Lincoln National Corporation (LNC) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and thank you for joining Lincoln Financial Group's First Quarter 2012 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to the Senior Vice President of Investor Relations, Jim Sjoreen. Please go ahead, sir.

Thank you, operator, and thank you for everybody on the line. We were delayed since we were waiting for people to queue up on the call. So good morning, and welcome to Lincoln Financial's First Quarter Earnings Call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, trends and market conditions, including comments about liquidity and capital resources, premiums, deposits, expenses and income from operations, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties are described in the cautionary statement disclosures in our earnings release issued yesterday and our reports on Forms 8-K, 10-Q and 10-K filed with the SEC. We appreciate your participation today and invite you to visit Lincoln's website, www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include a full reconciliation of the non-GAAP measures used in the call, including income from operations and return on equity, to their most comparable GAAP measures. Also, please note that the financial results for this quarter and all prior periods reflect the adoption and retrospective application of the new DAC accounting guidance. Presenting on today's call are Dennis Glass, President and Chief Executive Officer; and Randy Freitag, Chief Financial Officer. After their prepared remarks, we will move to the question-and-answer portion of the call. I would now like to turn the call over to Dennis.

Thank you, Jim. And good morning, everyone. Overall, it was a very strong quarter for us with all of our businesses delivering good results. Let me share some highlights. We ended the first quarter with operating return on equity north of 11% on book value per share growth of 4.5%. The revenue growth in excess of 3% was also an indicator that we are delivering on many of the plans we have discussed during the past year. Specifically, increased deposits and net flows in Retirement Plan Services and increased sales in Group Protection demonstrate that the strategic investments we are making in these areas are paying off. In addition, we are successfully executing the strategy to direct Life sales to higher return products. I will speak more about this in a minute, but this pivot strategy is something we have shared with you in the past. And finally, our strong capital development from earnings, combined with our view that our share price remains undervalued, led us to accelerate our share buybacks. Let me now comment on our underlying businesses. Life Insurance sales for the quarter were $122 million, down from a year ago. This decline was expected, primarily as a result of pricing actions taken on our secondary guarantee universal life product [indiscernible] to continued low interest rates. In implementing our changes many companies have followed our lead in the making similar price adjustments, but not all of our competitors have taken action yet. Having said this, our pivot strategy, again moving to higher return life products, is taking hold. Sales of our indexed universal, variable universal and term life products were collectively up 11%. Moving forward, our ability to continue executing this strategy and produce strong results will be driven by the breadth, depth and capability of our distribution team. This strength gives us an edge when bringing to market the right consumer solution [indiscernible] appropriately. Turning to the annuity business. In life, [indiscernible] the variable annuity competitive landscape has shifted in recent months. I believe that the majority of companies that remain in this space offer good consumer value and price their products appropriately. At Lincoln Financial, we are pleased with where we are positioned in the industry. And we have maintained a consistent market presence. As I have said before, we remain more interested in offering products on our terms using sound pricing assumption than we are on taking market share. Positive net flows in the quarter helped drive record annuity account balances of $92 billion. Variable annuity sales for the quarter were up 8% sequentially, driven primarily by strong equity market performance and consistent with overall industry trend. Involving the design of our income product, by recently introducing a series of protected funds, is a good option for consumers and is also good for Lincoln. Good for consumers because they can lower the volatility of the returns and good for Lincoln because they reduce our hedging costs. Fixed annuity sales in the quarter were down due to low interest rates. We are very pleased [indiscernible] that our new strategic partnership with Primerica has already generated $50 million of indexed annuity sales through April. Our relationship with Primerica gives us access to the middle-market, broadening our distribution and product reach to this large consumer market, and helping to diversify our annuity product offerings. In our Retirement Plan Services business, our strategic investments, notably in technology upgrades and in the expansion of our wholesale and network, helped us deliver solid results. Total deposits of $1.5 billion, were up 13% versus the prior year, resulting in our third straight quarter of positive flows. Our strong performance this quarter was paced by significant growth in the small market with new sales coming in at $190 million, up 74% from the prior year. In addition, recurring deposits of $1.2 billion grew 15% from the prior year, reflecting the success of our 300-person work site distribution team getting participants to enroll and consolidate their assets with Lincoln. In Group Protection, first quarter sales of $67 million increased by 47% from soft results in the year-ago quarter. Sales strength is broad-based and helped by an increase in voluntary sale, which is our strategic direction. Looking ahead, our distribution strength, our competitive product suite and continuing strong proposal activity position us well to capitalize on opportunities in the group marketplace in the near and long-term. Turning to distribution. Retail, wholesale and work site distribution remain a source of strength for Lincoln. These networks help drive the company's strategy by executing on our product pivot strategy in life, positioning through protected funds in annuities and leading accelerated sales growth in our Retirement Plan Services and Group Protection businesses. Combined, our distribution networks open us up to new markets and drive consistent productivity. Before I turn over the call to Randy for his comments, let me close by saying that we have a very strong franchise and a sound balance sheet to go with it. The progress we have made through short-term actions that respond to macroeconomic trends and through long-term investment strategies that chart future growth combined to help drive increased operating ROE and book value growth we experienced this quarter. With that, I'll turn things over to Randy. Randy?

