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Lincoln National Corporation’s (LNC - Analyst Report) first-quarter 2013 operating earnings of $1.02 per share lagged the Zacks Consensus Estimate of $1.10, although it breezed past the prior-year quarter’s earnings of 99 cents a share, primarily on lower share count.

However, operating net income dipped 2.7% year over year to $285 million. Meanwhile, reported net income, including extraordinary items, stood at $239 million or 86 cents per share as against $243 million or 82 cents per share in the year-ago quarter.

Lincoln’s total revenue climbed 4.9% over the prior-year quarter to $2.84 billion but missed the Zacks Consensus Estimate of $2.95 billion. The year-over-year upside was driven by strong distribution expansion along with higher premiums and fees.

Consolidated account balances increased 10% year over year to $186 billion, while net flows surged 67% to $2.1 billion, both reflecting growth across segments. Additionally, total deposits spiked 19% to $6.13 million in the reported quarter. Total expenses grew 5.7% year over year to $2.54 billion, primarily based on higher benefits.

Segment Analysis

Operating income from Annuities stood at $159 million, increasing 16.1% from $137 million in the prior-year quarter, driven by higher revenues. Even account balances, gross deposits and net flows showcased improvement over the prior-year quarter.

Operating income from Retirement Plan Services was $35 million, at par with the prior-year period, reflecting stable growth in sales, retention and account values.

Operating income from Life Insurance of $112 million declined 19.4% from $139 million in the year-ago period, although life insurance sales improved 23% year over year to $150 million. Life insurance in force improved 2% year over year to $594 billion, while aggregate sales of higher return products, including indexed universal life, variable universal life and term insurance, increased 82% over the prior-year quarter.

Operating income from Group Protection dipped to $14 million from $16 million in the prior-year period. Non-medical loss ratio remained flat at 74.8% from the prior quarter. However, non-medical net earned premiums were $475 million, up 10% over the year-ago period, while Group Protection sales of $71 million grew 6% year over year.

Operating loss in Other operations marginally reduced to $35 million from $34 million in the year-ago quarter.

Investment Position

Further, net realized losses included a net loss from account investments of $4 million compared with $6 million in the prior-year quarter. Additionally, net realized losses included variable annuity net derivatives loss of $34 million during the reported quarter.

As of Mar 31, 2013, net unrealized gain was approximately $8.7 billion (pre-tax) on its available-for-sale securities as compared with $6.4 billion in the year-ago period.

Financial Update

At the end of Mar 2013, book value per share came in at $55.33, up 20% on a year-over-year basis. Excluding accumulated other comprehensive income (AOCI), book value climbed 14% year over year to $42.00 per share. Operating ROE stood at 10.2% at the end of Mar 2013, down from 11.2% at both 2012-end and prior-year quarter.

Additionally, Lincoln bought back 3.2 million shares for $100 million during the reported quarter.

Dividend Update

On Mar 1, 2012, the board of Lincoln declared its regular quarterly dividend of 12 cents per share, which was paid on May 1, 2013 to the shareholders of record as on Apr 9, 2013.

On Nov 8, 2012, Lincoln announced a 50% hike in its regular quarterly dividend to 12 cents per share from the previous pay-out 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.

Others

Along with Lincoln, MetLife Inc. (MET - Analyst Report), American International Group Inc. (AIG - Analyst Report) and Prudential Financial Inc. (PRU - Analyst Report) carry a Zacks Rank #2 (Buy). 

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