Lincoln National Corporation Q2 FY2026 earnings call

Overall Company Milestones

• Achieved 8 consecutive quarters of year-over-year adjusted operating income growth, with Q2 2026 adjusted operating income of $439 million, a 3% year-over-year increase.
• Announced a reinsurance agreement with Talcott Financial Group to cede ~$5.8 billion in legacy guaranteed universal life (GUL) reserves and $500 million in funding agreement business. After closing, ~60% of Lincoln's total in-force GUL block will be reinsured, reducing exposure to long-term mortality, lapse, and interest rate risk, and increasing annual free cash flow by $30-$40 million.
• Pre-funded half of the callable preferred stock that becomes callable in 2027, strengthening capital positions and creating greater flexibility for future capital priorities, including potential share repurchases.

Annuities Segment Strategic Progress

• Total Q2 sales were $3.5 billion, with 63% of sales coming from spread-based, less market-sensitive products, advancing the segment's strategic shift toward less volatility and higher spread income. RILA sales rose 10% year-over-year, while sales of variable annuities without living benefit guarantees rose more than 60% year-over-year (and exceeded sales of guaranteed variable annuities for the first time), a capital-efficient, high-return growth area.
• Investments in platform capabilities and the Bain Capital partnership position the segment to meaningfully increase fixed annuity sales in H2 2026, with fixed annuity account values expected to rise over the full year.

Life Insurance Segment Strategic Progress

• Reshaped the segment's earnings profile by improving in-force portfolio performance and shifting new business to high-priority, profitable segments. Total life sales increased nearly 80% year-over-year, with core life sales up 18% to $103 million, led by MoneyGuard and limited-guarantee VUL products.
• Broad favorable mortality across the portfolio over the past 18 months, aligned with broader improving U.S. mortality trends, has supported strong earnings.

Group Protection Segment Strategic Progress

• Premium grew 2.5% year-over-year, with concentrated growth in high-priority segments: supplemental health premium rose 28% year-over-year and now represents 7% of in-force premium (up from 5% a year prior), and local market premium rose over 3% year-over-year.
• Continued modernization investments, including AI and automation for underwriting/claims and improved digital tools for brokers, are enhancing customer experience and operational efficiency.

Retirement Plan Services Segment Strategic Progress

• Continued executing on a strategic realignment to prioritize profitability over volume, terminating unprofitable large cases to improve the segment's overall economic profile. Double-digit earnings growth was driven by favorable equity markets and spread expansion, confirming the strategy is taking hold.

1. Group Protection: Operating income of $147 million, down from a record $173 million in Q2 2025. Margin was 10.4%, a 210 basis point year-over-year decline. After adjusting for a $15 million 2025 experience refund, earnings declined $11 million year-over-year. The segment represents approximately 27.5% of total Q2 2026 adjusted operating income.
2. Annuities: Operating income of $287 million, flat year-over-year, up $12 million sequentially. Net average account balances after reinsurance were ~$179 billion, up 12% year-over-year. Spread-based products accounted for 31% of total account balances (up from 28% in Q2 2025), and 63% of total Q2 sales. Total net outflows were ~$2.9 billion, driven by traditional variable annuity outflows. The segment represents approximately 53.7% of total Q2 2026 adjusted operating income.
3. Retirement Plan Services: Operating income of $49 million, up 32% from $37 million in Q2 2025. Average account balances grew 15% year-over-year to $128 billion. Base spreads expanded 20 basis points year-over-year to 119 basis points. Net outflows were $2.4 billion, driven by termination of three unprofitable large plans. The segment represents approximately 9.1% of total Q2 2026 adjusted operating income.
4. Life Insurance: Operating income of $57 million, up $25 million from $32 million in Q2 2025. The improvement was driven by broad favorable mortality experience and a $10 million tailwind from Q4 2025 captive consolidation, partially offset by below-target alternative investment returns. The segment represents approximately 10.7% of total Q2 2026 adjusted operating income.

