- Net income EPS of $1.16 and adjusted operating EPS of
$1.82
- Adjusted operating EPS included $(1.15) from elevated
pandemic-related claims experience and $0.43 of above targeted
alternative investment income
- BVPS, including AOCI, of $102.50, up 19%; BVPS, excluding AOCI,
of $72.36, up 3%
- $186 million of capital returned to shareholders, including
$105 million in share repurchases
Lincoln Financial Group (NYSE: LNC) today
reported net income for the first quarter of 2021 of $225 million,
or $1.16 per diluted share available to common stockholders,
compared to net income in the first quarter of 2020 of $52 million,
or $0.15 per diluted share available to common stockholders. First
quarter adjusted income from operations was $350 million, or $1.82
per diluted share available to common stockholders, compared to
adjusted income from operations of $465 million, or $2.24 per
diluted share available to common stockholders, in the first
quarter of 2020.
“First quarter results were strong as strategic actions taken to
drive top and bottom line growth led to increased operating
revenues and expense efficiency in all our businesses,” said Dennis
R. Glass, president and CEO of Lincoln Financial Group. “While
reported results were again affected by the pandemic, mortality
impacts should abate, capital markets have improved, sales
pipelines are strong, and quarterly capital return to shareholders
is being restored to pre-pandemic levels, all of which support
continued momentum.”
As of or For the
Quarter Ended
March 31,
(in millions, except per share data)
2021
2020
Net Income (Loss)
$
225
$
52
Net Income (Loss) Available to Common
Stockholders
225
29
Net Income (Loss) per Diluted Share
Available to Common Stockholders
1.16
0.15
Revenues
4,534
4,425
Adjusted Income (Loss) from Operations
350
465
Adjusted Income (Loss) from Operations per
Diluted Share Available to Common Stockholders
1.82
2.24
Average Diluted Shares
193.1
197.3
Return on Equity (ROE), Including
Accumulated Other Comprehensive Income (AOCI) (Net Income)
4.3
%
1.1
%
Adjusted Operating ROE, Excluding AOCI
(Adjusted Income from Operations)
10.2
%
13.5
%
Book Value per Share (BVPS), Including
AOCI
$
102.50
$
85.79
Book Value per Share, Excluding AOCI
72.36
70.24
Operating Highlights – First Quarter 2021 vs. First Quarter
2020
- Operating revenues increased in all four business segments
- Expense ratios improved in Annuities, Life Insurance and
Retirement Plan Services and remained steady in Group
Protection
- Annuities average account values of $160 billion, up 16%
- Retirement Plan Services generated positive net flows of $347
million in the quarter
- Life Insurance average in-force face amount of $901 billion, up
8%
- Group Protection insurance premiums of $1.1 billion, up 2%
There were no notable items within adjusted income from
operations for the current quarter or the prior-year quarter.
First Quarter 2021 – Segment Results
Annuities
Annuities reported income from operations of $290 million, up
11% over the prior-year quarter. The increase was driven by higher
account values from strong equity market performance and favorable
returns within the company’s alternative investment portfolio,
partially offset by a tax adjustment in the current quarter.
Total annuity deposits of $2.8 billion were down 24% from the
prior-year quarter. Total variable annuity sales were up 3% versus
the prior-year quarter as strong growth in variable annuity sales
without guaranteed living benefits more than offset declines in
variable annuity sales with living benefits. Fixed annuity sales
were $86 million, consistent with recent quarters, but down from
$1.1 billion in the prior-year period due to product actions taken
in response to lower interest rates.
Net outflows were $776 million in the quarter. Average account
values for the quarter of $160 billion were up 16% over the
prior-year quarter.
Retirement Plan Services
Retirement Plan Services reported income from operations of $57
million, up 43% from the prior-year quarter with the increase
primarily driven by higher account values from strong equity market
performance, expense management and favorable returns within the
company’s alternative investment portfolio.
Total deposits for the quarter of $2.6 billion were down 5% from
the prior-year quarter as growth in recurring deposits was more
than offset by a decline in first-year sales.
Net flows totaled $347 million for the quarter. Average account
values for the quarter of $90 billion were up 18% over the
prior-year quarter.
Life Insurance
Life Insurance reported income from operations of $107 million
compared to $171 million in the prior-year quarter as
pandemic-related mortality was partially offset by favorable
returns within the company’s alternative investment portfolio and
expense management.
