Lincoln National's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Lincoln National (LNC)

Q4 2011 Earnings Call

February 08, 2012 11:00 am ET

Executives

Jim Sjoreen - Investor Relations Professional

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Dennis R. Glass - Chief Executive Officer, President, Director, Member of Executive Committee, Member of Corporate Action Committee and Member of Committee On Corporate Action

Randal J. Freitag - Chief Financial Officer and Executive Vice President

Analysts

Edward A. Spehar - BofA Merrill Lynch, Research Division

Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Joanne A. Smith - Scotiabank Global Banking and Market, Research Division

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Andrew Kligerman - UBS Investment Bank, Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Robert Glasspiegel - Langen McAlenney

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good afternoon, and thank you for joining Lincoln Financial Group's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Senior Vice President of Investor Relations, Jim Sjoreen. Please go ahead, sir.

Jim Sjoreen

Thank you, operator, and good morning and welcome to Lincoln Financial's Fourth 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, expenses 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 listen to Lincoln's -- listen and visit at Lincoln's website, www.lincolnfinancial.com, where you can find our press release and statistical supplement, which includes a full reconciliation of the non-GAAP measures used in the call, including income from operations and return on equity, to their most comparable GAAP measures.

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

With that, I would now like to turn the call over to Dennis.

Dennis R. Glass

Thanks, Jim, and good morning, everyone. In the fourth quarter and the year, we drove solid sales and net flows, the result of our consistent approach to product and distribution and a continuation of what we achieved in each of the last several years, including throughout the financial crises.

During 2011, we took steps to strengthen our franchise, including: Reducing asset risk by investing in high-quality corporate securities; escalating share repurchases and debt repayment; repricing life and annuity products to ensure profitable new business; and investing significantly in Retirement Plan Services and Group Protection to increase earning power in future years.

Randy will speak to our goodwill review and end his comments. In short, we incorporated a tough economic and competitive environment for several years in our assumptions, and the remaining goodwill asset is a solid number for the foreseeable future.

We accelerated our share buybacks in the quarter with another 200 million of shares, bringing our total repurchases to 575 million. As the year progressed, we did increase our plan for share repurchases, reflecting the good outcome of our balance sheet stress testing and the very low valuation of our shares.

We ended the year with a very solid balance sheet and deployable capital, permitting share repurchases to remain a strong option for capital usage in 2012.

Turning to highlights from our underlying businesses. Sales in our individual Life business were up 10% in 2011. We saw a shift in the mix of sales over the course of the year, with increases in variable universal life, indexed universal life and MoneyGuard, accompanied by a decline in secondary guarantee universal life.

The lower SGUL sales, more pronounced in the fourth quarter, are related in part to repricing actions that deemphasize single-premium type SGUL policies. Our analysis showed that we would need to accept very low single-digit returns on this business in order to remain in the upper quartiles of competitive pricing. This would not be selling on our terms.

Our sales mix and emphasis in 2012 would be similar to what we saw in the quarter on our core products. Total annuities sales were flat for the year, as we saw a 6% increase in DA sales, offset by a 20% decline in fixed annuity sales. Low interest rates affected fixed annuity sales.

We know annuities are important planning tools for consumers, and we are confident in our ability to grow and manage this business profitably. Steps we took in the fourth quarter to improve the risk profile and hedging cost variable annuities included implementing a managed volatility investment strategy on nearly $3 billion of in-force assets.

Additional changes we are implementing in April will encourage new sales to move into these low volatility options. These changes will allow our clients to choose the benefits and investment flexibility most suited to their needs.

Late last year, we announced a relationship with Primerica, to be the only provider of indexed annuities on their platform, and this quarter marks the launch of this program across the entire Primerica system.

In Retirement Plan Services, sales increased 5% for the year and 16% quarter over quarter, momentum building in the latter half of the year. We also saw our second consecutive quarter of positive net flows, bringing total net flows to more than $500 million for the year.

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