Investors Follow Buffett’s Lead On Annuities

February 15, 2013

It has become one of the most common strategies in investing: follow Warren Buffett’s lead. And why not? Buffett’s financial acumen, after all, has made him one of the richest men in the world, and his recent bets in a tumultuous market have continued to pay off.

Big investors are backing variable annuities after Warren Buffett’s Berkshire Hathaway bet on retirement products this week, Dennis Glass, chief executive officer of life insurer Lincoln National Corp. was quoted as saying following Buffett’s recent acquisition.

Buffett’s Berkshire Hathaway closed a deal to take over up to $4 billion in liabilities from Cigna in a reinsurance transaction. Apollo Global Management, Guggenheim Partners and Harbinger Group also have acquired annuities, according to media reports.

“It’s very encouraging to see smart money coming back into the variable-annuity space,” Glass told analysts during a conference call to discuss Lincoln National’s fourth quarter results.

While some insurers have reduced their stakes in annuities or, like Cigna and Hartford Financial Services Group, have exited them entirely, Lincoln National has remained in the business. The company saw annuity deposits increase by 9 percent over the last year, according to its fourth quarter statement.

MetLife plans to cut annuity sales for a second year in 2013. Prudential Financial said in its year-end financial report on Feb. 7 that annuity sales fell about 14 percent in the fourth quarter from the same period in 2011.

Lincoln Financial Group reported net income for 2012 of $1.3 billion, or $4.56 per diluted share, compared to $221 million, or 69 cents per diluted share, in 2011. Income from operations was $1.3 billion, or $4.47 per diluted share for the year, compared to $1.2 billion, or $3.94 per diluted share in 2011.

The company’s net income for the fourth quarter of 2012 was $320 million, or $1.14 per diluted share, compared to a net loss in the fourth quarter of 2011 of $541 million, or $1.82 per diluted share. Fourth quarter income from operations was $310 million, or $1.10 per diluted share, compared to $277 million, or 91 cents per diluted share, in the fourth quarter of 2011.

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