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Lincoln Financial Gives COVID-19 Impact Details: Earnings

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What You Need to Know

  • MetLife’s U.S. group life mortality ratio soared.
  • Horace Mann’s mortality costs rose 45%.
  • COVID-19 accounted for 13% of K.C. Life’s mortality costs.

The COVID-19 wave that hit in January caused some disability insurance claims and retirement plan contribution weakness at Lincoln Financial, along with a big surge in life insurance claims.

Lincoln Financial executives talked about the impact of the pandemic last week during a conference call with securities analysts.

The company  turned in a big year-over-year increase in net earnings, on an increase in revenue. Adjusted for the impact of the pandemic, even the life insurance and group protection businesses did well during the quarter, according to Randy Freitag, the company’s chief financial officer.

But Freitag said the pandemic caused $132 million in excess mortality at the individual life unit in the first quarter; $61 million in direct mortality at the group life unit; $22 million in “indirect mortality,” or deaths officially attributed to causes other than COVID-19, at the group life unit; and $7 million in group disability claims.

The excess mortality and morbidity amounted to about 4.9% of Lincoln Financial’s revenue for the quarter.

At Lincoln Financial’s retirement plan business, “deferrals and contributions dropped in 2020, because of COVID and the difficulties at small businesses,” Dennis Glass, the CEO, said.

In spite of a flurry of pandemic-related disability claims, a reduction in disability claims resulting from other causes held the overall disability insurance loss ratio down.

Meanwhile, at the retirement plan business, small employer retirement plan deferrals and matching contributions are beginning to come back with the improving economy, Glass said.

“We’re seeing activity on the new business side return to more what we would expect, absent COVID,” Glass said. “Not 100%, but closer… So, overall, it’s a pretty favorable environment.”

Distribution

Glass said Lincoln Financial’s MoneyGuard Market Advantage variable universal life insurance policy, which includes long-term care benefits, has helped the company appeal to a wider range of financial professionals.

About one-quarter of the producers selling the new VUL policies had not previously sold a MoneyGuard product, Glass said.

Lincoln Financial has also expanded its distribution network by expanding an existing relationship with a large property and casualty insurer, he said. The P&C insurer was distributing Lincoln Financial’s annuities. Now, it will also offer Lincoln Financial’s life life insurance insurance products.

The Earnings

Lincoln Financial (LNC) — which is officially known as Lincoln National Corp. — is reporting $225 million in net income for the first quarter on $4.5 billion in revenue, compared with $52 million in net income on $4.4 billion in revenue for the first quarter of 2020.

Lincoln’s annuities unit is reporting $350 million in pre-tax operating income on $1.2 billion in operating revenue, up from $302 million in pre-tax operating income on $1.1 billion in revenue for the year-earlier quarter.

Commissions incurred fell to $275 million, from $311 million.

Here’s what happened to deposits into the two major classes of annuities between the first quarter of 2020 and the latest quarter:

  • Fixed Annuities: $86 million (down from $1.1 billion)
  • Variable Annuities: $1.95 billion (up from $1.91 billion)

Lincoln’s life unit is reporting $130 million in pre-tax operating income on $1.9 billion in operating revenue, compared with $209 million in pre-tax operating loss on $1.8 billion in operating revenue for the year-earlier quarter.

Commissions incurred fell to $120 million, from $191 million.

Here’s what happened to first-year premiums for some types of life products between the first quarter of 2020 and the latest quarter:

  • Universal Life: $2 million (down from $9 million)
  • Indexed Universal Life: $16 million (down from $21 million)
  • Variable Universal Life: $22 million (down from $44 million)
  • MoneyGuard: $16 million (down from $34 million)
  • Term Life: $30 million (down from $35 million)

Here’s what happened to sales for some types of benefits products:

  • Group Life: $41 million (down from $50 million)
  • Group Disability: $28 million (down from $42 million)
  • Group Dental: $5 million (down from $10 million)

Athene Holding Ltd. (ATH)

Athene is reporting $578 million in net income for the first of 2020 on $4.4 billion in revenue, compared with a $1.1 billion net loss on negative $1.5 billion in revenue for first quarter of 2020.

The Hamilton, Bermuda-based company’s operating earnings, which exclude the effects of changes in the estimated value of investments and reinsurance assets, increased to $748 million for the latest quarter, from a $108 million loss.

The sum of premiums, product charges and net investment income increased to $4.9 billion, from $2 billion.

The flow of cash into retail annuities increased to $1.8 billion, from $1.2 billion.

American International Group (AIG)

American International Group (AIG) is reporting $3.9 billion in net income for the first quarter on $14 billion in revenue, up from $1.7 billion in net income on $14 billion in revenue for the first quarter of 2020.

The company’s life and retirement unit is reporting $941 million in adjusted pre-tax income on $4 billion in revenue, compared with $601 million in adjusted pre-tax income on $4.3 billion in revenue for the year-earlier quarter.

The individual retirement unit is reporting $532 million in adjusted pre-tax income on $1.5 billion in revenue, up from $305 million in adjusted pre-tax income on $1.4 billion in revenue.

Here’s what AIG said happened to net flows of assets for several individual retirement products, in the United States, between the first quarter of 2020 and the latest quarter:

  • Indexed Annuities: A $1 billion inflow (down from a $1.1 billion inflow)
  • Variable Annuities: A $221 million outflow (compared with a $392 million outflow)
  • Fixed Annuities: $743 million outflow (compared with a $774 million outflow)

AIG has said that it intends to separate the life and retirement unit from the rest of the company through a partial initial public offering of stock to the public. Executives said during a conference call with securities analysts that the IPO could take place by early 2022.

