Lincoln National Earnings Call NUGGETS: Updated Rate Exposure, Excess Capital Plans

On Thursday, Lincoln National Corp (Radnor, PA) (NYSE:LNC) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Updated Rate Exposure

Randy Binner – FBR Capital Markets: So touching on the updated rate exposure, so the numbers you gave related to, I think, GAAP earnings or kind of earnings overall, is there any update to the disclosure you had given before about how DAC may be affected by a lower rate environment?

A Closer Look: Lincoln National Earnings Cheat Sheet>>

Randal J. Freitag – CFO: The DAC, which I think you’re probably referring to the long-term earned rate assumption.

Randy Binner – FBR Capital Markets: That is exactly what I’m referring to, yes. The 425 versus the 625.

Randal J. Freitag – CFO: Randy, that will be part of our third quarter unlocking process. I’m not going to front run that process. There’s teams of people across the company working on that right now. Obviously, rates have come down, and so we’ll take all of that information into account when we think about that long-term assumption. I would note though, having been through more unlocking process than I care to admit in my life, there are always pieces of the unlocking that go both ways. We’ll have positive impacts and we’ll have negative impacts. I don’t know what the different – the individual pieces are. We will do a thorough job of reviewing all of them, and report the results in the third quarter.

Randy Binner – FBR Capital Markets: Then just on one other piece of disclosure and I think this goes back to the investor event in November. There’s kind of a base case and a low case scenario for cash flow adequacy, the $6 billion and $8 billion redundancy disclosure that you gave. Would that be affected by this new disclosure as well?

Randal J. Freitag – CFO: Right. I didn’t go to that piece of the disclosure, what I did say is that my previous guidance for no near to mid-term impact on statutory capital is unchanged. When you go out into that second half of a 10 year period on a piece of our business, the (NYSE:SUR) business, we project that there could be up to $500 million impact. That guidance is completely unchanged from where we were before by the level of interest rates today.

Randy Binner – FBR Capital Markets: So we should improve from that and the 6% to 8% would be kind of roughly intact still?

Randal J. Freitag – CFO: I think you can make that interest.

Excess Capital Plans

Jimmy Mueller – JPMorgan: Just had a question on your plans for excess capital beyond the buyback. So I think in the past Dennis you talked about potentially looking at deals, you’ve highlighted the Group Benefit space and also the pension market, if you’re still doing that and what do you see as the activity in the market? Then secondly you reported a very strong growth in your Group Benefits business in terms of sales what’s really driving that and what are you seeing in terms of pricing in the Group Benefit market?

Dennis R. Glass – President and CEO: Jimmy on the M&A front we continue to be interested in deploying some of our capital towards strategic opportunities particularly related or particularly in the Group and Retirement businesses and that’s unchanged. Probably today with where our share price is not make such a large investment that it would stop us from buying our shares back. So, we continue to look at this on a holistic basis and take into considerations everything that you should when looking at building the company strategically and appropriately managing to your best return opportunities. With respect to the Group Protection business, let me start by saying unlike some of our competitors. We have a sweet spot in the small employer market. It’s not without competition, but it’s not as competitive our belief as the jumbled market is. So little bit less price pressure there. As I said in my remarks the strong sales relates primarily back to an increase in sale representatives some 15% or 17% and an increase in shelf space if you will because we have 20% more brokers who’ve never used those before selling the product. Let me give you one more statistic because there is a lot of discussion in the industry around pricing. I think we have continued to move prices up modestly to where we can both on new business and renewals. In a metric that I pay very close attention to one of many in terms of trying to judge how competitive we are is out close rate, because we close, we bid on large numbers of cases through the course of the year and that close ratio the number of cases that we actually win has stayed pretty consistently in the 10% area. So I hope those are responsible for Q2 questions.