• Full year 2026 Group Protection margin is expected to land within the targeted 8-9% range, with group life mortality remaining favorable and disability results continuing to see modest normalization from 2025's exceptionally strong results, creating continued year-over-year headwinds.
• Annuities Q3 2026 earnings are expected to grow sequentially, supported by higher starting account balances, an additional fee day, and continued spread income growth.
• Life Insurance Q3 2026 earnings are expected to be roughly flat sequentially compared to Q2 2026: after accounting for Q2 2026's unusually high mortality favorability, alternative investment returns are expected to rebound to or above the 10% annual target, offsetting any seasonal mortality changes.
• Annual holding company subsidiary remittances are expected to reach $1.2-$1.3 billion in 2026, with $580 million remitted in H1, and most of the remaining balance remitted in H2 due to typical seasonal dividend patterns.
• The Talcott reinsurance transaction is expected to close in Q4 2026, pending regulatory approval. Starting in Q4 2026, Lincoln will update its adjusted operating income definition to exclude deferred gain/loss amortization from exited reinsured blocks, to provide a clearer view of core ongoing operating performance.

• Quarterly alternative investment returns are volatile and difficult to predict; Q2 2026 returns came in at 4.9% annualized, well below the 10% long-term target, creating a $43 million after-tax headwind to overall results, with $39 million of that headwind impacting the life insurance segment.
• Disability insurance results are continuing to modestly normalize from historically strong 2025 levels, leading to year-over-year margin pressure that is expected to continue in upcoming quarters.
• Mortality experience can vary significantly quarter over quarter; Q2 2026's unusually high favorability is not expected to recur every quarter.
• The Talcott reinsurance transaction is subject to regulatory approval, with no guarantee of closing on the expected timeline.
• The annuity market remains highly competitive, requiring management to prioritize profitability over volume, which can lead to quarterly sales volatility in some product segments.

Q: With capital priorities largely complete and new capital flexibility from the reinsurance deal and preferred pre-funding, when will Lincoln resume share repurchases, and how much excess capital is available for this priority? / A: Management reports all longstanding capital targets (420% RBC ratio buffer, 25% leverage ratio, full fixed annuity retention, legacy GUL risk reduction) have been met ahead of schedule, and free cash flow conversion has improved to nearly 50%. There is currently ~$400 million in excess holding company cash after required buffers and planned preferred redemptions, with ~$250 million additional cash expected to build in H2 2026. The existing $1.5 billion repurchase authorization has been reconfirmed by the board, with over $700 million remaining, but no formal timing for resumption has been announced, as capital decisions are made quarterly by the board following earnings reporting.

Q: Fixed annuity sales were subdued in Q2 2026. What drove this, and why is management still confident of a H2 2026 sales rebound? / A: The lower Q2 sales reflect management's deliberate strategy to prioritize profitability over volume in the competitive current market, with capital and focus shifted to other high-opportunity product lines (10% year-over-year RILA growth, 60% growth in non-guaranteed variable annuities) in the quarter. Management has built out full FIA platform capabilities including unique crediting strategies, differentiated product features, and expanded distribution access, adding the FIA product to 9 new distribution shelves over the past 18 months. Supported by this progress and the expanded investment toolkit from the Bain Capital partnership, management expects meaningful FIA sales growth in H2 2026.

Q: How has paid family and medical leave (PFML) impacted group disability claims, and is repricing expected to improve results going forward? / A: PFML created a ~100 basis point headwind to the Q1 2026 group disability loss ratio, but this fell to less than 20 basis points in Q2, as most reserve building for newly launched state programs occurs in the first quarter of implementation, with much lower ongoing impacts. PFML is not sold as a standalone product, only as part of comprehensive benefit offerings, and repricing for new state programs follows Lincoln's standard disciplined process. Overall, group disability results are seeing modest, expected normalization from 2025's historically strong results, but remain favorable relative to long-term historical averages, and full year 2026 group margin is still on track to hit the 8-9% target range.

Q: Why is the expected annual free cash flow uplift from the Talcott GUL reinsurance deal ($30-$40 million) lower than the uplift from the prior 2023 Fortitude Re deal? / A: The Talcott transaction is a much smaller, more straightforward deal focused exclusively on a portion of the legacy GUL block, while the 2023 Fortitude deal included multiple additional blocks of business and a larger total GUL exposure. Even with the smaller uplift, the transaction is a clear positive for Lincoln: it removes 37% of the remaining capital-intensive, long-tailed GUL risk exposure for a $200 million statutory capital impact funded by the prior Bain Capital transaction, delivering the expected $30-$40 million annual uplift immediately after closing.