Lincoln National Beats

Lincoln National Corp. (LNC - Analyst Report) reported operating earnings of 84 cents in the third quarter, which was ahead of the Zacks Consensus Estimate of 80 cents. The company had earned $1.16 per share on an operating basis in the year-ago quarter.
 
The company experienced lower average variable account values compared to the prior-year period. Also, there were some modest losses on its alternative investments.
 
Lincoln reported a net income of $153 million or 44 cents per share compared with $148 million or 58 cents in the year-ago quarter. We note that there were fewer shares outstanding in the prior-year quarter.
 
The company managed to report better operating results on a quarter-over-quarter basis due to the appreciation in the equity market. Consolidated deposits increased 10% sequentially but were down 2% year over year to $5.3 billion. Net flows were up 25% sequentially and 34% year over year to $2.3 billion.
 
Quarterly results included a positive adjustment of $55 million related to the previously announced sale of Lincoln National (UK) plc, realized investment losses of $42 million, and a loss of $151 million, primarily due to the non-performance risk factor on the variable annuity hedge program. As a result of the recovery in equity markets, Lincoln experienced an unlocking of $15 million that it kept for meeting the commitments on variable annuities sold.
 
The company has completed the sale of Lincoln National UK on Oct 1, 2009. Also, the sale of Delaware Investments is right on track and the company expects to close the transaction at or around year-end.
 
The company incurred a loss of $1 million on alternative investments compared to an income of $12 million in the prior-year period.
 
Lincoln’s book value per share, excluding accumulated other comprehensive income, was $39.29 compared to $44.18 a year ago.
 
In an attempt to strengthen its balance sheet, during the second quarter, Lincoln raised a total of $2.14 billion of capital, out of which $690 million was raised by way of common stock, $500 million by way of senior notes and $950 million by issuing preference shares to the U. S. Treasury. Out of the total issue, Lincoln retained approximately $1.1 billion of the proceeds at the holding company and contributed $1 billion to the insurance subsidiaries.
 
Companies such as Lincoln Financial, Manulife Financial Corp. (MFC - Analyst Report), Principal Financial Group (PFG - Analyst Report) and Hartford Financial Services Group Inc. (HIG - Analyst Report) have been adversely impacted by the severe equity market downturn. In particular, the variable annuity businesses of these companies have been worst hit.
 
Lincoln was one of the six big insurers including Hartford Financial Services, Prudential Financial Inc. (PRU - Snapshot Report), Allstate Corp. (ALL - Analyst Report), Ameriprise Financial Inc. (AMP - Snapshot Report) and Principal Financial Group, who qualified for the bailout funds under TARP in May. However, Prudential Financial Inc., Principal Financial Group Inc., Allstate and Ameriprise had declined the assistance.
 
The capital market turmoil has significantly impacted the insurance industry’s capital position and operating performances. However, we expect the equity market appreciation will help the company going forward. Also, we remain encouraged by the company’s cost containment measures and capital bolstering initiatives.
 
We think that such measures will give Lincoln the much-needed capital flexibility despite diluting earnings. Additionally, the company’s strong competitive position in the life insurance and annuity market along with a diverse distribution network should augur well going forward.