Sign in

You're signed outSign in or to get full access.

LN

LINCOLN NATIONAL CORP (LNC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered broad-based strength: adjusted operating EPS of $1.91 and net income EPS of $9.63, with total revenues of $5.06B; Group Protection posted an 8.4% margin, Annuities operating income rose to $303M, RPS to $43M, while Life had a $(15)M operating loss .
  • Capital position strengthened further: estimated year-end RBC ratio >430% and leverage ratio down to 27.8%, enhancing flexibility for reinvestment and deleveraging .
  • 2026 outlook raised on free cash flow: management widened the FCF conversion range upper bound to 60% (from 55%) and expects leverage of 25–26.5% by 2026, underpinned by mix shift, expense actions, reinsurance, and investment optimization .
  • Key near-term watch items: management flagged typical Q1 seasonality (two fewer fee days and lower ending balances) implying lower Annuities earnings sequentially; Group earnings in 2025 should be similar to 2024 as ~100 bps macro tailwind in disability normalizes; RPS base spread expected to stabilize in 1H25 and expand modestly in 2H25 .
  • Consensus context: S&P Global (Capital IQ) Wall Street estimates were unavailable at time of preparation due to access limits; results are assessed vs prior periods; monitor for estimate revisions given higher Group margins and FCF outlook (see Estimates Context section).

What Went Well and What Went Wrong

What Went Well

  • Group Protection delivered a record Q4: operating income $107M and 8.4% margin, more than doubling YoY, driven by favorable LTD incidence, improved mortality, and strong execution; total loss ratio fell to 71.0% (down 560 bps YoY) . “Group had another excellent quarter… margin of 8.4%… more than doubling from $52M… drivers were disciplined pricing, diversification, strong operations” (CFO) .
  • Annuities momentum persisted: operating income rose to $303M (up 14% YoY ex-2023 model refinement) on higher balances and spread income; RILA now 21% of balances (up 3ppt YoY); Q4 sales $3.7B; 2024 sales highest since 2019 .
  • Capital and FCF outlook improved: year-end RBC >430%; 2026 FCF conversion range increased to 45–60% (from 45–55%); management cited mix shift to higher FCF businesses, capital-efficient new sales (Bermuda affiliate), and legacy block optimization .

What Went Wrong

  • Life Insurance earnings remained pressured: Q4 operating loss $(15)M) due to elevated severity from a small number of large claims, despite above-target alternatives and lower net G&A; YoY comparisons remain affected by the Fortitude Re transaction .
  • Net outflows remain a headwind in Annuities and RPS: Q4 Annuities net outflows $(1.9)B (vs +$285M in Q4’23) amid higher rates/strong equities; RPS had Q4 net outflows $(732)M on known plan terminations despite positive full-year flows .
  • Seasonality and macro normalization: management cautioned that Annuities Q1 will be lower than Q4 (two fewer fee days and lower ending balances), and Group’s 2025 will reflect moderation of 2024’s ~100 bps macro tailwind in disability .

Financial Results

Consolidated Snapshot (YoY and Sequential)

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenues ($B)$0.70 $5.15 $4.11 $5.06
Net EPS – Diluted$(7.35) $5.11 $(3.29) $9.63
Adjusted Operating EPS – Diluted$1.47 $1.84 $2.06 $1.91

Notes: Q4’23 results affected by reinsurance accounting/market risk benefits; adjusted EPS excludes non-operating items as defined by the company .

Segment Operating Income and Margins

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Annuities Op. Income ($M)$279 $297 $301 $303
Group Protection Op. Income ($M)$52 $130 (incl. refund) $109 $107
Group Operating Margin (%)4.1% 10.0% (8.2% ex-refund) 8.4% 8.4%
Retirement Plan Services Op. Income ($M)$38 $40 $44 $43
Life Insurance Op. Income ($M)$(6) $(35) $22 $(15)

Selected KPIs and Sales

KPIQ4 2023Q2 2024Q3 2024Q4 2024
Annuities Sales ($B)$4.37 $3.82 $3.38 $3.69
Annuities Net Flows ($B)$0.285 $(0.954) $(1.637) $(1.891)
RILA as % of Ending Balances18% 20% 20% 21%
Group Sales ($M)$398 $161 $84 $467
Group Total Loss Ratio (%)76.6% 70.1% 71.4% 71.0%
RPS Deposits ($B)$2.97 $3.47 $4.18 $3.47
RPS Net Flows ($B)$(0.332) $(0.197) $0.651 $(0.732)
Life Sales ($M)$144 $105 $122 $119

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Free Cash Flow Conversion202645–55% 45–60% Raised upper bound
Leverage Ratio202625–28% 25–26.5% Improved
RBC RatioOngoingTarget 400% + buffer >430% at YE 2024 Above buffer
Group Margin2026At/above 7% (prior narrative) At/above 8% Higher longer-term
Group Earnings2025N/ASimilar to 2024 as macro tailwind normalizes Added color
RPS Base Spread2025N/AStabilize 1H25; modest expansion 2H25 Added color
Annuities SeasonalityQ1 2025N/ALower vs Q4 due to fewer fee days and lower ending balances Added color