Total Life Insurance sales were $114 million compared to $169
million in the prior-year quarter, however sales were in line with
the prior quarter.
Average Life Insurance in-force of $901 billion grew 8% over the
prior-year quarter, and average account values of $58 billion
increased 10% over the same period.
Group Protection
Group Protection reported a loss from operations of $26 million
in the quarter compared to income from operations of $40 million in
the prior-year quarter. This change was driven by mortality and
morbidity experience associated with the pandemic, which was
partially offset by premium growth.
The total loss ratio was 87% in the current quarter compared to
79% in the prior-year quarter, with the increase driven by the
pandemic.
Group Protection sales were $74 million in the quarter compared
to $102 million in the prior-year quarter. Employee-paid sales
represented 67% of total sales. Insurance premiums of $1.1 billion
in the quarter were up 2% compared to the prior-year quarter.
Other Operations
Other Operations reported a loss from operations of $78 million
versus a loss of $47 million in the prior-year quarter. In the
current quarter there was $11 million of elevated deferred
compensation expense related to the increase in the company’s share
price during the quarter. In the prior-year quarter deferred
compensation expenses were $21 million below expectations related
to the decrease in the company’s share price during the
quarter.
Realized Gains and Losses / Impacts to Net Income
Realized gains/losses and impacts to net income (after-tax) in
the quarter were driven by:
- A $144 million non-economic loss from GLB non-performance
risk.
- A $44 million realized gain related to financial assets.
- A $42 million dollar loss from hedge performance.
- A $17 million dollar gain from indexed annuity forward-starting
options.
Unrealized Gains and Losses
The company reported a net unrealized gain of $11.4 billion,
pre-tax, on its available-for-sale securities at March 31, 2021.
This compares to a net unrealized gain of $6.4 billion, pre-tax, at
March 31, 2020, with the year-over-year increase primarily driven
by tighter credit spreads.
Share Count
The quarter’s average diluted share count of 193.1 million was
down 2% from the first quarter of 2020, the result of repurchasing
3.0 million shares of stock at a cost of $155 million since March
31, 2020.
Book Value
As of March 31, 2021, book value per share, including AOCI,
increased 19% from the prior-year period to $102.50. Book value per
share, excluding AOCI, increased 3% from the prior-year period to
$72.36.
The tables attached to this release define and reconcile the
non-GAAP measures adjusted income from operations, adjusted
operating ROE and BVPS, excluding AOCI, to net income, ROE and
BVPS, including AOCI, calculated in accordance with GAAP.
This press release contains statements that are forward-looking,
and actual results may differ materially. Please see the
Forward-looking Statements – Cautionary Language at the end of this
release for factors that may cause actual results to differ
materially from the company’s current expectations.
For other financial information, please refer to the company’s
first quarter 2021 statistical supplement available on its website,
http://www.lfg.com/investor.
Lincoln Financial Group will discuss the company’s first quarter
results with investors in a conference call beginning at 10:00 a.m.
Eastern Time on Thursday, May 6, 2021. The conference call will be
broadcast live through the company website at www.lfg.com/webcast.
Please log on at least fifteen minutes prior to the call to
register and download any necessary streaming media software. To
participate via phone: (866) 394-4575 (U.S./Canada) or (678)
509-7536 (International). Ask for the Lincoln National Conference
Call.
A replay of the call will be available by 1:00 p.m. Eastern Time
on May 6, 2021 at www.lfg.com/webcast. Audio replay will be
available from 1:00 p.m. Eastern Time on May 6, 2021 through 12:00
p.m. Eastern Time on May 13, 2021. To access the re-broadcast,
dial: (855) 859-2056 (Domestic) or (404) 537-3406 (International).
Enter conference code: 6288902.
About Lincoln Financial Group
Lincoln Financial Group provides advice and solutions that help
people 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, and 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 $311 billion in end-of-period account values as of
March 31, 2021. Lincoln Financial Group is a committed corporate
citizen included on major sustainability indices including the Dow
Jones Sustainability Index North America and FTSE4Good. Dedicated
to diversity and inclusion, we earned perfect 100 percent scores on
the Corporate Equality Index and the Disability Equality Index, and
rank among Forbes’ Best Large Employers and Best Employers for
Women, and Newsweek’s Most Responsible Companies. 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 adjusted income from operations
(adjusted operating income), adjusted operating return on equity,
adjusted operating revenues, and adjusted operating EPS 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
Adjusted income (loss) from operations, adjusted operating
revenues and adjusted operating return on equity (including and
excluding average goodwill within average equity), excluding AOCI,
using annualized adjusted income (loss) from operations are
financial measures we use to evaluate and assess our results.
