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    Lincoln National Corp (LNC)

    Business Description

    Lincoln National Corporation (LNC), also known as Lincoln Financial Group, is a holding company that operates multiple insurance and retirement businesses through its subsidiary companies. The company, organized under the laws of Indiana in 1968, is headquartered in Radnor, Pennsylvania. LNC offers a wide range of products and services, including annuities, life insurance, group protection, and retirement plan services, marketed under the brand name "Lincoln Financial Group".

    1. Annuities - Offers variable annuities, fixed annuities (including indexed), and registered index-linked annuities (RILA).
    2. Life Insurance - Provides universal life insurance (UL), variable universal life insurance (VUL), linked-benefit UL and VUL, indexed universal life insurance (IUL), and term life insurance.
    3. Group Protection - Supplies group life, disability, and dental insurance products.
    4. Retirement Plan Services - Delivers employer-sponsored retirement plans and services.

    Q3 2024 Summary

    Initial Price$31.33July 1, 2024
    Final Price$30.90October 1, 2024
    Price Change$-0.43
    % Change-1.37%

    What went well

    • Lincoln Financial is generating free cash flow above expectations and is on track to meet or exceed their 2026 targets, including improving free cash flow conversion ratios from 35% in 2023 toward 45%-55% by 2026, and they have repaid $100 million of debt this year, reducing leverage ratios.
    • The company is experiencing strong annuity sales, particularly in Registered Index-Linked Annuities (RILA), with $1.2 billion in RILA sales—the strongest in nearly two years—driven by the launch of Lincoln Level Advantage 2.0 with new features that are resonating with customers.
    • Their annual assumption review resulted in a favorable $8 million impact on operating income in the life business, indicating that policyholder behavior and mortality assumptions are now in line with experience and expectations.

    What went wrong

    • The company lacks specific guidance on future free cash flow, creating uncertainty about meeting 2026 targets.
    • Sustainability of annuity sales growth is uncertain, especially if current sales reflect a pull-forward effect or if interest rates change.
    • Remaining exposure to universal life secondary guarantee (ULSG) products without plans for further reinsurance transactions may pose risks.

    Q&A Summary

    1. Free Cash Flow Progress
      Q: How is free cash flow tracking toward 2026 targets?
      A: Management feels confident, with free cash flow conversion exceeding expectations and tracking well toward the 45-55% target by 2026. They generated above-expected free cash flow, repaid $100 million of debt, spent $140-150 million on severance and legal charges, and are on track to pay a $300 million dividend. Actions like expense reductions and capitalizing the Bermuda subsidiary are supporting this progress.

    2. Share Buyback Outlook
      Q: When might share buybacks resume?
      A: Management prioritizes repaying preferred securities and deleveraging before resuming share buybacks. The leverage ratio decreased by 50 basis points this quarter, and $100 million of debt has been repaid this year. No update was provided beyond existing guidance, but they feel they are tracking well toward their targets.

    3. ULSG Block Disposition
      Q: Any plans to sell remaining ULSG exposure?
      A: While acknowledging an attractive market for these liabilities, management is not relying on another deal and believes they can improve free cash flow from the Legacy Life Block without selling. They continue to evaluate options but focus on priorities like operating the Bermuda affiliate and deleveraging.

    4. Annuity Sales Drivers
      Q: What's driving strong annuity sales?
      A: Broad-based annuity sales remain strong due to higher rates and demographics with more individuals approaching retirement. Despite a rate pullback in Q3, rates have risen again, and there's increased advisor focus on annuities as solutions for clients.

    5. RILA Market Position
      Q: How is the new RILA product performing?
      A: The refreshed RILA product, Lincoln Level Advantage 2.0, led to $1.2 billion in sales—the strongest quarter in nearly two years. New features enable competition on product features rather than price, and despite increased competition, they see a growing market.