Equitable Holdings Inc. (EQH)

Equitable Holdings Inc. is reporting a $1.5 billion net loss for the first quarter on $1.2 billion in revenue, compared with $5.4 billion in net income on $13 billion in revenue for the first quarter of 2020.

The New York-based life insurer uses derivatives to protect annuities and other products against changes in stock prices, interest rates and other variables. Earnings fell partly because the company recorded a $2.5 billion drop in the estimated value of derivatives in the latest quarter and a $9.4 billion gain in the value of the derivatives in the year-earlier quarter.

The company’s operating earnings, which exclude the effects of “mark to market” derivatives accounting, increased to $600 million for the latest quarter, from $535 million.

The consolidated segment revenue total, which includes actual derivatives gains and losses, but not changes in the estimated value of derivatives holdings, fell to $3.5 billion, from $3.8 billion.

More on this topic

The company’s individual retirement products unit is reporting $363 million in operating earnings for the latest quarter on $980 million in revenue, compared with $373 million in operating earnings on $1.5 billion in revenue for the year-earlier quarter.

Individual retirement unit spending on commissions and other distribution-related payments increased to $81 million, from $72 million.

First-year premiums and deposits increased to $2.4 billion, from $1.9 billion.

Here’s what happened to first-year premiums for three types of classes of annuities between the first quarter of 2020 and the latest quarter:

  • Structured Capital Strategies: $1.8 billion (up from $1.2 billion)
  • Retirement Cornerstone: $369 million (down from $461 million)
  • Investment Edge: $184 million (up from $132 million)

The company’s protection solutions unit, which sells life insurance, is reporting $41 million in operating earnings for the latest quarter on $826 million in revenue, compared with $49 million in operating earnings on $865 million in revenue for the year-earlier quarter.

Protection solutions unit spending on commissions and other distribution-related payments fell to $34 million, from $40 million.

Here’s what happened to renewal premiums for some types of protection unit products between the first quarter of 2020 and the latest quarter:

  • Universal Life: $201 million (down from $216 million)
  • Indexed Universal Life: $76 million (up from $72 million)
  • Variable Universal Life: $256 million (up from $243 million)
  • Term Life: $97 million (down from $120 million)
  • Employee Benefits: $30 million (up from $23 million)

Robin Raju, Equitable’s chief financial officer, said, during a conference call with securities analysts, that net life insurance claims for COVID-19 have been at the lower end of the company’s estimate of $30 million to $60 million in earnings impact per 100,000 excess U.S. deaths.

MetLife Inc. (MET)

MetLife is reporting $363 million in net income for the first quarter on $16 billion in revenue, compared with $4.4 billion in net income on $18 billion in revenue for the first quarter of 2020.

The New York-based company earnings fell partly because the company recorded a $2.2 billion drop in the estimated value of derivatives in the latest quarter and a $4.2 billion gain in the value of the derivatives in the year-earlier quarter.

Adjusted earnings, which exclude the effects of a variety of unusual or accounting-related gains and charges, increased to $2 billion, from $1.4 billion.

The U.S. group benefits unit is reporting $93 million in adjusted earnings for the latest quarter on $5.6 billion in premiums, fees and other revenues, compared with $312 million in adjusted earnings on $4.8 billion in premiums, fees and other revenues for the year-earlier quarter.

COVID-19 increased the group life mortality ratio, or ratio of benefits to revenue, to 106.3%, from 87.9% in the first quarter of 2020.

The group non-medical health benefits ratio fell to 71.1%, from 71.7% in the first quarter of 2020.

The retirement and income solutions unit is reporting $691 million in adjusted earnings for the latest quarter on $756 million in premiums, fees and other revenues, up from $359 million in adjusted earnings on $417 million in premiums, fees and other revenues for the year-earlier quarter.

American Equity Investment Life Holding Co. (AEL)

American Equity Life is reporting $272 million in net income for the first quarter on $962 million in revenue, compared with $236 million in net income on negative $324 million in revenue for the first quarter of 2020.

The net results were affected partly by a $1.3 billion increase in the fair value of derivatives.

Operating income, which is calculated differently, fell to $41 million, from $123 million.

Overall annuity sales increased by 245% from the total for the year-earlier quarter, to $2.4 billion.

Horace Mann Educators Corp. (HMN)

Horace Mann is reporting $39 million in net income for the first quarter on $322 million in revenue, up from $18 million in net income on $307 million in revenue for the first quarter of 2020.

Horace Mann sells insurance and annuities to teachers and other school employees.

The Springfield, Illinois-based company’s retirement unit is reporting $11 million in core earnings on $106 million in annuity contract deposits and $5 billion in assets under management, compared with a $900,000 core loss on $106 million in contract deposits and $4 billion in assets a year earlier.

The total number of annuity contracts in force increased to 230,000, from 229,000.

Here’s what happened to contract deposits for two types of annuities between the first quarter of 2020 and the latest quarter:

  • Fixed Annuities: $44 million (down from $48 million)
  • Variable Annuities: $62 million (up from $58 million)

Core earnings at the life insurance unit increased to $700,000 on $32 million in premiums and contract deposits, from $600,000 on $29 million in premiums and contract deposits.

The number of life insurance policies in force held steady at 201,000.

The amount of life insurance in force increased to $20 billion, from $19 billion.

Life sales fell to $3 million, from $3.3 million.

Life mortality costs increased 45%, to $15 million.

Kansas City Life Insurance Company (OTCQX:KCLI)

Kansas City Life Insurance Company is reporting a $668,000 net loss for the first quarter on $122 million in revenue, compared with $150,000 in net income on $123 million for the first quarter of 2020.

COVID-19 accounted for about 13% of the Kansas City, Missouri-based company’s total mortality costs in the first quarter.

(Image: Adobe Stock)