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
Capital/RBC/LeverageAchieved RBC >420% in Q2; deleveraging priority; prefunded 2025 maturity YE 2024 RBC >430%; leverage 27.8% with plan to 25–26.5% by 2026 Improving capital metrics; faster deleveraging path
Free Cash Flow2026 target 45–55%; Bermuda affiliate launched; above-expected FCF in 2024 YTD 2026 raised to 45–60%; drivers: mix shift, reinsurance (Alpine), legacy optimization More constructive
Bermuda affiliate (Alpine)Class E license; seeded ~$7B fixed annuities + disability reserves; internal flow deal planned First internal flow agreement approved (fixed annuities); optimize internal/external mix in 2025 Execution now underway
Group ProtectionTargeted segment strategy; 8–10% margins in 2024 range; seasonality/macro tailwind noted Q4 margin 8.4%; 2025 earnings ~flat vs 2024 as macro tailwind normalizes; 2026 ≥8% Sustained high-single-digit margins with modest 2025 moderation
Annuities mix shiftSpread-based sales > two-thirds; RILA 20% balances in Q3; product refresh RILA 21% balances; continued spread-driven growth; Q1 seasonal dip expected Continued diversification with seasonality
RPS spreads/flowsBase spread ~103 bps; net flows positive; stable value outflows easing Base spread ~101 bps; Q4 outflows on known terminations; FY positive flows; 2025 stabilization/expansion Base spread troughing; flows lumpy
Life InsuranceLower run-rate post-Fortitude Re; expense actions; mortality volatility Q4 loss on elevated severity; expect normalization and expense reductions to lift earnings over time Gradual improvement expected

Management Commentary

  • CEO: “We… delivered strong results with full year adjusted operating income increasing to its highest level in 3 years… ending 2024 with an estimated RBC ratio of over 430%… added financial flexibility as we continue repositioning our business for future growth” .
  • CFO on FCF: “We expanded the upper end of [2026] range… 45%–60%… driven by mix shift toward Group, optimizing capital efficiency of new sales (Bermuda), and actions on legacy blocks (hedging, expenses, yields)” .
  • CFO on Group: “Strong strategic execution… favorable macro tailwinds contributed roughly 100 bps… we anticipate some moderation… When adjusting for normalization… we expect YoY margin expansion… sustaining similar earnings in 2025… 2026 margin at or above 8%” .
  • CFO on Annuities: “Ending account balances were down $2B sequentially… two fewer fee days will result in lower earnings in the first quarter relative to the fourth… momentum will support continued success in 2025” .

Q&A Highlights

  • Free Cash Flow target raised: Management detailed drivers behind widening the 2026 FCF conversion range to 45–60% (mix shift, Bermuda flow reinsurance, legacy block optimization) and reaffirmed investment focus in 2025 to build toward that level .
  • Leverage and capital returns: Leverage expected to move toward 25% via equity growth and opportunistic deleveraging; share repurchases remain a longer-term priority after sustainable FCF and leverage objectives are met .
  • Bermuda (Alpine) utilization: Near-term focus is maximizing capital efficiency for new sales (fixed annuities first) with potential opportunities on Retail Life studied in 2025; optimizing internal vs external flow reinsurance mix is a 2025 priority .
  • Expenses: 2024 actions should flow through more visibly in 2025; G&A ratio improvements may be accompanied by reinvestment in growth where returns warrant (e.g., Group) .

Estimates Context

  • Wall Street consensus from S&P Global (Capital IQ) was unavailable due to access limits at the time of analysis. As a result, we cannot quantify EPS/Revenue beats or misses versus consensus for Q4 2024, Q3 2024, or Q2 2024. Monitor for estimate revisions given: (1) 8.4% Group margins in Q4, (2) higher 2026 FCF conversion range, and (3) near-term seasonal dip in Annuities earnings .
  • Comparative framing vs prior periods shows adjusted EPS of $1.91 in Q4 2024 vs $2.06 in Q3 2024 and $1.84 in Q2 2024; revenues were $5.06B in Q4 vs $4.11B in Q3 and $5.15B in Q2 .

Key Takeaways for Investors

  • Capital strength and balance sheet repair are largely executed: RBC >430% and leverage at 27.8% position LNC for reinvestment and deleveraging; longer-term leverage targeted at 25–26.5% by 2026 .
  • Group Protection is a durable earnings engine: Sustained 8%+ margin aspiration by 2026 with 2025 earnings similar to 2024 as macro tailwinds fade and pricing/segment strategies continue to expand profitability .
  • Annuities growth is more spread-driven: RILA and fixed products continue to drive balances and spread income; expect Q1 seasonality to pressure earnings sequentially, but 2025 momentum intact; internal flow reinsurance should support capital efficiency .
  • RPS at a turning point: base spread expected to trough/stabilize in 1H25 and modestly expand in 2H25; net flows remain positive over the year despite lumpy terminations .
  • Life is improving from a lower base: expense actions and expected mortality normalization should support a return to positive, growing earnings over time .
  • Higher FCF conversion potential supports deleveraging and, eventually, capital returns: management lifted 2026 FCF conversion target to 45–60%, increasing confidence in medium-term equity accretion and capital flexibility .
  • Near-term trading implications: watch for Q1 seasonal step down in Annuities earnings and Group life seasonality; medium term, the narrative is improving cash generation, steadier margins in Group, and capital efficiency gains from Bermuda .

Additional Details and Disclosures

  • Dividends: LNC declared a $0.45 quarterly common dividend payable Feb 3, 2025 (record date Jan 10, 2025), and a $0.5625 depositary share dividend on Series D preferred payable Dec 1, 2024 (record date Nov 15, 2024) .
  • Full-year highlights (context): Group Protection margin ~8.3% ex assumption reviews; Annuities full-year sales $13.7B (highest since 2019); adjusted book value per share ended Q4 at $72.34 .

All figures and statements are cited from company materials and earnings calls:

  • Q4 2024 press release and 8‑K: Revenues, EPS, segment results, RBC, leverage, sales and KPIs .
  • Q4 2024 earnings call: capital outlook, free cash flow targets, segment commentary, seasonality .
  • Q3 2024 and Q2 2024 releases and calls used for trend context .