    6. Assumption Review Impact
      Q: Why were there no significant assumption changes?
      A: The assumption review resulted in a modest $8 million positive impact on operating income. Mortality and policyholder behavior assumptions align with experience, and individual items were less significant than in prior years.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Annuities----3,0021,2691,511-
    Life Insurance----6,9071,5411,511-
    Group Protection----5,5631,4251,4411,432
    - Life----1,9389--
    - Disability----2,89273--
    - Dental----184-2--
    Retirement Plan Services----1,310322677335
    Other Operations-----755273952
    - Insurance Premiums-----111
    - Net Investment Income-----272734
    - Other Revenues-----9917
    Insurance Premiums----3,672---
    Fee Income----5,467---
    Net Investment Income----5,879---
    Realized Gain (Loss)-----4,311---
    Other Revenues----900---
    Total Revenue----11,6454,1165,1534,111
    KPIs - MetricFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Death Claims per In-force---2.49-2.442.372.36
    Net Amount at Risk for Guaranteed Minimum Benefits---3,143-2,0562,1351,544
    Weighted-average Duration of Additional Liabilities---17-171616
    Weighted-average Age of Policyholders---72-727272
    Commercial Mortgage Loan Prepayment and Bond Make-whole Premiums-----225
    Loan-to-Value Ratios for Commercial Mortgage Loans---17,310-17,43117,57217,419
    Debt-Service Coverage Ratios for Commercial Mortgage Loans---1.90-2.642.722.35
    Outflows as a Percentage of Average Gross Account Balances---9%-11%11%11%
    Variable Annuity Net Flows---(7,196)-(2,304)(2,375)(233)
    Fixed Annuity Net Flows---5,169-(413)1,421872
    Average Daily Variable Annuity Account Balances---29,141-118,176116,77034,344
    Average Fixed Account Balances---24,502-23,65523,55023,604
    Fair Value of Separate Account Assets---158,257-166,225165,199171,483
    Securities Pledged under Securities Lending Agreements---205-283202185

    Executive Team

    NamePositionStart DateShort Bio
    Ellen G. CooperPresident, CEO, and DirectorMay 2022Ellen G. Cooper has served as President, CEO, and Director of LNC since May 2022. She joined LNC in 2012 as Executive Vice President and Chief Investment Officer, holding various leadership roles.
    Craig T. BeazerExecutive Vice President and General CounselDecember 2020Craig T. Beazer has served as Executive Vice President and General Counsel at LNC since December 2020. He previously held roles at KeyCorp and The Bank of New York Mellon Corporation.
    Jayson R. BronchettiExecutive Vice President, Chief Investment Officer, Head of Hedging and SustainabilityMay 2023Jayson R. Bronchetti serves as Executive Vice President, Chief Investment Officer, Head of Hedging (since May 2023), and Sustainability (since May 2022) at LNC. He has been Chief Investment Officer since November 2021.
    Matthew GroveExecutive Vice President and President of Retail SolutionsJuly 2022Matthew Grove joined LNC in July 2022 as the Executive Vice President and President of Retail Solutions. He previously served as CEO and President at Resolution Life USA.
    John C. KennedyExecutive Vice President and Chief Distribution and Brand Officer, President of LFDMarch 2021John C. Kennedy is the Executive Vice President and Chief Distribution and Brand Officer at LNC, having assumed the role of head of distribution in March 2021 and the role of head of brand in March 2022.
    Christopher NeczyporExecutive Vice President and Chief Financial OfficerFebruary 17, 2023Christopher Neczypor has served as Executive Vice President and Chief Financial Officer of LNC since February 17, 2023. He was previously Executive Vice President and Chief Strategy Officer.
    Andrew D. RallisExecutive Vice President and Chief Risk OfficerMay 2023Andrew D. Rallis is the Executive Vice President and Chief Risk Officer at LNC, a position he has held since May 2023. He previously served as the Executive Vice President and Global Chief Actuary at MetLife, Inc..
    James ReidExecutive Vice President and President of Workplace SolutionsAugust 2022James Reid serves as Executive Vice President and President of Workplace Solutions at LNC. He assumed this role in August 2022. He was previously President and CEO of Versant Health.
    Kenneth S. SolonExecutive Vice President, Chief Information Officer, Head of IT and Digital, and Head of Enterprise ServicesJuly 2018Kenneth S. Solon serves as Executive Vice President, Chief Information Officer, Head of IT and Digital, and Head of Enterprise Services at LNC. He has held the role of Executive Vice President, Chief Information Officer since July 2018.
    Sean N. WoodroffeExecutive Vice President and Chief People, Culture, and Communications OfficerMay 2023Sean N. Woodroffe serves as Executive Vice President and Chief People, Culture, and Communications Officer at LNC. He assumed this role in May 2023. He was previously Senior Executive Vice President and Chief People Officer at TIAA.
    Nancy A. SmithSenior Vice President and SecretaryFebruary 24, 2023Nancy A. Smith serves as Senior Vice President and Secretary at LNC. She is listed as the agent for service and signatory on multiple filings, including registration statements and proxy materials.

    Questions to Ask Management

    1. Given the minimal impact of your annual assumption review on the Life business this quarter, can you explain why you are confident in your current mortality and policyholder behavior assumptions, especially considering recent industry studies suggesting potential changes?

    2. Despite strong free cash flow generation exceeding expectations and taking a dividend from LNBar, you have not resumed share buybacks; can you provide an updated timeline on when investors might expect a return to capital distributions and elaborate on your capital deployment priorities?

