Lincoln National Corporation (LNC) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. Strong liquidity, improved leverage, and a high RBC ratio are positive, but concerns arise from management's vague responses, especially on PFML impact and alternative returns. The Q&A reveals market volatility's adverse effects on operations and a cautious growth strategy focusing on profitability over volume. Despite strong financial metrics, lack of clear guidance and potential risks lead to a neutral short-term stock price prediction.
Key Financial Performance
Adjusted Operating Income Increased 16% year-over-year, marking the seventh consecutive quarter of growth. This reflects actions taken to strengthen the balance sheet, improve operating efficiency, and diversify the business mix.
Group Protection Operating Income $112 million, up 11% year-over-year. Margin improved by 60 basis points to 8%. Growth driven by strong group life results and disciplined pricing actions.
Life Insurance Sales $129 million, up over 30% year-over-year. Growth driven by core Life and executive benefits, with IUL suite leading the growth.
Fixed Indexed Annuities (FIA) Sales Increased over 90% year-over-year. Growth supported by differentiated offerings, broader distribution, and enhanced digital capabilities.
Fixed Annuity Sales $716 million, below prior year due to lower volumes in price-sensitive MYGA products. However, 100% of fixed sales were retained.
Variable Annuity Sales $1.4 billion, down year-over-year. Decline most pronounced in variable annuities with living benefits, aligning with the strategy to reduce market sensitivity.
Group Protection Premiums Up 2% year-over-year, driven by strong prior period sales and in-line persistency. Local market premium increased by more than 4%, and supplemental health premium grew 28% year-over-year.
Retirement Plan Services Operating Income $43 million, up 26% year-over-year. Growth driven by spread expansion and higher equity markets supporting average account balances.
Retirement Plan Services Deposits $4.1 billion, modestly higher year-over-year. First-year sales were $1.1 billion, up nearly 3% year-over-year.
Annuities Operating Income $275 million, compared to $290 million in the prior year. Sequential decline due to tax-related items and reallocation of net interest income, but underlying earnings modestly improved year-over-year.
Life Insurance Operating Income $41 million, a significant improvement from a $16 million loss in the prior year. Improvement driven by higher alternative investment returns and favorable mortality experience.
Alternative Investments Portfolio Return 12.3% annualized return in the quarter, contributing $129 million. This was $19 million above the 10% annualized target.
Holding Company Liquidity Ended the quarter above $800 million, excluding prefunding for December senior note maturity. Reflects growing dividend capacity and financial flexibility.
RBC Ratio Remained well above the 400% target and 20 percentage point buffer for the eighth consecutive quarter.
Leverage Ratio Improved to 25%, reaching the long-term target.
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Operating Highlights
Second-generation RILA: Launched nearly 2 years ago, recognized as the most innovative annuity product by SRP in 2025. First quarter RILA sales were up year-over-year, emphasizing profitability over volumes.
Fixed Indexed Annuities (FIA): First quarter FIA sales increased over 90% year-over-year, supported by differentiated offerings, broader distribution, and enhanced digital capabilities.
Life Insurance Products: New generation of products in IUL, accumulation VUL, and executive benefits launched, optimized for predictable cash flows and rising demand. First quarter life sales were $129 million, up over 30% year-over-year.
Group Protection: Premium growth concentrated in priority segments, with local market premium increasing by more than 4% and supplemental health premium up 28% year-over-year.
Retirement Plan Services: First quarter sales of $1.1 billion, up nearly 3% year-over-year, with growth concentrated in the core market segment. Total deposits were modestly higher at $4.1 billion.
Capital Foundation: Capital levels remain well above the established buffer, with a leverage ratio at the long-term target.
Operating Model Optimization: Progress includes leveraging the Bermuda affiliate for capital efficiency, optimizing investment strategy, and maintaining expense discipline alongside investments in digital capabilities and automation.
Expense Management: Ongoing focus on leveraging technology to improve productivity and ensuring the expense base aligns with strategic objectives.
Business Diversification: Shift towards products with more predictable cash flows and attractive risk-adjusted returns, reducing market sensitivity.
Targeted Segment Strategy: Focus on local, regional, and national markets with tailored products and capabilities, particularly in supplemental health and group protection.
Technology Modernization: Investments in digital tools and claims platforms to enhance customer experience and operational efficiency.
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Risk or Challenges
Economic Uncertainty: The company acknowledges the economic backdrop can be uncertain, which could impact their ability to maintain steady execution of their strategy.
Market Sensitivity: The company is shifting towards a less market-sensitive business mix, but variable annuity sales and account balances remain exposed to equity market fluctuations.
Regulatory Changes: The introduction of new state-level paid family leave programs has led to elevated incidence rates, which could impact profitability in the Group Protection segment.
Mortality Trends: While recent mortality trends have been favorable, variability in mortality experience could impact the Life Insurance segment's earnings.
Investment Portfolio Volatility: Elevated market volatility could lead to variability in alternative investment returns, impacting overall earnings.
Net Outflows in Retirement Plan Services: The company anticipates elevated net outflows in the Retirement Plan Services segment due to plan terminations, which could affect profitability.
Expense Management: Continued investments in technology and modernization efforts could pressure expenses, even as the company aims to maintain discipline.
Fixed Annuity Retention Costs: The full retention of fixed annuity flows has led to higher expenses, which could impact profitability in the Annuities segment.
