Lincoln National (LNC) Q2 Earnings Miss on Low Investment Income

Lincoln National Corporation LNC reported second-quarter 2022 adjusted earnings of $2.23 per share, which lagged the Zacks Consensus Estimate by 5.1%. The bottom line fell 29.7% year over year.

Adjusted operating revenues of $4,641 million declined 5.3% year over year. However, the top line outpaced the consensus mark by 4.1%.

The quarterly results were hurt by elevated expenses, lower returns from LNC’s alternative investment portfolios, continued high claims experience linked with the COVID-19 pandemic and soft segmental contributions barring the Group Protection one. Nevertheless, the downside was partly offset by sound progress of the Spark expense initiative.

Costs and Expenses

Total expenses of Lincoln National escalated 18.5% year over year to $4,835 million in the second quarter, primarily due to higher costs related to benefits and the Spark program. Benefits account for 59.8% of the quarter’s total expenses.

Lincoln National Corporation Price, Consensus and EPS Surprise

Lincoln National Corporation Price, Consensus and EPS Surprise

Lincoln National Corporation price-consensus-eps-surprise-chart | Lincoln National Corporation Quote

Segmental Update

The Annuities segment reported operating income of $256 million, which plunged 20.7% year over year in the quarter under review due to a decline in the capital markets and unfavorable one-time items of $14 million. The figure fell short of the Zacks Consensus Estimate of $298 million. Operating revenues of $1,169 million slipped 6.4% year over year but were higher than the consensus mark of $1,100 million. Total annuity deposits decreased 15.8% year over year to $2,702 million.

Operating income in the Retirement Plan Services segment amounted to $54 million, which fell 12.9% year over year in the second quarter. The decline was due to lower returns from the alternative investment portfolio of LNC and a fall in account values. Nevertheless, the downside was partly offset by a decline in expenses and organic growth. The figure was higher than the Zacks Consensus Estimate of $51 million. Operating revenues slid 5.4% year over year to $315 million, higher than the consensus mark of $303 million. Total deposits of $2,943 million improved 6% year over year in the quarter under review, thanks to 10% and 3% rise in first-year sales and recurring deposits, respectively.

The Life Insurance segment’s operating income of $114 million tumbled 55.3% year over year due to reduced returns from the alternative investment portfolio of Lincoln National. The figure was lower than the Zacks Consensus Estimate of $137 million. Operating revenues of $1,800 million fell 11.3% year over year in the second quarter. The figure was lower than the consensus mark of $1,813 million. It is worth mentioning that total Life Insurance sales surged 53% year over year to $193 million on the back of growing sales across all major products. Total deposits of $1,439 million rose 12.6% year over year in the quarter under review.

The Group Protection segment reported operating income of $59 million in the second quarter, up 28.3% year over year. The improvement can be attributed to prudent revenue growth, a better group disability loss ratio and effective expense management. The figure was higher than the Zacks Consensus Estimate of $35.84 million. Operating revenues grew 6.1% year over year to $1,323 million, higher than the consensus mark of $1,312 million. Insurance premiums of $1,187 million climbed 7% year over year. Total sales were $127 million, which soared 61% year over year.

Financial Update (as of Jun 30, 2022)

Lincoln National exited the second quarter with cash and invested cash of $1,567 million, which plunged 34.4% year over year. Total assets of $335.8 billion declined 11.7% year over year.

Long-term debt amounted to $6,498 million, which increased 2.6% year over year. It had no short-term debt at the end of the second quarter. As of Aug 3, 2022, its senior debt received ‘A-‘ and ‘BBB+’ ratings from Standard & Poor’s and Fitch, respectively.

Shareholders’ equity of $9,188 million plunged 57.7% year over year.

Book value per share, excluding accumulated other comprehensive income (AOCI), came in at $79.49. The metric rose 5.4% year over year.

Adjusted operating return on equity excluding AOCI of 11.6% declined 570 basis points year over year.

Capital Deployment Update

Lincoln National rewarded $177 million to its shareholders to the tune of $100 million in share buybacks and paying common dividends worth $77 million.

Zacks Rank

Lincoln National carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other Insurers

Of the insurance industry players that have reported second-quarter results so far, The Travelers Companies TRV, AXIS Capital Holdings Limited AXS and RLI Corporation RLI beat the respective Zacks Consensus Estimate for earnings.

Travelers’ core income of $2.57 per share beat the Zacks Consensus Estimate by 28.5% but decreased 26% year over year. Total revenues of Travelers increased 7% year over year, primarily due to higher premiums and beat the consensus mark by 1.8%. Net written premiums of TRV increased 11% year over year in the second quarter.

AXIS Capital Holdings posted second-quarter 2022 operating income of $1.74 per share, beating the Zacks Consensus Estimate by about 13%. However, the bottom line decreased 13% year over year. AXIS Capital’s total operating revenues of $1.4 billion beat the Zacks Consensus Estimate by 5.5%. The top line rose 7.8% year over year on higher net premiums earned. The combined ratio of AXS deteriorated 280 bps to 93.4.

RLI’s operating earnings of $1.49 per share beat the Zacks Consensus Estimate by 6.1% and improved 36.7% from the prior-year quarter. Operating revenues of RLI were $301.3 million, up 16.9% year over year. The top line beat the Zacks Consensus Estimate of $276 million by 0.9%. RLI’s underwriting income of $56 million increased 53%, primarily due to the strong performance of the Property and Surety segments.

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