    3. Annuity sales remained robust in the third quarter even with a pullback in interest rates; do you anticipate any slowdown in sales due to potential future rate declines, and can you clarify whether recent sales growth is driven by new customer inflows or exchanges from existing customers?

    4. With competitors announcing reinsurance transactions for guaranteed universal life blocks, what are your updated thoughts on pursuing similar deals for your remaining ULSG exposure, and what key considerations are influencing your decision?

    5. In Retirement Plan Services, you noted that fourth-quarter net flows could be challenged by known plan terminations despite strong sales this quarter; can you provide more details on these terminations and how you plan to mitigate their impact on future earnings?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateNovember 10, 2021
    End Date/DurationNo expiration date
    Total Additional Amount$1.5 billion
    Remaining Authorization$714 million (as of September 30, 2024)
    DetailsPurpose is to return value to shareholders through share price accretion, dividends, and repurchases. Timing depends on capital ratios, rating agency expectations, free cash flow, and alternative capital uses.

    Past Guidance

    1. Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2026
    • Guidance:
      1. Free Cash Flow and Capital Position: Tracking well toward 2026 outlook target.
      2. Leverage and Debt Repayment: Achieved a 50 basis point reduction in leverage ratio and $100 million in debt repayment for the year.
      3. Bermuda Subsidiary (Alpine): Plans to fully leverage Alpine for flow agreements in the next year.
      4. Expense Management: Focus on expense efficiencies as part of operating model optimization.
      5. Annuities Business: Anticipates seasonally higher expenses and elevated reinsurance financing charges in Q4 2024, but supported by strong fundamentals.
      6. Retirement Plan Services (RPS): Expects spreads to stabilize at around 100 basis points in Q4 2024, with net flows impacted by plan terminations.
      7. Group Protection Sales: Anticipates year-over-year sales growth in Q4 2024, focusing on profitability.
      8. Life Insurance Business: Realigning product portfolio to emphasize accumulation and protection products with more risk sharing.
      9. Strategic Priorities: Focus on maintaining a strong balance sheet, improving free cash flow, and growing the franchise.

    2. Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Group Business Margin Expansion: Expects a 50 to 100 basis point improvement in group business margins for 2024, compared to the 5.5% margin in 2023.
      2. Retirement Plan Services (RPS) Spreads: Expects spreads to stabilize at around 100 basis points in the second half of 2024.
      3. Capital and RBC Ratio: Aims to maintain an RBC ratio of 420%, including a 20-point buffer above the 400% target.
      4. Free Cash Flow Conversion: Goal to improve free cash flow conversion from 35% in 2023 to 45%-55% over the next few years.

    3. Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Life Insurance Business: Expects modest earnings for the full year, with seasonality impacting Q1 due to mortality trends.
      2. Expense Management: Focus on reducing organizational complexity and discretionary spending, with benefits emerging in Q2 2024 and beyond.
      3. Capital Position: Expects to maintain an RBC ratio of 400%-410%, with a $650 million capital benefit from the wealth management transaction.
      4. General Account Optimization: Pursuing incremental yield opportunities to support earnings and product competitiveness.
      5. Annuities Business: Anticipates a strong pipeline to support momentum in 2024, focusing on capital efficiency.
      6. Retirement Plan Services (RPS): Expects robust sales levels in 2024, supported by a strong pipeline of known wins.
      7. Alternative Investments: Portfolio expected to deliver solid risk-adjusted long-term returns.
      8. Mortality Trends: Seasonal improvements in mortality expected to support results in coming quarters.

    4. Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Free Cash Flow Conversion: Expected to improve from 35% in 2023 to 45%-55% by 2026.
      2. RBC Ratio: Ended 2023 with an RBC ratio above 400%, targeting to sustain above 420% going forward.
      3. Group Protection Margin: Achieved a 5.5% margin in 2023, targeting a 7% sustainable margin over time, with 50-100 basis points of margin expansion in 2024.
      4. Annuities Business: Expected to remain a key driver of earnings and free cash flow in 2024, with spread improvement and sequential account balance growth.
      5. Retirement Plan Services (RPS): Account balances surpassed $100 billion, with expected low single-digit growth in operating income.
      6. Life Insurance: Facing headwinds from the Fortitude Re transaction and higher expenses, but focusing on products with stable cash flows and higher risk-adjusted returns.
      7. Expense Management: Addressing elevated expenses and optimizing the organizational structure, including a headcount reduction in early 2024.
      8. Capital Efficiency: Exploring expanded use of affiliated reinsurance to improve free cash flow.
      9. Investment Portfolio: Continuing to optimize the general account for incremental risk-adjusted yields.
      10. Market Assumptions: Assumes 6% market appreciation in estimates for 2026 metrics.

    This table summarizes the issued and guided periods, along with the exhaustive guidance provided in each earnings call.