Thank you, Dennis. Last night, we reported income from operations of $296 million or $1 per share for the first quarter. Similar to last quarter, there was very little noise in the reported results with normalized earnings coming in at $1, right on top of reported results. Overall, the results were consistent with our expectations and I described the quarter as both high quality and reflective of many themes that we have discussed over the past year. First, that we have a business model that will generate growth, even in a low interest rate environment, as demonstrated by year-over-year normalized earnings growth of 3%. Second, that our strong capital position will allow us to continue to return capital to shareholders as we executed upon another $150 million of share repurchases during the quarter. This, along with previous buybacks, led to normalized EPS growth of 12%. And third, that we would be making investments in key growth Businesses. While this is negatively impacting current earnings, it is building the platform for future earnings growth. Let me provide some color on the G&A picture. In the space, G&A increased a little over 9%. I'd note that roughly 1/3 of that increase was due to pure accounting driven noise around how on [ph] accounts and elements of differed comp with the offset to the expense coming through a lower share count. The remaining increase is made up of normal expense growth and strategic investments that we are making. Looking forward, I don't expect large increases in the strategic investment component relative to what we experienced in the current quarter. The key valuation drivers of book value and return on equity both improved during the quarter with book value per share, excluding AOCI, climbing nearly 4.5% to $37.25 while ROE came in at 11.2%. Turning to net income. We reported net income of $245 million for the quarter. The only item of note affecting net income was the unhedged NPR reserve which caused a loss of $84 million. Outside of the noneconomic accounting noise that is the NPR, our annuity hedge programs and general account both had excellent quarters. Turning in a $34 million gain between the 2 items. Turning to segment results and starting with annuities. Reported earnings for the quarter were $137 million. Revenues were flat compared to the year-ago quarter and up 6% sequentially. Expense assessment growth during the quarter was muted roughly 1% by the fact that the majority of writer fees are assessed against the guaranteed account value. This will typically produce slower growth in rising markets and a more stable revenue stream in falling markets. Interest spreads remain strong in the annuity business. Looking forward, I expect to see only minimal pressure in economic interest spreads with any decline, primarily to new business that will put on with lower required interest margins. As I've spent time with analysts and investors, it's becomes obvious that there are those who struggle with the risk-reward dynamics of the annuity business. From my seat, I want to note how comfortable I am with this business, whether it's the return profile that we've experienced over the years, the demographics that drive demand for our products or our industry-leading VA hedge program, we have shown and we will continue to show that the annuity business, if approached in the right way, is a great business. Retirement Plan Services produced another solid quarter all around. Earnings of $35 million were driven by higher account values that hit a record $42 billion in the quarter. Interest spread performance was very good during the quarter with rate cuts offsetting the impact of lower reinvestment rates. Looking forward, I'd expect to see spread compression of 10 to 15 basis points a year, but I'll remind you, that all products we sell today are sold at very low guaranteed interest rates, in the 1.5% range, and that will mitigate the impact of spread compression over time. Return on assets came in at 34 basis points for the quarter. We are seeing a shift in Retirement's business mix that will result in modest declines in ROA of 1 to 2 basis points a year. Although we expect this impact to be more than overcome through strong growth in sales and assets. Turning to our Life Insurance segment. Earnings of $142 million were flat with the prior year quarter. Earnings