Lincoln Financial’s First-Quarter Profit Drops 8.8% on More Long-Term Disability Insurance Claims
May 1, 2015 by Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com
RADNOR, Pa. – Lincoln National Corp.’s first-quarter profit declined 8.8% due partly to more long-term disability claims that triggered an operating loss in its group protection business.
Net income fell to $300 million.
The group protection business reported an operating loss of $6 million compared with operating income of $20 million last year. An increase in long-term disability claims caused its non-medical loss ratio to rise to 78.1% from 74.8%. Results also were hurt by about $8 million from accelerated amortization of deferred policy acquisition costs on “our extensive re-pricing of policy renewals,” Lincoln said.
In its life insurance business, operating income fell to $111 million from $120 million on higher than expected mortality, not isolated to any particular block of business, the company said.
“Earnings in the quarter were reduced by adverse individual life mortality and weak group protection results” said Dennis R. Glass, president and chief executive officer of Lincoln Financial Group, the marketing name for Lincoln National, in a statement. “We do not expect seasonal fluctuations in mortality to define our year, and we continue to take actions to restore group protection earnings.”
Last summer, on the company’s second-quarter 2014 earnings call, Glass said the company was taking necessary pricing actions to get its group protection business “back on track.” In response to a question from an analyst, Glass said the company had to reprice about $1 billion worth of employer-paid premium. This will take “somewhere in the neighborhood” of to early 2015 to get that repriced, he said at that time. It will take through the end of 2015 to get back up to a higher level of earnings, he said, noting “it could be a bumpy road between now and then.” (Best’s News Service, July 31, 2014).
In the first quarter, sales of the company’s individual life insurance, which exclude corporate-owned life insurance and bank-owned life insurance, fell 2% on declines in term life and variable universal life. Total life insurance sales rose 6% to $153 million, Lincoln said.
In the quarter, Lincoln also recorded a net unrealized gain of $8.6 billion, pretax, on its available-for-sale securities at March 31. Last year, Lincoln posted a lower such gain, at $5.8 billion. The year-over-year increase was mostly driven by lower Treasury rates, Lincoln said.
Lincoln Financial Group is the eighth-largest U.S. life insurer based on 2013 total admitted assets of $213.16 billion, according to A.M. Best Co.
Lincoln National Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior).
Midday May 1, Lincoln National Corp. (NYSE: LNC) stock was trading at $56.97 a share, up 0.85% from the previous close.
