over-year decrease primarily driven by an increase in interest rates.

Capital

During the quarter, the company repurchased 2.8 million shares of stock at a cost of $200 million. The quarter’s average diluted share count of 223.9 million was down 4% from the third quarter of 2016, the result of repurchasing 11.9 million shares of stock at a cost of $804 million since September 30, 2016.

Book Value

As of September 30, 2017, book value per share, including accumulated other comprehensive income (“AOCI”), of $74.31 increased 4% from a year ago. Book value per share, excluding AOCI, of $61.29 increased 8% from the prior-year period.

The tables attached to this release define and reconcile the non-GAAP measures income from operations, operating return on equity (“ROE”) and book value per share, excluding AOCI to net income, ROE and book value per share, including AOCI calculated in accordance with GAAP.

This press release may contain statements that are forward-looking, and actual results may differ materially, especially given the current economic and capital market conditions. Please see the Forward Looking Statements – Cautionary Language that follow for additional factors that may cause actual results to differ materially from our current expectations.

For other financial information, please refer to the company’s third quarter 2017 statistical supplement available on its website, www.lfg.com/earnings.

Lincoln Financial Group will discuss the company’s third quarter results with investors in a conference call beginning at 10:00 a.m. Eastern Time on Thursday, November 2, 2017. Interested persons are invited to listen through the internet. Please go to www.lfg.com/webcast at least fifteen minutes prior to the event to register, download and install any necessary streaming media software. Interested persons may also listen to the call by dialing the following numbers:

Audio replay will begin by 1:00 p.m. Eastern Time on November 2, 2017, and it will remain available through 1:00 p.m. Eastern Time on November 9, 2017. To access the re-broadcast:

A replay of the call will also be available by 1:00 p.m. Eastern Time on November 2, 2017 at www.lfg.com/webcast.

About Lincoln Financial Group

Lincoln Financial Group provides advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. Today, more than 17 million customers trust our retirement, insurance and wealth protection expertise to help address their lifestyle, savings and income goals, as well as to guard against long-term care expenses. Headquartered in Radnor, Pennsylvania, Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. The company had $246 billion in assets under management as of September 30, 2017. Lincoln is a committed corporate citizen and was named one of the Forbes Best Employers for 2017, is a member of the Dow Jones Sustainability Index North America, and received a perfect score of 100 percent on the 2017 Corporate Equality Index. Learn more at: www.LincolnFinancial.com. Follow us on Facebook, Twitter,LinkedIn, and Instagram. Sign up for email alerts at http://newsroom.lfg.com.

Explanatory Notes on Use of Non-GAAP Measures

Management believes that income from operations, operating return on equity and operating revenues better explain the results of the company’s ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company’s current business because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. Management also believes that using book value excluding accumulated other comprehensive income (AOCI) enables investors to analyze the amount of our net worth that is primarily attributable to our business operations. Book value per share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates.

For the historical periods, reconciliations of non-GAAP measures used in this press release to the most directly comparable GAAP measure may be included in this Appendix to the press release and/or are included in the Statistical Reports for the corresponding periods contained in the Earnings section of the Investor Relations page on our website: www.lfg.com/investor.

Definitions of Non-GAAP Measures Used in this Press Release

Income (loss) from operations, operating revenues and operating return on equity (including and excluding average goodwill within average equity), excluding AOCI, using annualized income (loss) from operations are financial measures we use to evaluate and assess our results. Income (loss) from operations, operating revenues and operating return on equity (“ROE”), as used in the earnings release, are non-GAAP financial measures and do not replace GAAP revenues, net income (loss) and ROE, the most directly comparable GAAP measures.