Adjusted income (loss) from operations, adjusted operating revenues
and adjusted operating return on equity (“ROE”), as used in the
press release, are non-GAAP financial measures and do not replace
GAAP net income (loss), revenues and ROE, the most directly
comparable GAAP measures.
Adjusted Income (Loss) from Operations
Adjusted income (loss) from operations is GAAP net income (loss)
excluding the after-tax effects of the following items, as
applicable:
- Realized gains and losses associated with the following
(“excluded realized gain (loss)”):
- Sales or disposals and impairments of financial assets;
- Changes in the fair value of equity securities;
- Changes in the fair value of derivatives, embedded derivatives
within certain reinsurance arrangements and trading securities
(“gain (loss) on the mark-to-market on certain instruments”);
- Changes in the fair value of the derivatives we own to hedge
our guaranteed death benefit (“GDB”) riders within our variable
annuities;
- Changes in the fair value of the embedded derivatives of our
guaranteed living benefit (“GLB”) riders reflected within variable
annuity net derivative results accounted for at fair value;
- Changes in the fair value of the derivatives we own to hedge
our GLB riders reflected within variable annuity net derivative
results; and
- Changes in the fair value of the embedded derivative
liabilities related to index options we may purchase or sell in the
future to hedge contract holder index allocations applicable to
future reset periods for our indexed annuity products accounted for
at fair value (“indexed annuity forward-starting options”);
- Changes in reserves resulting from benefit ratio unlocking on
our GDB and GLB riders (“benefit ratio unlocking”);
- Income (loss) from reserve changes, net of related
amortization, on business sold through reinsurance;
- Gains (losses) on early extinguishment of debt;
- Losses from the impairment of intangible assets;
- Income (loss) from discontinued operations;
- Acquisition and integration costs related to mergers and
acquisitions; and
- Income (loss) from the initial adoption of new accounting
standards, regulations and policy changes including the net impact
from the Tax Cuts and Jobs Act.
Adjusted Operating Revenues
Adjusted operating revenues represent GAAP revenues excluding
the pre-tax effects of the following items, as applicable:
- Excluded realized gain (loss);
- Revenue adjustments from the initial adoption of new accounting
standards;
- Amortization of deferred front-end loads (“DFEL”) arising from
changes in GDB and GLB benefit ratio unlocking; and
- Amortization of deferred gains arising from reserve changes on
business sold through reinsurance.
Adjusted Operating Return on Equity
Adjusted operating return on equity measures how efficiently we
generate profits from the resources provided by our net assets.
- It is calculated by dividing annualized adjusted 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
Adjusted 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 adjusted
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:
- Annuities and Retirement Plan Services – deposits from new and
existing customers;
- Universal life insurance (“UL”), indexed universal life
insurance (“IUL”), variable universal life insurance (“VUL”) –
first-year commissionable premiums plus 5% of excess premiums
received;
- MoneyGuard® linked-benefit products – MoneyGuard® (UL), 15% of
total expected premium deposits, and MoneyGuard Market AdvantageSM
(VUL), 150% of commissionable premiums;
- 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; and
- Group Protection – annualized first-year premiums from new
policies.
