We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (21,155)
  • Industry Conferences (2)
  • Industry Job Openings (35)
  • Moore on the Market (414)
  • Negative Media (144)
  • Positive Media (73)
  • Sheryl's Articles (800)
  • Wink's Articles (353)
  • Wink's Inside Story (274)
  • Wink's Press Releases (123)
  • Blog Archives

  • March 2024
  • February 2024
  • January 2024
  • December 2023
  • November 2023
  • October 2023
  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • September 2008
  • May 2008
  • February 2008
  • August 2006
  • Lincoln National Is a Bargain as Annuity Sales Rebound

    June 3, 2018 by Jack Hough

    Insurer Lincoln National has managed a nifty feat, delivering respectable returns for shareholders during a dire industry downturn. Lincoln specializes in something called variable annuities, and sales of those plummeted from $154 billion in 2011 to $91 billion last year, as a steadily rising stock market cut into demand for downside protection. Yet the company’s shareholders have roughly doubled their money in five years, besting the broad stock market.

    Lincoln (ticker: LNC) shares remain bargain-priced, at 7.6 times forward earnings, or less than half of the market’s valuation, even though variable annuity demand now shows signs of stabilizing as market volatility returns. That points to more upside for Lincoln. The stock could return 20% or more in the coming year, as earnings rise and the price/earnings ratio sees a modest rebound.

    Annuities are insurance contracts that can turn lump sums or long-term savings into streams of income—a handy trick for retirement savers at a time when fewer of them have traditional pension plans. Variable annuities have returns that are typically linked to stock portfolios, and some offer downside protection from market crashes.

    Lincoln is No. 3 in variable annuity sales, with about 9% market share. The No. 1 player is Jackson National, a unit of London’s Prudential (PUK), which is unrelated to the No. 4 variable annuity seller, America’s Prudential Financial (PRU). No. 2 is nonprofit TIAA. For investors, Lincoln offers the purest exposure, with variable annuities bringing in some 45% of earnings. It also sells retirement plans such as group annuities and individual retirement accounts, life insurance for individuals and groups, and workplace plans for things like disability insurance and dental care. 

    Whether Lincoln’s variable annuity exposure will be a help or hindrance from here depends on whether industry demand recovers, which in turn relates to what caused the drop to begin with. “Stocks have gone straight up with low volatility for years,” says Joshua Shanker, who covers Lincoln for Deutsche Bank. “If I’m a saver and I see that, why would I pay for the downside protection annuities offer?”

    A wobbly market so far this year could get investors thinking more about protection. Lincoln’s variable annuity sales have already been rising for three quarters running. JPMorgan predicts the variable annuity industry will see a sales lift of 4.1% during the second quarter and 4.5% for the full year—its first gain in six years—with Lincoln gaining market share.

    Low interest rates have also probably hurt variable annuity sales, because they force issuers to get stingier with benefits. Meanwhile, now-vacated rules from the Obama administration’s Department of Labor, which imposed a strict fiduciary responsibility on sellers of retirement investments, might have temporarily caused some to pull back from recommending variable annuities. But investors should also consider the possibility that variable annuities have lost some of their appeal due to more-structural reasons, such as complexity and fees, much the way investors in recent years have left actively managed funds for low-fee index funds.

    Lincoln CEO Dennis Glass says the industry can do a better job of explaining annuities to customers, but that fees are reasonable and the products themselves are as relevant as ever. “We’re still the best place to go for income and protection,” Glass says. “Retirement assets are expected to double by 2030, and with pensions going away, annuities will get their fair share of that.”

    Lincoln’s earnings have grown in recent years in part because a rising stock market has increased its fees on assets it manages, and partly because it has brought down costs. It recently closed the purchase of Liberty Life Assurance, which gives it more scale in the group benefits business, and exposure to large customers, versus the small and midsize customers it has historically gone after. The company hasn’t been standing still on product development, either.

    In recent years, Brighthouse Financial (BHF) and AXA Equitable Holdings (EQH) have found success selling annuities that allow buyers to dial in specific levels of crash protection in exchange for specific caps on upside participation during bull markets. Sales of such products rose 25% last year. In May, Lincoln entered the market with a product called Lincoln Level Advantage.

    Lincoln last year increased its operating revenues 5%, to $14.59 billion, and earnings 14%, to $1.75 billion. Earnings per share rose 20%, to $7.79, adjusted for one-time items, including ones related to tax cuts. Wall Street predicts 8% to 11% earnings-per-share growth over the next few years.

    Deutsche Bank’s Shanker sees a buying opportunity after Lincoln’s 14% stock decline so far this year. Normally, a rising stock market combined with rising interest rates would be expected to send insurance stocks higher. In January, General Electric (GE) announced a massive charge for its capital unit for losses related to long-term care insurance, becoming the latest victim in what is becoming a blowup of the category.

    In a nutshell, benefits are coming due on insurance sold many years ago, with policyholders living longer than originally expected, and requiring costly care for disease in their later years. Lincoln stock might have been caught in an industry downdraft, even though its long-term care exposure is limited largely to policy riders, with minimal loss exposure. Shanker’s price target of $82 for the stock works out to 8.5 times his earnings forecast for next year, and implies more than 20% upside, plus the 2% dividend yield.

    For now, Lincoln can content itself to buy back shares cheaply. It generates some $900 million a year in free cash, equal to more than 6% of its stock market value, and last year spent $725 million on stock

    Originally Posted at Barron's on June 2, 2018 by Jack Hough.

    Categories: Industry Articles
    currency