Lincoln National Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Focus on strengthening balance sheet, optimizing operating model, making operational enhancements, and advancing profitable growth. Capital foundation remains durable, operating model is being optimized with expense discipline, operational enhancements are being made, and investment strategy is refined.
• Annuities: Leader in the market with broad product portfolio. 2025 annuity sales strong, with total volumes up 25%. Focus on 2026 is balancing profitability, capital efficiency, and lower market sensitivity. Variable annuity volumes expected to be lower, fixed annuity now retaining 100% of sales, RILA sales expected to remain consistent with past years.
• Life: Progress in repositioning the business, improving in-force block performance, pivoting new business franchise to accumulation and protection products. 2025 sales up ~50% vs prior year, core life sales up 4%, executive benefits had record year.
• Group Protection: Executing against targeted strategy across local, regional, and national segments. 2025 delivered strong earnings and premium growth, full year earnings up 16% year over year. Focus on 2026 is building on momentum with diversification driven by persistency and premium growth.
• Retirement Plan Services: Earnings relatively steady with modest pressure, but strong sales and total deposits. Focus on 2026 is improving earnings profile by expanding revenue sources, broadening products/services, and optimizing investment strategy.

Segment Performance

• Group Protection: Fourth quarter operating income was $109 million, up from $107 million in the prior year quarter, with a margin of 7.9%. Full year operating earnings were $493 million, up 16% from $426 million in 2024, and the margin improved to 9% from 8.3%. Premium growth was nearly 7%, broad-based across products and segments.
• Annuities: Fourth quarter operating income was $311 million. Ending account balances net of reinsurance reached a record $175 billion, up 7% from the prior year quarter. Full year operating earnings were approximately $1.2 billion, modestly higher than the prior year, driven by higher average account balances. Spread-based products now represent 30% of total annuity account balances net of reinsurance.
• Retirement Plan Services: Fourth quarter operating income was $46 million, up from $43 million in the prior year quarter. Full year operating earnings were $163 million, flat compared to the prior year.
• Life Insurance: Fourth quarter operating earnings were $77 million, a meaningful improvement from an operating loss of $15 million in the prior year quarter. Full year operating earnings were $146 million compared to an operating loss of $71 million in the prior year, an improvement of over $200 million.

Guidance

• Group Protection: Expect to sustain momentum, aiming to continue operating at 8% or above margin, with continued earnings growth supported by disciplined execution.
• Annuities: Expect sequential pressure on earnings in Q1 2026 due to fewer fee days and resetting of favorable mortality experience. Beginning in 2026, reallocating net interest income from annuities operating income to nonoperating income.
• Life Insurance: Expect continued progress, with first quarter typically the lowest earnings quarter due to seasonal mortality, but focused on rebuilding sales momentum with products generating stable cash flows and attractive risk-adjusted returns.
• Retirement Plan Services: Expect net flows to remain negative in 2026 as prioritizing profitability over non-profitable business, with opportunity to improve returns through expense efficiency and investment portfolio optimization.

Risks

• Market volatility could cause actual results to differ from expectations.
• Economic backdrop changes may impact business performance.
• External factors may create variability in Group Protection's margin from quarter to quarter.

Q: Joel Hurwitz with Dowling and Partners asked about capital return, specifically if the medium-term guidance implies buybacks in 2026.

A: Christopher Michael Neczypor responded that the first priority is to maintain excess capital in operating entities and invest where attractive returns are seen, with second priority being preparing for preferred redemption in 2027, and free cash flow improving with more capital moving to holding company, indicating potential for increased capital return to shareholders in the future.

Q: Thomas Gallagher with Evercore ISI inquired about remittances and interest expenses, asking about the trajectory of remittances and interest expenses heading into 2028-2029.

A: Christopher Michael Neczypor stated that while 2028-2029 guidance wasn't specific, redeeming preferred in 2027 would reduce holding company interest expense, with remittances expected to grow over time as free cash flow improves and capital is moved to holding company.

Q: Wes Carmichael with Wells Fargo asked about Life Insurance captive consolidation and its impact on earnings and free cash flow.

A: Christopher Michael Neczypor explained that captive consolidation saved on finance fees, providing a $10 million benefit in Q4 2025, with expected $25-30 million improvement in 2026 GAAP earnings and incremental free cash flow benefit. Ellen G. Cooper added on revamping the new business franchise for profitable growth in Life Insurance.

Q: Wes Carmichael also asked about dynamics in the annuities market, specifically RILA competitiveness and 2026 outlook.

A: Ellen G. Cooper mentioned RILA becoming more competitive, with 2026 sales expected to moderate to pre-2025 levels, focusing on differentiated products and distribution. Also discussed mix shift and product features supporting sales momentum in annuities.

Q: Suneet Kamath with Jefferies asked about midpoint of medium-term subsidiary remittances and what drives the jump.

A: Christopher Michael Neczypor responded that the jump is due to growing free cash flow, maintaining excess capital in operating entities, and moving more capital to the holding company as free cash flow improves, with levers like operating model optimization, strategic asset allocation, and capital allocation driving continued free cash flow growth over the medium term