Adjusted Operating Income: $280 million or $1.60 per diluted share. Net Income: Net loss of $756 million or $4.41 per diluted share. Group Protection Earnings: Increased by 26% year-over-year with a margin expansion of 120 basis points to 7.4%. Annuities Sales: Total sales of $3.8 billion, a 33% increase from the prior year quarter. Life Sales: Increased by 7% year-over-year. Retirement Plan Services Deposits: Total deposits up 8% year-over-year. RBC Ratio: Estimated well above 420%. Leverage Ratio: Improved to 27.5%, a sequential improvement of 30 basis points. Alternative Investments Return: 7.6% annualized return, $18 million below target. Group Premiums: 7% higher than the prior year quarter. Net Outflows in Retirement Plan Services: $2.2 billion due to a large plan termination.

Warning! GuruFocus has detected 2 Warning Sign with PHGUF.

Release Date: May 08, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Lincoln National Corp (NYSE:LNC) reported a 14% increase in adjusted operating income year-over-year, demonstrating strong execution of strategic initiatives. The Group Protection business delivered a 26% year-over-year increase in earnings and a 120 basis points margin expansion, highlighting strong execution and diversification. Annuities achieved robust year-over-year sales growth, with total sales of $3.8 billion, supported by a diversified product mix. The partnership with Bain Capital is expected to enhance Lincoln's strategic actions, providing expanded scale and access to private asset origination. Lincoln National Corp (NYSE:LNC) maintains a strong capital position with an estimated RBC ratio well above 420%, providing a cushion against adverse economic conditions.

Negative Points

Lincoln National Corp (NYSE:LNC) reported a net loss of $756 million for the quarter, primarily due to negative market risk benefits amid lower interest rates and equity markets. The Life Insurance segment reported an operating loss of $16 million, although improved from the prior year, it still reflects challenges in the segment. Market volatility and macroeconomic uncertainty continue to pose challenges, potentially impacting fee income and hedge costs. The annuity business faces pressure on fee income due to market volatility, with potential impacts on annualized earnings. Retirement Plan Services experienced net outflows of $2.2 billion due to a large plan termination, impacting overall segment performance.

Q & A Highlights

Q: Can you provide more details on the expected improvement in 2027 free cash flow per share due to the Bain partnership? Is this driven by higher free cash flow or potential share repurchases? A: Christopher Neczypor, CFO: The improvement is primarily due to the deployment of capital into growth areas like fixed annuities and institutional spread products. There is no expectation of using Bain proceeds for share repurchases, although we might consider it separately. The focus is on deploying the $800 million from Bain into strategic growth areas.

Story Continues

Q: How favorable was the mortality experience in the Life business compared to expectations, and what is the typical seasonality in the first quarter? A: Christopher Neczypor, CFO: Mortality was better than expected, contributing to improved underlying earnings. The first quarter typically has higher seasonality, but this quarter broke favorably. We don't disclose specific dollar impacts, but the mortality experience was positive.

Q: Why did Lincoln choose to issue new equity to Bain instead of Bain buying stock in the open market? A: Christopher Neczypor, CFO: The equity issuance creates alignment with Bain as a strategic partner, which is crucial for accelerating our strategic priorities, particularly in growing spread-based earnings. Buying 10% in the open market isn't realistic, and the capital from Bain allows us to invest in growth areas.

Q: The annuity business's ROA has been declining. Is this due to business mix changes, and where do you see it stabilizing? A: Christopher Neczypor, CFO: The decline is due to a shift in business mix, with more emphasis on RILA and fixed annuities, which have lower ROAs than variable annuities. We don't have a specific target for stabilization, but the focus is on improving risk-adjusted returns over time.

Q: Can you provide more color on the RBC ratio and its sensitivity to equity and interest rate volatility? A: Christopher Neczypor, CFO: The RBC ratio remains above 420%, consistent with our strategy. There hasn't been a material change, and we maintain a buffer to manage through economic volatility. The ratio is influenced by free cash flow and earnings, with Group and Retail Life performing better than expected.

Q: How much of the improvement in group disability results is due to lower incidents versus better recovery rates? A: Christopher Neczypor, CFO: Both lower incidents and improved recovery rates have contributed to better results. While they are somewhat linked, recovery rates have also benefited from our investments and actions in the business. We don't disclose specific numbers for each driver.

Q: What is the competitive environment like in the annuities market, and how is Lincoln positioned? A: Ellen Cooper, CEO: The annuities market remains competitive, but we focus on profitable growth rather than top-line growth. We leverage broad distribution capabilities and unique product features to compete effectively. Our partnership with Bain Capital will further support growth in spread-based businesses.

Q: Are there plans for further product launches or expansion into adjacent markets following the Bain partnership? A: Ellen Cooper, CEO: We are focused on launching private funds in partnership with Bain Capital and Partners Group, leveraging our distribution and expertise in complex, long-term solutions. We will explore additional opportunities for growth in adjacent markets over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

View Comments