Lincoln National: Variable annuity sales are up, and there's still room to grow

VA business is profitable, but execs want to shift more to contracts without living benefits

Oct 31, 2013 @ 12:33 pm

By Darla Mercado

+ Zoom

Some good news for fans of Lincoln National Corp.'s variable annuities: The insurer still wants more of the business — within reason.

Variable annuity deposits hit $3.4 billion during the third-quarter at the life insurer, reflecting a 56% increase from the same period one year ago, but down 13% from the second quarter.

Lincoln's chief executive, Dennis R. Glass, said on the insurer's third-quarter earnings call Thursday that the company not only likes the variable annuities business, but that it plan to stay in it.

That doesn't mean, however, that the company won't take steps to manage VA risk. Mr. Glass said the insurer is aiming to balance its sales so that more money goes toward variable annuities that don't have living benefits rather than those that do.

“We are going to stay in this marketplace because we're getting good returns,” Mr. Glass said. “Cutting off sales in some artificial way is so contrary to how we run this business. We are not going to artificially yank a product or cut off 1035 exchanges.”

Companies that have pulled the plug on their annuity sales via 1035 exchanges in recent months include Protective Life Corp. in May and Jackson National Life Insurance Co. in October.

“We have to be in the business consistently,” Mr. Glass added.

Indeed, the dip in Lincoln's VA sales from the second quarter to the third quarter is attributable to the company's attempts to put the brakes on sales of its VAs with long-term guarantees. Pricing changes have been instituted, as well as adjustments to the way the wholesalers are paid, according to the insurer's earnings filing with the Securities and Exchange Commission.

The company is striving for an overall mix of 65% products without guarantees and 35% with guarantees, Mr. Glass said during the earnings call.

“They are trying to balance the fact that this business is profitable right now and they want to limit their percentage of exposure to it, but at the same time they don't really want to turn off distribution,” said Steven Schwartz, an analyst with Raymond James and Associates Inc.

Lincoln yesterday announced that it has entered a $4 billion reinsurance deal with Wells Fargo & Co. subsidiary Union Hamilton Re, in which Union Hamilton would provide 50% coinsurance on up to $8 billion of sales through next year.

Despite the additional backstop, Mr. Glass noted that the company won't “try to pump sales next year.” “We are going to stick with our sustainable and consistent marketplace approach,” he said.

During the third quarter, Lincoln reported net income of $337 million or $1.23 per diluted share, down from $428 million or $1.51 per share for the same period one year ago.

The insurer has been a consistent top-five player in the variable annuity space. Through the first half, Lincoln was in second place with some $7.22 billion in sales, according to data from Limra. Data on industrywide variable annuity sales through the third-quarter isn't available yet, as not all insurers have released their results.

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