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LN

LINCOLN NATIONAL CORP (LNC)·Q1 2025 Earnings Summary

Executive Summary

  • Adjusted operating EPS of $1.60 beat S&P Global consensus of $1.52; revenue of $4.69B was slightly above the $4.69B consensus, while GAAP EPS of $(4.41) reflected non-economic MRB losses from lower rates and equities, with hedging focused on capital stability . Consensus from S&P Global: EPS $1.52*, Revenue $4.689B*.
  • Group Protection remained the standout: operating income $101M (+26% YoY) with a 7.4% margin (+120 bps YoY), aided by favorable LTD incidence and recoveries; annuity sales rose 33% YoY to $3.8B with ~60% spread-based mix; Life loss narrowed to $(16)M on better mortality and lower expenses; RPS deposits +8% YoY but net outflows of $(2.2)B due to a large plan termination .
  • Capital and balance sheet: estimated RBC remained >420% (buffer above 400% target), leverage improved 30 bps q/q to 27.5% and ~260 bps y/y; adjusted BVPS rose to $73.19; holding company liquidity was $466M .
  • Strategic/catalysts: announced Bain Capital partnership (9.9% stake at $44/share; nonexclusive IMA; minimum $20B AUM over six years) to accelerate spread businesses and asset sourcing; launched a debt tender offer and extended contingent capital (new P-Caps) to optimize maturities and cost, supporting deleveraging .

What Went Well and What Went Wrong

  • What Went Well

    • Group Protection delivered another strong quarter: operating income $101M, margin 7.4% (+120 bps YoY), premiums +7% YoY; disability loss ratio ~70% on low incidence and strong return-to-work . CEO: “Group Protection earnings increased 26% and margin expanded 120 basis points” .
    • Annuities growth with diversified mix: sales $3.8B (+33% YoY), ~60% spread-based products; RILA balances up with 21% of ending balances; management emphasized broad product breadth to adapt to volatility .
    • Capital trajectory improved: RBC >420% buffer maintained; leverage ratio fell to 27.5%; adjusted BVPS rose to $73.19; management detailed rule-of-thumb sensitivities for AUM changes and reiterated capital buffer strategy .

  • What Went Wrong

    • GAAP loss from non-economic MRB marks: $(4.41) diluted EPS vs $1.60 adjusted, driven by lower rates/equities; however hedge program continued to target capital stability .
    • RPS outflows and one-time item: net outflows $(2.184)B on a large plan termination; an additional ~$2M one-time operational loss tied to a different plan impacted earnings .
    • Alternative investments below LT target: consolidated alternatives returned 1.9% in 1Q (7.6% annualized), modestly below the 10% long-term target; Life remains most exposed to alternatives variability .

Financial Results

Consolidated results and capital metrics

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$4.111 $5.063 $4.691
Adjusted Operating Income to Common ($M)$358 $332 $280
Adjusted Diluted EPS$2.06 $1.91 $1.60
GAAP Diluted EPS$(3.29) $9.63 $(4.41)
Estimated RBC Ratio>420% >430% >420%
Leverage Ratio28.4% 27.8% 27.5%
BVPS ex-AOCI$62.67 $72.06 $67.04
Adjusted BVPS$70.04 $72.34 $73.19

Q1 2025 vs. S&P Global consensus

MetricConsensusActualSurprise
Adjusted EPS$1.52*$1.60 +$0.08 (beat)
Revenue ($B)$4.689*$4.691 +$0.002 (in-line/beat)

Values marked with * retrieved from S&P Global.

Segment performance and mix (oldest → newest)

SegmentMetricQ3 2024Q4 2024Q1 2025
AnnuitiesOperating Income ($M)$301 $303 $290
Sales ($B)$3.375 $3.689 $3.789
Mix/NotesSpread-based 66% of sales ~2/3 of sales ~60% of sales; RILA 21% balances
Group ProtectionOperating Income ($M)$109 $107 $101
Operating Margin8.4% 8.4% 7.4%
Premiums ($B)$1.288 $1.274 $1.371
Sales ($M)$84 $467 $157
Life InsuranceOperating Income ($M)$22 $(15) $(16)
Sales ($M)$122 $119 $97
Retirement Plan ServicesOperating Income ($M)$44 $43 $34
Deposits ($B)$4.180 $3.473 $4.115
Net Flows ($B)$0.651 $(0.732) $(2.184)

KPIs and portfolio metrics

KPIQ1 2025
Total loss ratio (Group)72.4%
Disability loss ratio (Group)~70% with low incidence, strong recoveries
Annuities average account balances (net of reinsurance)$163.7B
RILA % of annuity ending balances21%
New money yield vs portfolio yield6.0% vs 4.57%
Alternative investments return (quarter)1.9% (7.6% annualized), $75M pre-tax
Holding company available liquidity$466M