growth in the Life segment is muted by the removal of capital related to reserved financing transactions that we did last year. This negatively impacted the current quarter's earnings growth by 6% relative to the first quarter of 2011. Of course, we've used the capital freed up by those transactions to support the share repurchases that we've done over the last year. When viewed in total, impact has been a positive for EPS. Reported revenue growth of 7.5% was elevated by the work we did in 2011 migrating to a single valuation system. I'd put normalized revenue growth in the range of 5%, consistent with account balances that grew in excess of 5%. Interest spreads increased in the quarter relative to the fourth quarter of last year due to interest crediting rate actions taken during the quarter. Looking forward, I'd expect to see 10 to 15 basis points of spread compression, per year, in today's rate environment. This is consistent with our prior guidance on the impact of low interest rates. Group Protection business delivered a strong quarter of top line growth as premiums grew 6%. Elevated mortality caused a roughly 1 percentage point increase in the loss ratio relative to the first quarter of 2011. This pushed the loss ratio just outside the high-end of our expected range of 71% to 74%. We have analyzed this quarter's mortality experience and see this quarter as nothing other than one of those mortality blips that will occur from time to time. On the disability side, incidence has returned over long-term expectations. I see this as a positive as we look forward, although as long as the economy stays muted, I will retain a note of caution on my positive outlook. Before moving to Q&A, let me touch on a couple of additional topics. First on capital and capital management. Life company capital remained level during the quarter, at $7.6 billion, as strong statutory earnings of approximately $250 million were offset by dividends to the holding company of $150 million and a reduction in our deferred tax asset. RBC came in at approximately 500%, down slightly from year end. And cash at the holding company exceeded $800 million at the end of the quarter as we took advantage of favorable markets to prefund our third quarter debt maturity. From a share buyback front, we reported another 6 million shares for a total cost of $150 million. Looking out over the remainder of 2012, capital generation, that is benefiting from favorable equity markets and the reduced level of life sales, should allow us to exceed our original guidance for $400 million of capital management. As you know, I don't give specific at the guidance around share repurchases. Our actions over the last 1.5 years are part of an intentioned strategy. Simply put, our current capital position is very strong and we will allocate that capital to the most productive uses while still protecting our valuable franchises. Let me finish up my comments by noting that I find our current valuation to be at odds with the actions that we have taken and the results that are flowing from those actions, including: Share repurchases of $750 million over the last 6 quarters; a 60% increase in shareholder dividends for 2012; multiple price increases in life products that were particularly impacted by low interest rates; risk reduction across our general accounts that has reduced below investment grade holdings by nearly 4%; book value per share that has continued to grow over the last year despite the decision that we made to write off $750 million of goodwill at the end of 2011; and last but definitely not least, return on equity that has been steadily improving and came in at 11.2% in the current quarter. We'll continue to do the things that we need to do to produce those sorts of results going forward. And I firmly believe that will eventually be reflected in our valuation. With that, let me turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Jeff Schuman with KBW. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Just a quick question on the Retirement business. One of your competitors is getting out and I think another, at least one of your competitors has already kind of seized some of their distribution relationships and taken some share. Are you able to kind of take advantage of that situation and gain some share in the near term?

