Lincoln National (LNC) Q4 2012 earnings summary

Executive summary

• 2012 net income was $1.313B versus $221M in 2011; operating income was $1.284B versus $1.246B, and diluted EPS was $4.56 versus $0.69.

• Operating ROE excluding AOCI reached 12.0%, up from 11.3%; operating EPS grew 13%, book value per share excluding AOCI rose 15%, and total account values increased 11%.

• Common shares gained 33% during 2012; the quarterly dividend increased from $0.08 to $0.12 per share.

Financial highlights

• Revenue rose 8% to $11.532B from $10.641B; income from continuing operations was $1.286B versus $229M.

• 2012 results included $25M after-tax excluded realized losses and $25M of favorable benefit-ratio unlocking; 2011 included a $747M after-tax intangible impairment.

• Operating cash flow was $1.269B; account values increased to $177.770B from $159.945B, supported by market appreciation and positive net flows.

• Total deposits increased 6% to $22.894B; net flows rose 6% to $6.727B.

Outlook and guidance

• 2013 priorities include growth, new and repriced products, disciplined investment, distribution and technology investment, expense control, and shifting Life Insurance sales toward higher-return products.

• Pivot products—VUL, indexed UL and term, not primarily focused on secondary guarantees—were 46% of Life sales in 2012 versus 31% in 2011.

• Non-medical Group Protection loss ratios are expected to remain in the middle-to-high end of the 71%–74% long-term range into 2013; each 1-point increase above the range implies a $10M–$12M annual operating-income decline.

• A hypothetical 10-year Treasury rate held at 150 bps through end-2014 implies unfavorable earnings effects of $35M in 2013 and $100M in 2014, all else equal.

• Domestic insurance subsidiaries could pay about $730M in dividends in 2013 without prior regulatory approval; additional share repurchases were expected, subject to market conditions and capital alternatives.