Dennis R. Glass
President & Chief Executive Officer at Lincoln National
Thank you, Al. Good morning, everyone. In the fourth quarter and full year, we again experienced elevated claims related to U.S. COVID debts. Since the pandemics onset, we have been providing important financial protection for our customers during the most serious global health crisis in over a century. Despite the magnitude of claims, our earnings have been strong enough to continue our share repurchase program, buy capital for new sales, and maintain our overall financial strength.
Looking through the significant COVID claims experience in 2021 and adjusting out excess alternative income and notable items, we view underlying earnings power at about $10.50 per share, up 13% over 2020's comparable figure and representing a 14% underlying ROE on book value, excluding AOCI. We saw broad-based sales growth this year in most of our businesses, good expense management, significant share repurchases, and an improved capital position. Looking forward, we expect EPS growth to meet or exceed our long-term expectations. Also supported by our actions to increase sales, significant expense savings related to the Spark Initiative, and share buybacks.
Turning to our earnings growth drivers. As interest rates dropped, we started a new product strategy to reprice our portfolio to achieve target returns, shift our emphasis to less capital-intensive products, and add new solutions that expand our consumer value propositions. We have been executing against the strategy and achieving our objectives. During 2021, we introduced 13 new products with more planned in early 2022. We continued our disciplined repricing across our portfolio, contributing to strong new business returns. By combining these actions with the power of our distribution, we achieved significant 2021 sales growth in most businesses and drove increased operating revenues across all our businesses.
We continue to successfully manage expenses while improving operational effectiveness and the customer and producer experience. Lincoln has a long history of successful cost savings initiatives, most recent of which is our Spark Initiative as announced last quarter. By improving efficiency, leveraging automation, and upskilling our workers, we expect Spark to be very additive to our compound annual EPS growth rate from 2021 through 2024. Finally, share buybacks have been and are expected to remain an important element of our EPS growth.
Now turning to the business segments. In Annuities, sales grew 20% compared to the prior-year quarter and 4% for the full year. We expanded consumer choice within our already broad product portfolio and added new producers to our industry-leading distribution force. Full year sales growth was driven by sales of variable annuities without guaranteed living benefits. Our sales of VA's with living benefits are generating strong returns, helped by a favorable competitive environment, rising rates, and the return enhancing flow reinsurance deal we executed in the third quarter.
The ongoing shift in sales mix towards products without living benefits started several years ago. We further advanced that effort by launching and indexed variable annuity in 2018. We supported the launch with increased shelf space and have since continued to innovate, adding new investment options to both our indexed VA and our traditional VA without living benefits. As a result, VAs without living benefits have risen to over 70% of VA sales more than twice the percentage in 2018.
The strategic sales shift has also diversified our account value mix. VAs with living benefits now account for less than half of our in-force annuity account value and based on our current sales mix will continue to decline. We entered 2022 with solid footing in the Annuities business, with strong coordination among manufacturing, risk management, and distribution.
In Retirement Plan Services, we are successfully capitalizing on the opportunities in the market, thanks to our innovative product portfolio, differentiated high-tech, high-touch service model, and breadth and depth of distribution. Fourth-quarter total deposits were up double digits, both sequentially and compared to the prior-year quarter. Full-year total deposits rose 8% to $10.8 billion, a record, with growth in both first-year sales and recurring deposits, contributing to our seventh consecutive year of positive net flows.
Retirement Plan Services enters 2022 in terrific shape, with a robust sales pipeline and an expanded product portfolio. We are benefiting from the improved environment for retirement businesses as wage growth, contribution rates, and increases in employer deposits are all serving as tailwinds for deposit growth.
Finally, we remain well-positioned competitively in our target markets of small and mid-case 401(k), healthcare, government, and not-for-profit, as evidenced by our consistent multi-year track record of positive net flows and strong returns.
Turning to Life Insurance. We entered 2021 with a well positioned portfolio of solutions, repriced to ensure strong returns in a low interest rate environment. Throughout 2021, we launched new innovative risk-sharing solutions to help grow the top line. We introduced seven new products contributing to fourth-quarter sales growth of 53% sequentially and 121% over the prior year quarter. This sales strength was broad-based with every major product category reporting double-digit growth, including record term life sales and substantial growth in executive benefits.