Jeff, as I said in my remarks, first of all, we're more focused on the companies that remain in the business than we are the ones that go out. And as I said, I think the companies that remain in the business are high-quality companies with good management. We're not expecting big increases in market share because of a couple of exits from the industry. We're comfortable with the kind of growth that we're seeing. We continue to price our products appropriately. And again, we don't expect, to answer your question specifically, any big increase in the -- I presume this was the Retirement business that you were talking about. Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: Yes, I'm talking about the Retirement business, exactly.

I mean, the Retirement businesses, I'm sorry, or the VA business? Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division: The Retirement Plans business.

Oh, I'm sorry, I was answering on the VA business. We're pretty committed to our program there. We're in the right segments. We're expanding our distribution, our technology. We're achieving our pricing targets. Some of the growth that we've seen this year has come, as I've mentioned, from the strength of our distribution. Two particular cases, one is the increased productivity of our wholesalers in the small group market that had more tenure and the other one is this 300-person strong work site marketing group that goes and visits, specifically, with our client firms' employees to try to increase their retirement contributions. Again, you saw that 15%. So we're getting our returns. We're making progress. We think it's a good business. And I hope that answers your question.

Our next question comes from Ed Spehar with Bank of America.

The question I had -- Dennis, in the past, you've given us some sense of where your pricing is in the life business relative to competitors. I'm wondering if you could update that given the some of your comments about price action you've seen in the market following yours?

Yes, Ed, there's been some movement. I would say, that in the level-pay area, roughly speaking, we're 3% to 10% across-the-board on our product's off-the-top pricing. Where it's only 3%, we can compete pretty well on that. In the single-pay area, we're still kind of double-digit percentages off the lead players in these markets. So we're going to continue to see and intentionally sell a decline in contribution of short-pay type payment -- excuse me, short-pay premium type of products.

Okay. And then the one follow-up to that would be, given the decline in life sales that we saw in the quarter, how much of a benefit did you see in the quarter from -- to statutory earnings as a result of the decline in the first quarter sales?

Randy, and I have talked about this before. I'm mean, rough justice, $1 less of a premium is $1 more of capital.

And that generally worked out in that fashion, the first quarter?

Yes, Ed, that did. During the quarter, as I mentioned, we had stat earnings of $250 million. That's above the sort of $200 million level that you have seen us experience in the past and that benefited from 2 items, both the lower level of life sales and the favorable markets during the quarter. But it was a strong quarter from a stat operating earnings standpoint.

Our next question comes from Chris Giovanni from Goldman Sachs.

Dennis, you guys have obviously shown discipline and commitment to shrinking business where appropriate and I'm curious what the response has been from your distribution partners.

The company is run very tightly so that our distribution organization, internally, is obviously aligned on our strategy. And as I've said, the ability of our distribution organization to take that out to our partners and explain why we're doing it and the consequences, both to them and to us, of it, is understood and accepted. We're pretty delighted that the -- and this takes time to do. Let's just take an individual life producer. If he's been building a practice around single-pay or periodic-pay, SGUL sales, it's going to take some amount of time to have him understand, say for example, the benefit of an indexed UL sale. But as I said, that shift is occurring off a small base of 11%, and our success this year will be to be able to continue to do that. So in short, we're taking the message to our distribution partners. It's being well received and understood, and it's up to us to implement it and execute on it. It's interesting, and just one fact, we made some pretty significant changes in the wires on some of the compensation and the wires took our compensation structure and asked everyone else to meet it. And so there's some leadership demonstrated there.

Okay, and then just on capital. You've clearly also shown a commitment to accelerating share repurchases based on the share price. But you also have made comments in the past about wanting to get bigger in the Group business as well as the Retirement business. And there are some of those properties that are on the market, so should be expect that M&A is a possibility or do you believe share purchases, just given where the share price is, will continue to be the primary use of capital?

We've been pretty clear that we're anxious to organically, first and foremost, build and increase our Group and Retirement businesses. We spend 100% of our time trying to figure out how to build them organically. At the same time, with a clear path for organic growth, from time to time, a property might come along that's consistent with the type of business, the type of distribution that you're trying to build. And so there is some economic advantage to accelerating your organic growth plans with a property that's consistent with those organic growth plans. Let me make 2 comments on that. One, it takes money to grow Group business and the Retirement Plan business. We're talking about hundreds of millions of dollars of investments in those 2 areas over the next couple of years. So if we have an investment that we can make that offsets that, well, that might make sense. Second thing I would say, more specifically to your question about share repurchase versus acquisitions, if it's not a dollar-for-dollar equivalency -- when you do share repurchases you're taking capital out of the company, which reduces book equity and has other consequences -- and again we're happy to do that, we're going to continue to do that -- when you make an acquisition, capital is staying in the company. So you're not, for example, reducing your equity. Therefore, lowering your ability to meet your debt-to-equity ratios. So I think that covers it. Again, you have to, I hope -- let me just underscore 3 points. You have to invest to grow the business. If you do an acquisition that offsets some of that investment, the dollars that you spend on that investment aren't gross their net. And that share buybacks, which we'll continue to do, we've demonstrated that we're going to do them, are not dollar-for-dollar with making a strategic investment. Okay?