Income (Loss) from Operations

We exclude the after-tax effects of the following items from GAAP net income (loss) to arrive at income (loss) from operations:

• Realized gains and losses associated with the following (“excluded realized gain (loss)”):
  • Sale or disposal of securities;
  • Impairments of securities;
  • Change in the fair value of derivative investments, embedded derivatives within certain reinsurance arrangements and our trading securities;
  • Change in the fair value of the derivatives we own to hedge our guaranteed death benefit (“GDB”) riders within our variable annuities, which is referred to as “GDB derivatives results”;
  • Change in the fair value of the embedded derivatives of our guaranteed living benefit (“GLB”) riders within our variable annuities accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) (“embedded derivative reserves”), net of the change in the fair value of the derivatives we own to hedge the changes in the embedded derivative reserves, the net of which is referred to as “GLB net derivative results”;
  • Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC (“indexed annuity forward-starting option”);
• Change in reserves accounted for under the Financial Services – Insurance – Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB ASC resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”);
• Income (loss) from the initial adoption of new accounting standards;
• Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance;
• Gain (loss) on early extinguishment of debt;
• Losses from the impairment of intangible assets;
• Income (loss) from discontinued operations.

Operating Revenues

Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:

• Excluded realized gain (loss);
• Amortization of deferred front-end loads (“DFEL”) arising from changes in GDB and GLB benefit ratio unlocking;
• Amortization of deferred gains arising from the reserve charges on business sold through reinsurance;
• Revenue adjustments from the initial adoption of new accounting standards.

Operating Return on Equity

Return on equity measures how efficiently we generate profits from the resources provided by our net assets.

• It is calculated by dividing annualized income (loss) from operations by average equity, excluding accumulated other comprehensive income (loss) (“AOCI”).
• Management evaluates return on equity by both including and excluding average goodwill within average equity.

Definition of Notable Items

Income (loss) from operations, excluding notable items is a non-GAAP measure that excludes items which, in management’s view, do not reflect the company’s normal, ongoing operations.

• We believe highlighting notable items included in income (loss) from operations enables investors to better understand the fundamental trends in its results of operations and financial condition.

Book Value Per Share Excluding AOCI

Book value per share excluding AOCI is calculated based upon a non-GAAP financial measure.

• It is calculated by dividing (a) stockholders’ equity excluding AOCI by (b) common shares outstanding.
• We provide book value per share excluding AOCI to enable investors to analyze the amount of our net worth that is primarily attributable to our business operations.
• Management believes book value per share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates.
• Book value per share is the most directly comparable GAAP measure.

Special Note

Sales

Sales as reported consist of the following:

• MoneyGuard® – 15% of total expected premium deposits;
• Universal life (UL), indexed universal life (IUL), variable universal life (VUL) – first-year commissionable premiums plus 5% of excess premiums received;
• Executive Benefits – single premium bank-owned UL and VUL, 15% of single premium deposits, and corporate-owned UL and VUL, first-year commissionable premiums plus 5% of excess premium received;
• Term – 100% of annualized first-year premiums;
• Annuities – deposits from new and existing customers; and
• Group Protection – annualized first-year premiums from new policies.

Forward Looking Statements — Cautionary Language

Certain statements made in this press release and in other written or oral statements made by Lincoln or on Lincoln’s behalf are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: “believe,” “anticipate,” “expect,” “estimate,” “project,” “will,” “shall” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in Lincoln’s businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. Lincoln claims the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others:

• Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results;
• Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;
• Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations;
• Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements, as well as restrictions on revenue sharing and 12b-1 payments; the potential for U.S. federal tax reform; and the effect of the Department of Labor’s (“DOL”) regulation defining fiduciary;
• Actions taken by reinsurers to raise rates on in-force business;
• Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits and demand for our products;
• Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities;
• Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular;
• The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
• A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products;
• Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
• A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings;
• Changes in accounting principles generally accepted in the United States (“GAAP”), that may result in unanticipated changes to our net income;
• Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;
• Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;
• Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk requiring that we realize losses on investments;
• Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
• Interruption in telecommunication, information technology or other operational systems, or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems;
• The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items;
• The adequacy and collectability of reinsurance that we have purchased;
• Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;
• Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;
• The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and
• The unanticipated loss of key management, financial planners or wholesalers.

The risks included here are not exhaustive. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents filed with the Securities and Exchange Commission (“SEC”) include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, Lincoln disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this press release.

The reporting of Risk Based Capital (“RBC”) measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.