Oct. 28, 2009 (PR Newswire) -- PHILADELPHIA, Oct. 28 /PRNewswire-FirstCall/ -- Lincoln Financial Group (NYSE: LNC) today reported net income of $153 million, or $0.44 per diluted share available to common stockholders, for the third quarter of 2009, versus $148 million, or $0.58 per diluted share in the prior-year quarter. The 2009 quarter included a positive adjustment of $55 million, after tax, or $0.18 per diluted share, related to the previously announced sale of Lincoln National (UK) plc; realized investment losses of $42 million, after tax, or $0.14 per diluted share; and a loss of $151 million, after tax, or $0.49 per diluted share, primarily attributable to the non-performance risk factor on the variable annuity hedge program.

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Income from operations for the third quarter of 2009 was $276 million, or $0.84 per diluted share available to common stockholders, compared to $298 million, or $1.16 per diluted share, in the third quarter of 2008. The current period reflects lower average variable account values compared to a year ago and a modest loss on alternative investments. The company's annual comprehensive review of actuarial assumptions had little impact on income from operations in the 2009 quarter.

Income from operations and production results in the third quarter of 2009 exclude Lincoln UK and Delaware Investments, which are now included in discontinued operations for the current period and all periods presented. The current quarter's earnings available to common stockholders per share reflect the accrued dividend and accretion of discount on the series B preferred stock, as well as an increase in average common shares outstanding primarily related to the company's recent equity issuance.

Third Quarter 2009 Highlights:

--  Consolidated deposits of $5.3 billion were down 2% from last year, but
up 10% from the prior quarter.
--  Consolidated net flows of $2.3 billion were up 34% year-over-year and
25% sequentially.
--  Consecutive quarters of double-digit growth in net flows and equity
market appreciation drove ending account balances to $137 billion, the
highest level since June 2008.
--  At the end of the third quarter, the company reported a net unrealized
gain position on available-for-sale securities of $5 million, after tax,
versus a net unrealized loss position of $1.6 billion, after tax, on
June 30, 2009.

--  On October 1, the company completed the sale of Lincoln National UK and
remains on track to complete the Delaware Investments transaction at or
around year-end.

Dennis R. Glass, president and CEO, said, "Lincoln Financial delivered another quarter of solid fundamentals with sequential growth in income from operations, book value per share, deposits and net flows. The strategic actions taken over the last ten months have reaffirmed Lincoln's position as a strong competitor. We have strengthened our capital position, sharpened our focus on the core insurance and retirement businesses, reinforced our distribution relationships, and updated our product portfolios to better align consumer value, risk management and profitability in today's environment. As the economy and consumer confidence begin to recover, we are well-positioned to drive profitable growth and long-term value for our stakeholders."

Third Quarter 2009 - Segment Results

Retirement Solutions

Individual Annuities

The Individual Annuities segment reported income from operations of $95 million in the third quarter of 2009 versus $131 million in the year-ago period, reflecting, in part, lower average variable account balances compared to the prior year. The 2009 quarter included a net positive impact of approximately $15 million, after tax, primarily attributable to positive retrospective DAC unlocking from equity market appreciation. The prior-year period included net positive items of approximately $13 million, after tax, primarily attributable to tax-related items.

Gross annuity deposits were $3.1 billion, up 5% from the prior year and 18% sequentially. Net flows were $1.6 billion, up 70% versus the 2008 quarter and 53% versus the second quarter. Broad distribution relationships, wholesaler productivity improvements and a diversified fixed and variable product portfolio positively impacted results. Fixed and indexed annuity product deposits of $1.3 billion more than doubled year-over-year and were up 40% sequentially, driving continued improvement in net flows for both periods. Variable annuity product deposits of $1.8 billion and net flows of $747 million were up sequentially 6% and 15%, respectively, but down year-over-year due to market conditions.

Defined Contribution

Defined Contribution reported income from operations of $43 million, versus $42 million for the same period a year ago. The 2009 quarter included a net positive impact of approximately $5 million, after tax, primarily attributable to positive prospective DAC unlocking.

Gross deposits of $1.1 billion were down 17% versus prior year. Total net flows were $144 million, up 55% compared to the year-ago quarter, reflecting continued strong persistency.

Insurance Solutions

Life Insurance

Life Insurance income from operations was $137 million, equal to the third quarter of 2008. The life insurance segment's results in 2009 reflect capital-related reinsurance transactions and included a net negative impact of approximately $6 million, after tax, primarily attributable to negative prospective DAC unlocking which was partially offset by tax-related items. The 2009 quarter also included a loss on alternative investments of $5 million, after tax, versus alternative investment income of $10 million, after tax, in 2008. The prior period's results included a net negative impact of approximately $30 million, after tax, primarily related to DAC unlocking.

Life insurance sales were $146 million compared to $190 million in the 2008 period and $124 million in the second quarter of 2009. MoneyGuard, a linked-benefit universal life insurance policy with a long term care rider, and term life insurance sales increased over 60% year-over-year, demonstrating the strength of the diversified product portfolio.

Group Protection

For the third quarter, Group Protection's income from operations was $35 million, compared to $27 million in the prior-year period. The non-medical loss ratio in the current period was 68%, driven by favorable experience in group disability and life.

Net earned premiums were $380 million in the third quarter, up 2% over the year-ago period, reflecting lower premium persistency due to workforce and wage reductions within small businesses. Annualized sales of $80 million increased 17% year-over-year with voluntary sales representing 37% in the quarter.

Other Operations

The operating loss in Other Operations was $33 million in the quarter, versus $40 million in the prior-year quarter.

Alternative Investment Income

Income from operations in the third quarter of 2009 included a loss on alternative investments of $1 million, after tax, compared to income of $12 million, after tax, in the 2008 period. In the current quarter, the Life Insurance segment reported a loss on alternative investments of $5 million, which was partially offset by alternative investment income of $1 million in the Defined Contribution segment, $2 million in the Individual Annuities segment, and $1 million in the Other Operations segment.

Realized Gains and Losses

Total gross realized losses on general account investments were $174 million, pre DAC and tax, primarily related to residential mortgage backed securities and financial institutions. The variable annuity hedge program performed as expected in the quarter. The after-DAC and tax loss of $151 million was primarily driven by the non-performance risk factor which accounted for $138 million of the loss.

Book Value

As of September 30, 2009, the book value per share of common stock, including accumulated other comprehensive income (AOCI), was $38.56 compared to $37.11 a year ago. Book value per share, excluding AOCI, was $39.29, compared to $44.18 a year ago.

This press release may contain statements that are forward-looking, and actual results may differ materially, especially given the current economic and credit conditions.