Our next question comes from Randy Binner from FBR. Randy Binner - FBR Capital Markets & Co., Research Division: I have a question about AXXX. I haven't seen this in the release or anywhere else. Has there been any material AXXX transactions completed this year?

Not by us, Randy. We have not done a transaction in the first quarter. As you remember, we did 3 last year. That was more than we typically do in a year. So when I've talked about this year -- what I've said is that I don't have one in my base plans. But we're going to work very hard to see if we can execute on another one. Edward Shields - Sandler O'Neill + Partners, L.P., Research Division: Well, a couple of follow-ups there. I guess my impression was that the plan was to at least have 1 or 2 that freed up around $200 million of capital. So is that still the plan or could we expect to maybe not see one at all?

Yes. So, in a typical year, we sort of plan on maybe we can do a couple of hundred million dollars of capital generation. Last year, we did 3 transactions and generated an excess of $200 million. And you saw that in the capital manage we did last year, when we did a total of about $800 million of buybacks and de-levering. So, coming into this year, we start that same sort of focus, $400 million of capital management. We'll try to go out and do additional reserved financing transactions and other things, like the reduced life sales which are generating incremental capital, that's going to allow us to add to that $400 million level. Randy Binner - FBR Capital Markets & Co., Research Division: Just one more, if I could. Is there something -- rates are still low, the equity markets higher. I mean, is there is cap? Can you just give us quick color on kind of the capital markets dynamics and demand for these types of transactions?

I think the supply is definitely out there. In fact, I would say that prices have continued to come down on the transaction proposals that we see floating around out there. So there is a very robust market with our investment banking partners, and bank partners primarily, for these sorts of structures. Good, long dated structures at a very good price, that's actually below what we've priced for in these transactions.

Our next question comes from Joanne Smith with Scotia Capital.

I just want to go back to your comments regarding the Disability business. And you've had decent results whereas others have continued to struggle or are actually seeing some deterioration in their business. I'm wondering if you could talk a little bit about that. And then just generally speaking, in the group business overall, you had really good sales growth and was wondering how you reconcile that with the fact that all your competitors are talking about very soft pricing conditions?

Randy and I'll take aspects of that question. So let me, Randy, go first. Let me just come back to sales. I said they were up strong, off a soft quarter. But having said that, they were broad-based. So sales by industry classifications remains stable. We've seen solid growth across all case sizes. Our proposal activity remains strong. Back to pricing -- a little bit on pricing. Last quarter, we got into detailed comments. Kind of hurt our sales efforts because it was a competitive situation. So we're not going to speak to specific price of changes in the marketplace anymore. But what I will tell you is that we are getting our ROEs from new business in 12%-plus range with the business that we're selling. Randy, you may want to expand on that.

Yes, Joanne. On your last point of your comment. What I hear from competitors, the few calls that I listen to and discussions I've had, is that a lot of people see a market that is actually hardening. That's what I've heard from a number of competitors. So I haven't heard, necessarily, the softening comment that you made there at the end. It's the other way, actually. So, feel pretty good that the market is hardening, consistent with the actions we've taken over the last couple of years in this business. The Disability business is a good, high-quality business. There are a number of things you have to think about when you're pricing a disability case. As I mentioned, we've seen incidents come down to our historic levels and very happy about that. But undoubtedly, we have to continue to be cautious and continue to be very disciplined in a business like this, which has some linkages to how the overall economy is performing.

Just one more comment on my side. You really have a to parse out, we talk frequency about the segments are more important than broad industry discussions. And the most competitive, and this is across a lot of product lines, but it's always more competitive when you're dealing with bigger sophisticated companies. You have more people paying attention to it, they've got consultants. They're spreadsheet-ing [ph]. As you go down market, it's still competitive but not -- I don't think to the same level it is, particularly in the jumbo group size, the very large companies. So as people talk, Joanne, and you listen to them, it's really more segment specific.

I just have one follow-up on a completely different subject. You've had some success with the indexed UL, I believe, and the variable UL. Have you done anything there to kind of enhance the product? I understand that strong equity markets has been a factor behind the kind of revival in sales in the industry overall. But have you done anything to tweak the product to make it a little bit more attractive?

