Lincoln National CEO Discusses Q3 2010 Results - Earnings Call Transcript

Lincoln National Corp. (

LNC

)

Q3 2010 Earnings Call

November 3, 2010 11:00 am ET

Executives

Jim Sjoreen - VP of IR

Dennis Glass - President and CEO

Fred Crawford - CFO

Analysts

Andrew Kligerman - UBS

Tom Gallagher - Credit Suisse

Ed Spehar - Bank of America

Randy Binner - FBR Capital Markets

Eric Berg - Barclays Capital

John Nadel - Sterne, Agee

Steven Schwartz - Raymond James

Bob Glasspiegel - Langen McAlenney

Mark Finkelstein - Macquarie

Darin Arita - Deutsche Bank

Presentation

Operator

Good morning and thank you for joining Lincoln Financial Group's third quarter 2010 earnings conference call. (Operator Instructions)

At this time, I would like to turn the conference over to the Vice President of Investor Relations, Jim Sjoreen.

Jim Sjoreen

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» Lincoln National Corporation Q2 2010 Earnings Call Transcript
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» Lincoln National Corporation Q3 2009 Earnings Call Transcript

Good morning and welcome to Lincoln Financial's third quarter earnings call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, trends and market conditions, including comments about liquidity and capital resources, premiums, deposits, interest rates and income from operations are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties are described in the cautionary statement disclosures in our earnings release issued yesterday, and our reports on Forms 8-K, 10-Q and 10-K filed with the SEC.

We appreciate your participation today and invite you to visit Lincoln's website www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include a full reconciliation of the non-GAAP measures used in the call, including income from operations and return on equity, to the most comparable GAAP measures.

Presenting on today's call are Dennis Glass, President and Chief Executive Officer, and Fred Crawford, Chief Financial Officer. After their prepared remarks, we will move to the question-and-answer portion of the call.

At this time, I would now like to turn the call over to Dennis.

Dennis Glass

Thanks, Jim, and good morning to all of you on the call. Our third quarter sales, net flows and operating results reflect the year's continuing positive trends and are attributable to our core franchise strength, including strong distribution, innovative and well-priced products, the consistent market presence, expense discipline and risk management.

As you have seen, the quarter's earnings had several assumptions and model related impacts which Fred will cover.

Looking at our operating performance, sales and net flows accounted for about half of the 10% increase in our record-setting ending account balances of $150 billion, again, reflecting the effectiveness of our franchise and our commitment to consistency, product distribution support and service over market cycles.

Consistency enhances profitability and distribution relationships. Our distribution system is among the largest and most diversified in the industry, and our ability to execute the model efficiently creates value to the enterprise across all three platforms, wholesale, retail and worksite.

At Lincoln Financial Distributors, we continue to focus on increasing productivity and reducing cost. We saw meaningful year-over-year growth in wholesaler productivity, up 11% and a growing number of advisors recommending our products, up 60% to more than 48,000 advisors in the first nine months of year.

In addition, strategic distribution expansion efforts, which include introducing new products to distribution partners and adding new partners like banks are responsible for 17% of sales over the past two years. This is a clear measure of how we are maximizing the size and scope LFD to spur top-line growth and drive a diverse mix of business efficiently.

Lincoln Financial Network continues to attract and retain seasoned advisors. The number of active LFN advisors is up again this quarter by almost 100 net new advisors to a total approaching 8,000. Our experience shows that consumers remain risk-averse, but are seeking professional advice and security in greater numbers as they rebuild their savings. And LFN is well positioned to take advantage of these trends.

Both LFN and LFD ran within pricing in the quarter. This reflects a significant improvement at LFD where we have evolved the model to focus on productivity rather than headcount increases over the past two years.

Finally, we are making good progress in our goal to increase productivity in our worksite sales and service organizations. During the quarter we updated enrolment capabilities in our group benefits business, and announced a new partnership to enhance our recordkeeping and web technology in our defined contribution business.

Life insurance sales were up 2% over the prior year quarter, fueled by a strong increase in our Lincoln MoneyGuard, UL long term care linked benefit product. We are the industry leader for hybrid solutions with Lincoln MoneyGuard, and expect our momentum to continue as a growing number of consumers look for more flexible ways to plan for and fund their retirement needs.

The introduction this quarter of DurationGuarantee UL, our new limited coverage guaranteed Universal Life product was well received by advisors and distribution partners. This was a product that combines the flexibility and guarantees of Universal Life with the affordability of term insurance, and we expect the product to make a meaningful contribution to Life sales in coming quarters.

In anticipation of the opportunities that will arise with the likelihood of more clarity around state taxes in 2011, we will introduce new pricing on our guaranteed survivorship UL product early next year, reflecting a lower interest rate environment while maintaining our historical value proposition that has made us an industry leader in this space.

Variable annuity sales were up 11%, while fixed annuity sales were dampened by the weak interest rate environment, thus driving our overall annuity sales down slightly from a year ago. As market conditions change, the versatility of our products and our distribution teams allow us to pit it to the right solution for our clients. Recognizing the need to continue to balance competitive positioning with sound financial and risk management discipline, we are launching refreshed versions of our patented i4LIFE Advantage immediate income solution, as well as our guaranteed withdrawal benefits lifetime income advantage in the fourth quarter.

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