February 9, 2010 Tuesday 02:56 PM EST

632 words

Lincoln National Swings to Profit; Life Insurer’s Chief Says Company to Repay TARP

Fran Lysiak

PHILADELPHIA

As Lincoln National Corp. swung to a fourth-quarter profit, the chief of the U.S. life insurer said the company expects to repay money this year or early next under the federal government’s Troubled Asset Relief Program. 

Net income in the final quarter of 2009 was $102 million, compared with a net loss of $506 million in the same period of 2008. But profit was dragged down, in part, by its variable annuity hedge program, which saw $98 million in net realized investment losses, after tax. 

During the company’s conference call, Dennis R. Glass, president and chief executive officer, said that in the face of challenging markets in 2009, Lincoln “completed a series of actions designed to place the company firmly on the path to performance and growth” while preserving the company’s financial flexibility and franchise value. 

In July 2009, Lincoln (NYSE: LNC) issued $950 million in preferred shares under the U.S. Treasury Department’s Capital Purchase Program, part of the TARP, which it said completed its plan to raise $2.1 billion (BestWire, July 13, 2009). The company was among a list of major insurers receiving preliminary approval in May for the federal government’s bailout money, though other companies didn’t take it. 

Glass said Lincoln expects to repay the CPP funds in the second half of 2010 or first half of 2011 “as market conditions dictate,” without diluting earnings per share. 

“Importantly, we have not to date seen any evidence that our participation in the program has adversely impacted our businesses in any meaningful way,” he said. 

For full-year 2009, Lincoln, which goes by the marketing name Lincoln Financial Group, reported a net loss of $485 million from net income of $57 million in 2008. Glass, noted, however, that in each quarter of 2009, Lincoln saw positive net income from operations in every line of business. 

Glass expects a slow economic recovery in 2010 and it’s likely that the capital markets “will remain volatile for some time. Given these expectations, we will continue to manage expenses carefully and maintain a conservative approach to overall capitalization.” 

In its retirement business, individual annuities reported operating income of $120 million from an operating loss of $172 million a year ago, when $247 million in charges for prospective unlocking of deferred acquisition costs on stock market declines hurt results. The current quarter included $19 million on retrospective unlocking of DAC, which positively impacted results. 

In 2009, Lincoln improved the risk-return profile for its stock-market linked variable annuities with income guarantees and also redesigned its secondary guarantee life insurance products, which allows the company to meet its ROE expectations on new business “without a capital solution,” Glass said. 

In its life insurance business, sales were down 8% to $195 million. For the year, sales declined to $610 million from $741 million. 

Total gross realized investment losses on its general account investments were $212 million, pretax, mostly related to commercial real estate equity, some financial-sector bonds and residential mortgage-backed securities. 

Glass expects some level of investment losses in 2010, but absent any new market disruption, the company expects the losses to be “significantly lower” than in 2009. “In summary, we are on a strong financial footing.” 

Lincoln has about $1 billion in cash at the holding company, net of cash set aside to repay a $250 million maturity in March, Glass said. 

On the early afternoon of Feb. 9, Lincoln’s stock was trading at $24.33 a share, up 3.66% from the previous close. 

Lincoln National Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior). 

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)

February 10, 2010