We're constantly tweaking products to make them more attractive, and so there's a continuation of that, but nothing dramatic on variable universal life. But I will come back to my point, that having a broad based, strong, smart distribution capability enables you to talk to customers and partners about different products and why they might work and it's that rightful focus on these pivot products, and the distribution to be able to do that, that is going to help.

Our next question comes from Andrew Kligerman with UBS.

I guess first, Dennis, you talked about the pivot strategy and of course now you're selling UL, VUL, indexed UL. What return are you generating on that business and what's the return on the secondary guarantee legacy UL? The legacy secondary guarantee UL?

You're breaking up a little bit on us, Andrew. But I think, if I heard the question, what's the different new business returns on the pivot portfolio and what are the current returns on SGUL. The pivot portfolio is -- there are typical 12% to 14% type of new business returns in the products that we're selling, we're getting that on. The SGUL products continue to be below our targeted objectives. We think, this year in the aggregate, on the business we expect to sell, that we can do better -- and we hope to do better than 10%. But that depends on us being able to make this pivot to the extent that we have it in our plans. And so far so good, we're gaining traction and moving in the right direction.

Got it. And then the second question would be, just going back to the capital, and I'm thinking to investor day and you kind of had given guidelines of GDP and, well, this is growth of 2% unemployment at 9%, housing down 3%, S&P 11.75%. You have a capital margin of 1.5% and then, as you're alluding to on this quarter with free cash flow around $400 million, you could deploy that any which way you want. And now with, Randy, I think I'm hearing this right, Randy, you're saying that you could do a few securitizations that might do a couple of hundred million. I want to get a sense of how excited you -- I mean, Dennis, you mentioned earlier that the valuation seems low. I would absolutely agree. I mean, what's your appetite? I mean, do want to go beyond $400 million this year? And are you seeing a lot of M&A opportunities? Is there a big pipeline out there? Just let me get a feel, some color around those things.

Yes. As I said here Andrew, as we sit here today, I fully expect to go beyond $400 million for the year. And once again, I'm going to go back and link this to sort of how we did this last year. We came into the year with the same $400 million guidance, did some additional reserve financing transactions, sold a couple of corporate assets, ended up a total of $800 billion of capital management last year. It's the same sort of approach this year. We come in with that guidance around $400 million, and as I said last quarter, I love to under-promise and over-deliver on these things. And we're going to do everything we can to over-deliver on capital management again. The key levers that we've got, the positive impact we are getting from reduced SGUL sales; as Dennis mentioned, about $1 of capital generation for $1 of lower sales, there's one; and then, incremental reserve financing transactions that we can do. It's a good robust market for reserved financing transactions. We still have some capacity on our balance sheet, so we're going to go -- the team is going to go do their level best to execute another one of those. We believe we're undervalued, Dennis mentioned it, I mentioned it, and we're not -- definitely not shy about buying back our own stock.

And just the deal pipeline. Is there a lot out there on the other end of the spectrum?

Well, I think we're all aware of the companies that have exited the business and announced sales, Andrew. And as compared to 2010 and 2011, 2 companies is more than there has been in those 2 periods other than what, true and Met [ph], others did overseas. My guess is that, over the next 24 months of that, there will be companies refocusing on core businesses and maybe a little bit more M&A activity. But we're not building our growth plans which -- and we think we can develop, even in this interest rate environment as we said, very attractive organic growth through the combination of our franchise strength and capital management. So if something comes along that makes sense, great, but we're delivering results to our shareholders just based on our organic strategies, as we typically do.

Our next question comes from John Nadel with Sterne Agee. John M. Nadel - Sterne Agee & Leach Inc., Research Division: A couple of questions for you. In Retirement Plans, can you update us on where Lincoln stands with respect to the new disclosure requirements? And I guess, around that, are you seeing any impact, in terms of sales opportunities where either being in compliance or not, those new requirements is having an impact on your competitiveness?

