LNC
#It's pretty hard.
I keep saying there's a hint of the DOL in the reduced sales.
But, in fact, the reduction in sales was not that much different between qualified and nonqualified plans.
So we think what we don't know is how much more qualified sales there would have been without the disturbance of the rules.
But just again, mathematically, qualified sales actually decreased a little bit less than nonqualified sales.
But again, it's what was the upside opportunity that was missed that I can't put a number on.
You know, that's a very difficult question to answer, and I would hesitate to speculate.
What I do think is there's greater transparency because of all the technology that's available.
There's trends around best interest requirements.
So, it will be interesting to see how regulation develops.
But from my perspective, and Lincoln's perspective, we'd have to continue to do and offer products and compensation that's in the best interest of our clients, and is consistent with regulations.
And that's what we'll continue to do.
Yes, <UNK>, it comes pretty quickly.
I mean, you don't make that $1 sales and so you don't have put the capital up.
So, from that regard, it comes immediately.
And I think you saw some of that in the first quarter buybacks, where we did $200 million.
As I noted, that was an aggregation of a number of issues, including the strength of our capital position, but also including the fact that we did see annuity sales running at a little bit lower levels.
You bet.
We haven't, <UNK>, really updated that at all.
I would say, as the proportion of business that is employee-based becomes a bigger piece of the book, that that has a modestly lower loss ratio.
So, over time, you would expect that target to trend down a little bit.
When you look at the quarter itself, we came in at 69.6% for the quarter.
You know, it's really ---+ you start to try to split the ---+ split these things to a pretty much finer level than you truly can.
But when I look at the actual experience in the quarter, there are three primary items that really drive loss ratios, if you're talking about disability insurance.
You have incident rates.
You have terminations, and you have the average sized claim that comes on the books.
When I look at those three items and how they impacted the quarter, once again, you are starting to split these things pretty fine, but it's probably about a 1 to 2 points better than we would have expected for the quarter.
So, that 69.6% had a little bit of favorability in it but not too much.
I guess somebody earlier today mentioned that there is 1,000 pages worth of regulation.
There will be some manageable cost increase.
Over the years, I've seen a lot of, for example, when SOx was introduced, I've seen a lot of people worried about the increased cost of managing it.
I think most companies who are effective in how they implement the requirements of new regulations, can do it on an economically manageable basis.
And certainly at Lincoln, we think we can implement whatever we need to on a manageable basis.
<UNK>, I'm not certain I agree with the conclusion that the DOL regulations caused the reaction of lowering compensation.
Let me come back to the examples that we shared in our comment letters with the DOL, and take a look at the difference between an annual advisory fee ---+ let's say 1% ---+ which is not even available to smaller sized customers; it would be 2% or more.
So if you have a 1% annual fee, I think the breakeven point on a full upfront commission on annuities versus that 1% fee is in four or five years.
And so, it ---+ again back to the contract language, what's in the best interest, based on this product that's being sold, what's in the best interest of the client and a long-term contracts upfront compensation, may very well be the answer as to what the best interest is.
Now, broadly speaking, I think ---+ the financial services industry is moving toward, in total, more pressure on fees, more transparency.
But I think that's an independent issue from the Department of Labor.
These questions are hard to answer sort of in a general statement.
So let me come back to a very real differentiation in the fixed annuity market.
There is a segment of the market that focuses on less liquidity, so that surrender charges and commissions are higher.
But then, that value proposition comes along with investing longer and presumably paying a higher crediting rate.
Now, we don't participate in that market, and so we don't pay ---+ we have a more liquid, lower-commission product, which is appropriate for our distribution channels and what's Lincoln's view on consumer value is.
So, you're going to have to look at each situation like that.
And I don't think that you can automatically come to the conclusion that a less liquid, higher-credited-rate product with a higher commission is going to automatically be litigated versus the kind of products that we sell.
<UNK>, yes.
I made that exact statement or script.
I would tell you that I would make that statement at any point in time, any time we have an amount of capital come along.
I mean, we have capital and we are always prepared for any economic uncertainties that would come along.
I mean rest assured, I will go back to my other comments that we will be very active in buying our stock back, both in the second quarter and for the full-year 2016.
Fully expect, as I said, to go above the 50% to 55% of operating earnings long-term guidance.
And part of that will be because of the $400 million of capital that we were able to generate from that transaction.
I think that the ---+ I shouldn't say think ---+ what we say is that our long-term margin expectation is 5% to 7%.
We had originally thought we'd get to that earlier, maybe the full-year 2017.
But because we had higher ---+ lower persistency than we expected and we've had declining premium, our loss ratio ---+ excuse me, our expense ratio isn't where it needs to be.
And so I think we are looking out to the lower end of that range latter part of 2017 or even 2018.
Now, if sales, which could happen, moved along properly priced and more robust, let's say 4% or 5%, which is sort of the industry average, that could occur sooner.
<UNK>, it's ---+ we have, obviously, as we do with any claim that comes in, spent a lot of time analyzing these things and specifically this quarter, because it was an item that impacted the quarter results.
We have spent time looking at each and every one of those claims, <UNK>, analyzed them down to ---+ gone back to the underwriting that was done.
And when you do all of that analysis, it truly looks like a blip.
I mean I think you have to remember that we insure nearly 2 million people.
We write, on an annual basis, 40,000 to 50,000 new policies on any given year, and you are going to have quarters where things like this happen.
I mean, the claims were spread across a wide variety of reasons.
Weather it was ---+ whether it was cancer or gunshots or whatever it was, you just had a wide variety of reasons that got in there, <UNK>, and truly looks like a blip.
I think with mortality, you always have to go back to what are your longer-term trends when thinking about what your best estimate of what your next quarter is going to be, as opposed to what happened in the last three months.
<UNK>, I'd just ---+
Yes, if I might add, in the short-term, something different about the people underwriting or your underwriting policies and practices would have to change for there to be something ongoing that's different.
And that hasn't happened.
So, we are pretty comfortable with the remarks that <UNK> has been making.
You know, it's a different story than is there some bigger trendy than, say, for example, older age mortality.
But I don't have to add any ---+ I don't have anything to add on that point either.
<UNK>, some of this stuff is arcane, but my understanding is that so long as a change is not made to an existing policy in terms of what that policy has been ---+ the payments and so on and so forth ---+ so long as there is not a change, there is no reason to go back and do anything different.
If it's the equivalent of a new sale, in the way that ---+ if something changes that is essentially the equivalent of a new sale, that would be a different story.
As to the broad question of hedge funds versus private equities, our intention is similar.
I don't know what the magnitude of the other insurers change would be, but we'd expect to move more toward, as a percentage of the total, private equity than hedge funds.
We'll do that over time.
Right now our percentage of alternatives ---+ the percent of alternatives of the total investment portfolio is about 1.2%; carrying value at $1.1 billion.
That compares to the industry averages of closer to 3.2%, 3%.
So we feel as if there is room for us to grow modestly The aggregate size of the alternatives investment portfolio, as we shift some of our hedge funds into private equities.
Yes, we are happy to disclose that.
It's about a third of the $1.2 billion ---+ $400 million.
And I guess we'd expect that to come down to $250 million over time.
Great.
Thank you.
And thank you all for joining us this morning.
As always, we will take your questions on our Investor Relations line at 800-237-2920 or via email at investorrelations@lfg.com.
Thank you all, and have a good day.
