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Lincoln National Corporation’s (LNC - Analyst Report) fourth-quarter 2012 operating earnings of $1.10 per share comfortably exceeded the Zacks Consensus Estimate of $1.06 and the prior-year quarter’s earnings of 91 cents a share, primarily on lower share count.

However, operating net income increased 11.9% year over year to $310 million. Meanwhile, reported net income, including extraordinary items, stood at $320 million or $1.14 per share as against a net loss of $541 million or $1.82 per share in the year-ago quarter.

Lincoln’s total revenue jumped 15.4% over the prior-year quarter to $2.96 billion and also outpaced the Zacks Consensus Estimate of $2.87 billion. The upside was driven by strong distribution expansion and improved pricing. Consolidated account balances increased 11% year over year to $178 billion, while net flows surged 61% to $2.6 billion, both reflecting growth across segments. Additionally, total deposits spiked 27% to $6.9 million in the reported quarter.

Segment Analysis

Operating income from Annuities stood at $162 million, increasing 24% from $131 million in the prior-year quarter, driven by higher fee revenue. Even account balances, gross deposits and net flow showcased improvement over the prior-year quarter.

Operating income from Retirement Plan Services was $28 million, dropping from $33 million in the prior-year period. The decline reflected higher expenses and lower net interest margins.

Operating income from Life Insurance of $147 million grew from $135 million in the year-ago period, although life insurance sales declined 1% year over year to $226 million. Life insurance in force improved 2% year over year to $591 billion, while aggregate sales of higher return products, including indexed universal life, variable universal life and term insurance, increased 44% over the prior-year quarter.

Operating income from Group Protection dipped to $13 million from $20 million in the prior-year period. Non-medical loss ratio deteriorated to 74.7% from 72.2% in the prior quarter. However, non-medical net earned premiums were $462 million, up 12% over the year-ago period, while Group Protection sales of $206 million slid 1% year over year.

Operating loss in Other operations marginally reduced to $40 million from $42 million in the year-ago quarter.

Highlights of Full-Year 2012

For full-year 2012, Lincoln reported operating earnings of $4.47 a share, beating the Zacks Consensus Estimate of $4.34 and $3.94 per share in 2011. Operating net income edged up 3.0% year over year to $1.28 billion.

Reported net income stood at $1.31 billion or $4.56 per share as against $216 million or 69 cents per share in 2011. Total revenue climbed 8.4% over 2011 to $11.53 billion, breezing past the Zacks Consensus Estimate of $11.49 billion.

Investment Position

Further, net realized losses included a net loss from account investments of $2 million compared with $28 million in the prior-year quarter. Additionally, net realized losses included variable annuity net derivatives gains of $13 million during the reported quarter.

As of Dec 31, 2012, net unrealized gain was approximately $9.4 billion (pre-tax) on its available-for-sale securities as compared with $6.5 billion at the end of 2011.

Financial Update

At the end of 2012, book value per share came in at $55.14, up 23% on a year-over-year basis. Excluding accumulated other comprehensive income (AOCI), book value climbed 15% year over year to $41.11 per share. Operating ROE stood at 11.3% at 2012-end, down from 12.0% at 2011-end.

Additionally, Lincoln bought back 3.8 million shares for $92 million during the reported quarter, taking the total buyback to $492 million in 2012.

Dividend Update

On Nov 8, 2012, the board of Lincoln announced a 50% hike in its regular quarterly dividend to 12 cents per share from the previous payout of 8 cents per share. The raised dividend was paid on Feb 1, 2013 to shareholders of record as on Jan 10, 2013. This marked the third dividend hike since 2007.

On Nov 1, 2012, Lincoln paid a regular quarterly dividend of 8 cents per share to shareholders of record as on Oct 10, 2012.


Lincoln carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include HCC Insurance Holdings Inc. (HCC - Snapshot Report), First American Financial Corp. (FAF - Snapshot Report) and Selective Insurance Group Inc. (SIGI - Snapshot Report), all of which carry a Zacks Rank #1 (Strong Buy).

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