Yes. Let me start by saying that we've already put into place all of the sponsor disclosure that is being required. And so that's done and in the market. I guess, it's an important question, but I come back to what we believe is that, ultimately, it's our value proposition and delivery model that's critical to the success of this business and is going to drive the results. We're a mid-priced provider with a unique high-touch service model. We feel good about how we're positioned. Is there some temporary dislocation in the industry because of this disclosure? Who knows. But all of us in the industry aren't worried about that as much as we are delivering good value to the consumers. John M. Nadel - Sterne Agee & Leach Inc., Research Division: I appreciate those comments. It was my understanding that there's maybe a couple of sizable competitors who aren't quite there yet in meeting those new requirements and that may be providing an opportunity at the margin for some of those who've gotten there quicker.

Your guess is as good as mine on that. John M. Nadel - Sterne Agee & Leach Inc., Research Division: Okay. And then, just secondly, just a quick update. Randy, good commentary and good outlook on the spread expectations as we move forward. Can you just update us on where you stand, I guess at the end of the first quarter, on crediting rates in your various businesses versus the minimums?

Yes. We'll go business by business. Not an issue for the Group business. Or in the Annuity business, we're in very good shape. As I mentioned. I really don't see any pressure on economic spreads in the Annuity business. Significant amount of mobility to continue to manage the creditor rate in response to any declines in the earned rate. On the Life and the Retirement side, we're down to low to mid-single digits, 3 or 5 basis points of room. Even though, on the Retirement side, we continue to generate additional capacity as we sell these new products at lower guaranteed rates. So Life side, we're down to a few basis points. I don't see much additional rate cutting coming from the Life business. We made a pretty significant rate cut in the first quarter and that will sustain us, obviously, for a period of time here. I don't see any large cuts coming out of the Life side as we move forward. So that's why I guide sort of that 10 to 15 basis points of compression, which is similar to what I've guided to on the Retirement business. John M. Nadel - Sterne Agee & Leach Inc., Research Division: And just a quick follow-up on the Retirement side. I heard your comment that the new business has minimums in the 1% to 1.5% range. Where's the crediting rate that you're going out to the market with relative to those minimums recently, I guess?

We're checking our facts on that right now. It's kind of a case-by-case situation. But low single-digit, for sure. Could I amplify on this appropriate focus that everyone has on interest margin compression? And obviously, for a company like Lincoln, and many other companies in the industry, lower rates affect earnings growth. But let me just add to that. This management team doesn't feel like they're a victim of low interest rates. We don't have any additional levers to sort of mitigate the impact of that. So on top of everything else you heard us talk about this morning, we are doing a couple of other things and let me identify them. The first one is that, after 3 years of investing in mostly investment grade bonds and mortgages, we have some leeway to take incremental investment risk to boost yield. It's not something that we are going to do in large amounts and it would develop over the same time frame that we are seeing compression from lower bond rates. So that will help mitigate this issue. And we also have initiatives underway to lower our core expenses. I think, over time, these 2 things alone on top of everything else that we're talking about, will help dent some of the impact on low interest rates. So I just want to signal to -- not signal, but explain to all of you, that we keep providing these $50-million-a-year numbers, which are accurate with respect to if interest rates stay at these levels. That's the right number Randy?

Yes, that's the right number.

That's the right number. But we're taking other actions on top of all the investment to try to put a dent in that over the next 2 to 3 years.

Yes, when we go out with that guidance, $50 million a year and growing by about $50 million a year after that, and we talked about that over a 3-year period. That is the worst-case scenario. It does not assume sort of management actions that we have taken and will continue to make as we move forward.

Our next question comes from Ryan Krueger with Dowling & Partners. Ryan Krueger - Dowling & Partners Securities, LLC: First, could you just give an update on the assets and liabilities held at the VA captive?

Yes, we ended the quarter with assets in excess of liabilities -- in excess of $400 million. And once again, just to remind everyone, those are real assets generated by our hedge program. Now the liability itself came down pretty significantly during the quarter, obviously, with the strong equity markets, we saw the liability come down into the end of the quarter just over $1 billion. So over $400 million of assets in excess of our liabilities with a liability that's a little over $1 billion right now. Ryan Krueger - Dowling & Partners Securities, LLC: Alright, great. And then commission rates, I believe were reduced in March, on the MoneyGuard product. I was wondering if we should expect a material impact on MoneyGuard sales going forward from that.

We don't.

Okay, so you think 1Q MoneyGuard sales are a pretty good run rate?

