Lincoln National (LNC) Q4 2009 earnings summary

Executive summary

• FY09 brought recession-driven earnings and investment pressure; actions prioritized capital and liquidity, cost reductions, divestitures, and positive core operating income, with shareholder-value rebuilding set as the 2010 goal.

• Consolidated deposits were $19.8B, net flows $7.3B, and assets under management $141.3B; advisor recommendations grew 11% to 55,000.

Financial highlights

• FY09 revenue was $8.499B, down 8% YoY; net loss was $485M versus net income of $57M in 2008, including a $415M continuing-operations loss.

• Income from operations, a non-GAAP measure, was $943M, or $3.18 per diluted share, versus $778.4M and $3.00 in 2008; GAAP diluted EPS was -$1.85.

• Total realized loss was $1.146B and intangible impairments were $730M; impairments included $600M of annuity goodwill and media goodwill/license charges.

• Net investment income rose 1% to $4.178B; insurance fees fell 5% to $2.922B and insurance premiums rose 2% to $2.064B.

Outlook and guidance

• 2010 outlook called for a slow recovery with continued volatility; plans balanced capital prudence with targeted investment to grow sales, productivity, and earnings.

• Investment losses were expected to remain elevated but below 2009 levels as recovery took hold; losses were expected to stay below 2009 levels.

• Group Protection expected 2010 non-medical loss ratios of 70%-71%, near the low end of the historical 71%-74% expected range; favorable 2009 claims experience was not expected to persist indefinitely.

• 2010 priorities included reducing guarantee risk in variable annuities, investing in Defined Contribution and Group Protection, controlling expenses, and monitoring capital and liquidity.

• Higher overhead allocations and strategic investments were expected to increase segment expenses in 2010 following the UK and investment-management disposals.