Lincoln National
Corporation
Reconciliation of Net Income
to Adjusted Income from Operations
(in millions, except per share data)
For the Quarter Ended
March 31,
2021
2020
Total Revenues
$
4,534
$
4,425
Less:
Excluded realized gain (loss)
(229)
(75)
Amortization of DFEL on benefit ratio
unlocking
1
(9)
Total Adjusted Operating
Revenues
$
4,762
$
4,509
Net Income (Loss) Available to
Common
Stockholders – Diluted
$
225
$
29
Less:
Adjustment for deferred units of LNC stock
in our
deferred compensation plans(1)
-
(23)
Net Income (Loss)
225
52
Less:
Excluded realized gain (loss),
after-tax
(180)
(60)
Benefit ratio unlocking, after-tax
55
(349)
Acquisition and integration costs related
to mergers
and acquisitions, after-tax
-
(4)
Total adjustments
(125)
(413)
Adjusted Income (Loss) from
Operations
$
350
$
465
Earnings (Loss) Per Common Share –
Diluted
Net income (loss)
$
1.16
$
0.15
Adjusted income (loss) from operations
1.82
2.24
Average Stockholders’ Equity
Average Equity, including average AOCI
$
21,146
$
18,132
Average AOCI
7,346
4,338
Average equity, excluding AOCI
13,800
13,794
Average goodwill
1,778
1,778
Average equity, excluding AOCI and
goodwill
$
12,022
$
12,016
Return on Equity, Including
AOCI
Net income (loss) with average equity
including goodwill
4.3%
1.1%
Adjusted Operating Return on Equity,
Excluding AOCI
Adjusted income (loss) from operations
with average equity
including goodwill
10.2%
13.5%
Adjusted income (loss) from operations
with average equity
excluding goodwill
11.6%
15.5%
(1)
If the effect of equity classification
would result in a more dilutive EPS, the numerator used in the
calculation of our diluted EPS is adjusted to remove the
mark-to-market adjustment for deferred units of LNC stock in our
deferred compensation plans.
Lincoln National
Corporation
Reconciliation of Book Value
per Share
As of March 31,
2021
2020
Book value per share, including AOCI
$
102.50
$
85.79
Per share impact of AOCI
30.14
15.55
Book value per share, excluding AOCI
72.36
70.24
Lincoln National
Corporation
Digest of Earnings
(in millions, except per share data)
For the Quarter Ended
March 31,
2021
2020
Revenues
$
4,534
$
4,425
Net Income (Loss)
$
225
$
52
Adjustment for deferred units of LNC stock
in our
deferred compensation plans(1)
-
(23)
Net Income (Loss) Available to
Common
Stockholders – Diluted
$
225
$
29
Earnings (Loss) per Common Share –
Basic
$
1.17
$
0.27
Earnings (Loss) per Common Share –
Diluted
1.16
0.15
Average Shares – Basic
191,780,135
195,076,797
Average Shares – Diluted
193,066,325
197,264,842
(1)
If the effect of equity classification
would result in a more dilutive EPS, the numerator used in the
calculation of our diluted EPS is adjusted to remove the
mark-to-market adjustment for deferred units of LNC stock in our
deferred compensation plans.
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. Forward-looking statements may contain words like:
"anticipate," "believe," "estimate," "expect," "project," "shall,"
"will," 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 are subject to risks and
uncertainties. Actual results could differ materially from those
expressed in or implied by such forward-looking statements due to a
variety of factors, including:
- The continuation of the COVID-19 pandemic, or future outbreaks
of COVID-19, and uncertainty surrounding the length and severity of
future impacts on the global economy and on our business, results
of operations and financial condition;
- Further deterioration in general economic and business
conditions that may affect account values, investment results,
guaranteed benefit liabilities, premium levels and claims
experience;
- Adverse global capital and credit market conditions that may
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;
- The inability of our subsidiaries to pay dividends to the
holding company in sufficient amounts, which 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 the payment of revenue
sharing and 12b-1 distribution fees;
- The impact of U.S. federal tax reform legislation on our
business, earnings and capital;
- The impact of Regulation Best Interest or other regulations
adopted by the Securities and Exchange Commission (“SEC”), the
Department of Labor, or other federal or state regulators or
self-regulatory organizations relating to the standard of care owed
by investment advisers and/or broker dealers that could affect our
distribution model;
- Actions taken by reinsurers to raise rates on in-force
business;
- Further 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;
- The impact of the implementation of the provisions of the
Dodd-Frank Wall Street Reform and Consumer Protection Act relating
to the regulation of derivatives transactions;
- 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 or continued volatility 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 that may affect our business,
results of operations and financial condition;
- 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
financial assets, as well as counterparties to which we are exposed
to credit risk requiring that we realize losses on financial
assets;
- Interruption in telecommunication, information technology or
other operational systems, or failure to safeguard the
confidentiality or privacy of sensitive data on such systems,
including 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;
- Future pandemics, acts of terrorism, 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 and uncertainties included here are not exhaustive.
Our most recent Form 10-K, as well as other reports that we file
with the 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210505006090/en/
Al Copersino (203) 257-4493 Investor Relations
InvestorRelations@LFG.com
Scott Sloat (484) 583-1625 Media Relations
scott.sloat@LFG.com
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