We don't give predictions but we continue to expect good growth in the MoneyGuard business.

Our next question comes from Mark Finkelstein with Evercore.

You pre-funded some debt maturing later in the year. I guess the question is are we done de-leveraging?

No. I wouldn't say we're done, Mark. I mean, I think there is benefit to taking leverage out of the balance sheet, also, for companies such as ourself. We feel very good about the leverage position we're at right now. But doing some amount of de-levering with our capital management, I think, is -- there's a lot of benefit to that. So what I said in the past, and what I continue to say is, we're definitely skewed toward buybacks at the moment. But some element of de-levering in our capital management, I wouldn't be surprised by. And we have other levers to do a little bit of de-levering here and there.

Okay. But that actually would be beyond 2012, I assume.

Well, I'm not going to preclude anything in 2012 either. There still could be some element of that. If not, some major component of capital management. But could we do some something on the edge? We have flexibility to do that sort of thing.

Okay. Just coming back to the Life business and UL sales. I know, you don't want to give predictions. But I guess the question is, is there anything that you're seeing, in terms of the other competitor behavior or pricing change, that would give you an indication that the current run rate of sales, somewhere in the $45 million to $50 million range, is or isn't a reasonable, trendable number for the rest of the year?

Again, we don't give predictions. And I apologize for repeating this again, to everyone. But end of the year results are going to depend on 2 things, total sales for the year. One is what else do competitors do and we can't do anything about that. But more importantly, what we can do is continue to execute on this pivot strategy and we think we can get it done. And so I would say the first quarter, that would not be our expected run rate for the year.

Okay. And then just finally, on the VA business. You talked, again, about kind of this subaccount option in Volatility Management. I guess what I'm curious about is, as more money goes into this accounts, does it change? Does it improve the actual return objectives of it or does it really more just manage kind of the outcomes within a narrower band?

Are you speaking from the consumer's perspective?

I'm talking about from Lincoln's perspective.

Let's start with the consumer. What this does to the consumer is creates a narrow volatility. So let's just use a number. If you were targeting a 7% return you might have swings of 30%, 40% around 7%, and the protected funds are trying to shrink that spread from 30% to 8%, 10%, 12%. And so that's just a volatility issue. Then there's the cost of putting that on [indiscernible] pieces of program. So the expected returns have to go down the by the amount of cost that we're charging to do that. Which is not that significant, maybe 50 to 100 basis points. So that's what's happening from the consumer side. From the Lincoln side, we have a mirror image of that. The pricing of a lot of our derivatives is dependent on the fluctuation of returns on the underlying subaccounts, to the extent you've dampened that, you've lower the cost of your hedge execution. Does that help?

Our next question comes from Sean Dargan with Macquarie.

Just have a question about the larger VA market. You said you're comfortable with the dynamics now. But with the sort of -- one of the 800-pound gorillas dialing back, are you getting more, I guess pressure from your distribution outlets to give them more product or do you see this market shrinking as a whole going forward?

Let me separate sort of the practicalities of distribution and who's playing the market from the long-term trends associated with the business. I'll start with the latter first. There is no question that consumers are more interested in guarantees than they have been in the past. There's no question about this big demographic move with more people going into retirement. So those 2 things are going to build this market over time for everybody. In the short run, the dynamics with distributors are that if people leave the business, a company leaves the business, there's some adjustment time to that, it's not an automatic that, that business that they were doing, in the short run, is going to be absorbed by other companies. It is just who's been selling what, what programs are in place and had to be changed at the distribution partner level. And so there could be some industry-wide -- depending on the channel, I mean, in the wires [ph] for example, you can see some decline just because of the movement of providers. But that's short-term. And longer-term, this is a good business with good reason from a demographic and the expectation of consumers about what they want in their retirement.

I would now like to turn the conference back over for closing remarks.

Thank you, operator. And thanks to all of you for joining us today. For those of you who we didn't get to this morning, we will certainly follow-up with you after the call later today. And as always, we will take your questions on our Investor Relations line at 1 (800) 237-2920 or via e-mail. So again, thank you and have a good day.

Ladies and gentlemen, this concludes today's conference. Thanks for your for your participation and have a wonderful day.