Even more significantly, nearly 30% of our sales this quarter consisted of solutions and features that didn't exist before 2021. For instance, variable MoneyGuard represented 42% of total MoneyGuard sales. In 2021, we also continue to build on our distribution force, adding over 12,000 new producers who had never sold a Lincoln life policy before. An example of this growth was in our new partnership in the P&C channel. New producers across channels are finding our repositioned and expanded product portfolio attractive, demonstrating the synergies between our product innovation and distribution expansion.
Finally, we continue to build on our digital capabilities. In 2021, our cost per life application continue to decline as our automated underwriting and digital processing capabilities are driving efficiencies while improving the customer experience. In 2022, we will continue to innovate with product launches planned for the first half of the year, expand our distribution franchise and enhance our operations with digital investments.
Now moving to Group Protection, let me focus first on profitability. The Group business is managing through a challenging environment as pandemic claims increased in the fourth quarter. Group's full-year underlying margins normalized for above-target alternative income and then a claims and a notable item was slightly below our targeted 5% to 7% range. We expect to achieve ongoing margin improvement in Group building to the high end of our target with improvement coming from a three-part strategic effort.
First is continued pricing discipline. We strengthened pricing in 2020 and continue to make additional changes where necessary. Second is claims management, including our ongoing investment in the claims staffing combined with a more streamlined and effective approach to claims operations. Lastly is cost efficiency aided by our recently announced Spark Initiative. We expect these three efforts to drive approximately equal contributions to margin expansion.
Turning to the top line, we achieved 4% premium growth for the year and 6% for the quarter which is a result of strong persistency up over 2 percentage points for the full year to 89.2%, and successful execution of ongoing rate increases. Sales declined 17% for the full year and 14% in the fourth quarter as we maintained our pricing discipline. Our focus on strategic market segments has resulted in an increase in employee-paid products which comprised 43% of total sales in 2021 up from 39% in 2020, and we are starting to see a shift towards supplemental health solutions including our new hospital Indemnity product. This shift is still in its early days but we expect it will ultimately add to our earnings diversity and consumer value propositions.
Although the pandemic is a challenging time, the Group business remains a key contributor to Lincoln's diversified business portfolio and we are confident in its earnings potential. A few words on one of our key competitive advantages, our powerful distribution force. As the industry continuously evolves, the strength of our distribution franchises remain at constant. We are known in the marketplace for our consistent distribution presence with broad reach across distribution channels. Over 90,000 active producers sell our products, and through strategic investments in technology and training, we are influencing where and how we engage with financial professionals leading with a virtual first model for the long term.
As wholesalers and reps have begun to meet in person with their clients, they continue to leverage virtual tools, which improve the service we deliver, raise productivity, and help lower costs. And our efforts are being recognized as we received two industry awards in 2021 for innovation in virtual training and digital marketing.
Briefly on investments, the fourth quarter capped a year of outstanding results. We again reported excellent credit performance with another quarter of positive net ratings, migration, and negligible losses. In 2021, the portion of our fixed-income assets rated investment grade or equivalent rose to 97%. This quarter, we invested new money at 2.9%, the 20 basis point sequential increase as we continue to benefit from a multi-manager platform. During 2021, we invested 65% of new money in assets other than public corporates, yielding approximately 100 basis points more than comparably rated public corporates of similar duration.
For full year 2021, our new money duration fell to about 7.5 years from 10 years with the decline reflecting Lincoln's disciplined approach to asset liability management and our shift to a less interest rate sensitive product mix. Finally, we reported a quarterly return on alternative investments of 4% compared to our targeted return of 2.5%. For the year, we generated an outstanding 29% return versus our 10% annual targeted return.
In summary, the claims environment has been challenging for full-year 2021, underlying EPS grew substantially. We expect our top-line momentum to continue. We expect the smart cost savings initiative which will more than offset spread compression to add to our EPS growth over the next few years. Enabled by our balance sheet and earnings strength, we continue to return capital to shareholders. In sum, our earnings power continues to grow and we remain confident in our ability to achieve underlying EPS growth at or above the high end of our 8% to 10% target range.
I will now turn the call over to Randy.