Guidance Changes

MetricPeriodPreviousCurrentChange
RBC buffer vs targetOngoing>430% (YE’24 estimate) >420% (1Q25 estimate) Maintained buffer above 400% target
Leverage ratioOngoing27.8% (4Q24) 27.5% (1Q25) Lowered
Group Protection margin20258.4% in 4Q24 actual 7.4% in 1Q25 actual; risk results seasonally improve in 2Q Qualitative: sustain strong margins
Base spreads (RPS)2025~101 bps in 4Q24103 bps in 1Q25; expect stabilization Maintained/stabilize
Sensitivity (Annuity AUM)2025n/a~+$/-$15M annualized earnings per 1% AUM move New framework
Sensitivity (RPS AUM)2025n/a~+$/-$2M annualized earnings per 1% AUM move New framework
Common dividendNext payable$0.45 (historical) $0.45 declared, payable Aug 1, 2025 Maintained

No formal quantitative revenue/EPS guidance issued; management provided qualitative frameworks and sensitivities .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Capital/RBC>420% (3Q24); >430% (YE’24) >420% maintained; reiterate 20-pt buffer above 400% Stable buffer
Bain partnership/asset strategyNot discussed prior9.9% equity at $44; nonexclusive IMA; min $20B AUM by Y6; accelerates spread businesses New strategic lever
Annuity mix shift to spread66% sales spread-based (3Q); ~2/3 (4Q) ~60% spread-based sales; RILA 21% balances Ongoing mix shift
Group margins/disability8.5% (3Q); 8.4% (4Q) 7.4%; disability LR ~70%, still favorable Strong but slightly lower
Life mortality/expenses3Q sequentially better; 4Q severity elevated Mortality improved; Life loss narrowed; expense actions flowing through Improving underlying
RPS flows/spreads+$651M net inflows (3Q) $(732)M net outflows (4Q) $(2.184)B net outflows on large termination; spreads ~103 bps
Alternative returns$79M after-tax (3Q) $83M consolidated (4Q) 1.9% quarterly return (~$75M pre-tax)

Management Commentary

  • CEO Ellen Cooper: “We delivered solid results… Group Protection earnings increased 26% and margin expanded 120 basis points. Annuities generated significant sales… Life Insurance continued to improve… RPS total deposits increased by 8%” .
  • On Bain: “A pivotal milestone… providing differentiated access to private asset origination… aligning our interests with a minority ownership stake… well prepared… despite the ongoing volatility” ; partnership to “accelerate product innovation… broaden our offerings” .
  • CFO Chris Neczypor: “Adjusted operating income… $280M or $1.60; normalizing for below-target alternatives, $298M or $1.70” . “RBC well above 420%… leverage ratio 27.5%… buffer provides cushion for a normal recessionary environment” . “Rule of thumb: ~$15M annualized earnings impact per 1% change in annuity AUM; ~$2M per 1% in retirement AUM” .

Q&A Highlights

  • Bain accretion mechanics: Deployment into spread businesses (fixed annuities, FABN) and legacy Life optimization; accretion not premised on buybacks from Bain proceeds .
  • Life: Mortality favorable vs expectations; 1Q seasonally higher but improved from 4Q severity; near breakeven ex alts .
  • RBC color: Disclosure unchanged; remains in ~425–435% range intra-year; typical timing items across quarters .
  • Group disability macro sensitivity: Of ~300 bps 2024 margin expansion vs 2023, ~100 bps was macro tailwind; monitoring unemployment trajectory .
  • RPS: Large plan termination drove outflows; separate ~$2M one-time operational hit; excluding, flows positive .
  • Annuities market: Competitive environment, especially in RILA/fixed; LNC focuses on profitable growth (12%+ return targets) with unique features/crediting and “walled garden” shelf strategies .

Estimates Context

  • Beat on both EPS ($1.60 vs $1.52*) and revenue ($4.691B vs $4.689B*). Given strong Group profitability and lower alts, Street models may need slight upward revisions to Group margins and expense run-rate, partly offset by potential downward tweaks to annuity fee income if 2Q market volatility persists (management flagged lower starting AUM and sensitivity) . Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Core operating beat with high-quality Group profitability; continued leverage reduction and capital buffer support defensive positioning in volatile markets .
  • Strategic pivot to spread-based annuities is working (sales +33% YoY; ~60% mix), but fee income remains sensitive to market levels; use management’s ~$15M per 1% AUM sensitivity in modeling .
  • Life underlying trends improving (mortality, expenses); alts remain the swing factor but are expected to converge to ~10% LT averages over time .
  • RPS experienced transitory outflows on a large termination; deposits solid and base spread ~103 bps; expect normalization with a robust pipeline .
  • Bain partnership and liability-driven asset optimization are catalysts to scale spread earnings and potentially accelerate growth in adjacent offerings over the medium term .
  • Near-term trading: modest beat and solid capital metrics, plus tender/deleveraging actions, are supportive; watch 2Q market volatility impacts on annuity/RPS fee income and Group macro sensitivity .
  • Medium-term thesis: more resilient earnings mix (Group + spread annuities), improved capital flexibility, and expense discipline point to improving ROE and potential for future capital return once deleveraging milestones are met .

Values marked with * retrieved from S&P Global.

Sources: LNC Q1 2025 8-K and exhibits , Q1 2025 press release , Q1 2025 earnings call transcript (prepared remarks and Q&A) , Q4 2024 press release , Q3 2024 press release , Dividend declaration , Cash tender offer .