Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lincoln National Corp (LNC, Financial) reported its highest quarterly earnings in over two years, driven by strong performance across all four business segments.
- The company achieved record third-quarter results in Group Protection, with earnings more than doubling year-over-year.
- Annuities sales increased by nearly 25% from the prior year, with significant growth in spread-based products.
- Retirement Plan Services sustained momentum with first-year sales more than tripling year-over-year, supported by a robust pipeline.
- The company continues to strengthen its capital position, with an RBC ratio above 420%, driven by free cash flow and strategic initiatives.
Negative Points
- Lincoln National Corp (LNC) reported a net loss available to common stockholders of $562 million, primarily due to unfavorable changes in the fair value of GAAP embedded derivatives and non-economic impacts.
- The company anticipates seasonal headwinds in the fourth quarter, which could lead to a sequential decline in earnings for the Group Protection segment.
- Life Insurance operating income decreased compared to the prior year, partly due to elevated mortality and large claims in universal life products.
- The company expects seasonally higher expenses and elevated reinsurance financing charges in the fourth quarter, which may outweigh recent tailwinds.
- Despite strong annuity sales, the company anticipates lower sales in the fourth quarter compared to the record fourth quarter of 2023.
Q & A Highlights
Q: Can you provide an update on Lincoln National's free cash flow and how it aligns with your 2026 targets?
A: Christopher Neczypor, CFO, stated that Lincoln National is tracking well relative to the 2026 targets, with a 35% free cash flow conversion ratio for 2023. The company aims to improve this to 45%-55% by 2026. They have been generating free cash flow above expectations and have taken actions to optimize their operating model and invest in the business.
Q: How are annuity sales performing, and what factors are influencing these sales?
A: Ellen Cooper, CEO, mentioned that annuity sales remain strong due to higher interest rates and favorable demographics with more individuals approaching retirement. The company offers a broad range of products that cater to both accumulation and income solutions, which are appealing to customers and advisers.
Q: What were the impacts of the annual assumption review on the life business, and how confident are you in your assumptions?
A: Christopher Neczypor, CFO, explained that the assumption review resulted in a modest $8 million positive impact on operating income, primarily in the life business. The assumptions, including policyholder behavior and mortality, are in line with experience and expectations, reflecting a rigorous review process.
Q: With improved free cash flow conversion, when might Lincoln National resume share buybacks?
A: Christopher Neczypor, CFO, reiterated that deleveraging and repaying preferred securities remain priorities. The company is focused on investing in the business, leveraging their Bermuda subsidiary, and executing expense initiatives. No specific timeline for share buybacks was provided.
Q: How is Lincoln National approaching its remaining ULSG exposure, and are there plans for further reinsurance transactions?
A: Christopher Neczypor, CFO, stated that while the company is always evaluating options, the current outlook does not rely on another reinsurance deal. They are focused on improving free cash flow from the Legacy Life Block and executing strategic initiatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