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Guidance & Outlook
RILA Sales: Sales for RILA (Registered Index-Linked Annuities) are expected to align with the average of the past several years, emphasizing profitability over volume. The company is focusing on unique product features and crediting strategies to compete beyond price.
Fixed Indexed Annuities (FIA) Growth: FIA sales increased over 90% year-over-year in Q1 2026, supported by differentiated offerings, broader distribution, and enhanced digital capabilities. The company sees significant growth potential in this segment over time.
Variable Annuities Outlook: Variable annuity sales are expected to decline in 2026, moving closer to pre-2025 levels, as the company reduces market sensitivity and focuses on profitability.
Group Protection Segment: The company expects Group Protection to become an increasingly meaningful contributor to higher-quality earnings, with a focus on targeted segment strategies and supplemental health products.
Retirement Plan Services Realignment: The realignment of Retirement Plan Services is in its early stages, with priorities including disciplined growth, service excellence, and technology modernization. The company expects improved earnings trajectory over the coming years.
Life Insurance Transformation: The company is focusing on products with more predictable cash flows and attractive risk-adjusted returns, such as IUL, accumulation VUL, and executive benefits. Sales growth momentum is expected to continue, although earnings impact will take time to materialize.
Capital Deployment and Free Cash Flow: The company is growing core capital generation and deploying capital to drive growth in free cash flow over time, with a focus on profitability, capital efficiency, and innovation.
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Shareholder Return Plan
Dividend Capacity: The growing dividend capacity from Lincoln's operating subsidiaries is contributing to the build in holding company liquidity, providing flexibility to support broader capital priorities.
Share Repurchases: The call mentioned share repurchases as part of forward-looking statements regarding expectations, future actions, and financial results. However, no specific share repurchase program details were provided.
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Key Q&A
Q:What is the proxy for free cash flow considering the holdco liquidity increase and quarterly expenses?
A:The holding company cash increased to over $800 million, net of prefunding for the quarter. Free cash flow is being generated and moved to the holding company. Dividends from LPine and LNCAR are typically taken in the back half of the year, and there is some quarter-to-quarter variation due to taxes and seasonal expenses. Earnings growth came through at 16%, and free cash flow conversion remains strong.
Q:What is the outlook for alternative returns in the second quarter and the rest of the year?
A:It is too early to provide a specific outlook for alternative returns in the second quarter. The portfolio operates on a lag, and any volatility from the first quarter would play through in the next quarter. The portfolio is highly diversified, with $4.2 billion in size and 10% returns with minimal volatility over the past few years. Diversification across private equity, growth equity, real assets, and other strategies helps mitigate market volatility.
Q:What is the impact of PFML on disability loss ratio and its normalization?
A:The specific impact of PFML is not sized, but two new states coming online have a near-term impact that normalizes throughout the year. The disability loss ratio increased from 70% last year to 73% this year due to PFML pressure and claims resolution dynamics. Incidence remains favorable but is normalizing from record levels last year.
Q:What is the trend for annuities' ROA and expectations for the medium term?
A:The annuities' ROA is trending towards the lower end of the 66 to 70 basis point guidance. Factors include tax items, NII allocation dynamics, and acquisition expenses. VA block earnings are dependent on market performance, while spread income growth is strong. Over time, the ROA for non-VA blocks is expected to expand as account balances grow.
Q:What caused the elevated loss in other operations?
A:The elevated loss in other operations is due to equity sensitivity in a legacy block, with market volatility causing a drag. Additionally, a net investment income allocation change impacted other operations by about $5 million per quarter.
Q:What is the performance of fixed annuities and the strategy for growth?
A:Fixed annuity sales were down, but account value growth was up. The focus is on FIA over price-sensitive MYGA, leveraging differentiated crediting rate strategies and product features. Investments in customer capabilities and strategic partnerships are also supporting growth. MYGA is being approached selectively, competing on features rather than pure rate.
Q:What is the company's perspective on the recent merger of equals in the annuity space?
A:The company feels well-positioned to compete despite the merger. Scale is important, but capabilities, differentiated product features, distribution strength, and customer-focused investments are critical for success. The company remains committed to its four businesses and confident in its ability to grow earnings.
Q:What is the status of Bain Capital deployment?
A:The $800 million from Bain Capital is being used for three strategies: growing fixed annuity account value, scaling institutional funding agreements, and optimizing the legacy Life block. Deployment is on track, with progress in fixed annuity growth and restructuring legacy life captives. Further actions are planned for 2026 and 2027.
Q:What is the competitive landscape in the annuity market, particularly regarding MYGA and FIA?
A:The MYGA market is highly competitive, with pure price competition. The company is focusing on FIA, leveraging differentiated product features and profitable segments. The strategy prioritizes risk-adjusted returns over top-line growth, with a deliberate focus on balancing growth, profitability, and capital efficiency.
Q:What is the competitive landscape in the Group Protection business?
A:The company prioritizes margin expansion over top-line growth. A large case lapse was due to repricing for profitability. Persistency was in line excluding the large case. Premium growth is expected to be 3%-6% in the medium term, with strong growth in local markets and supplemental health segments.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the PFML impact in dollars or the exact deployment status of Bain Capital funds. Additionally, they did not provide a clear early view on alternative returns for the second quarter, citing it as too early to predict.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
IUL
VUL
adviser
annuity living
annuity portfolio
approach center
approach product
capacity
capital efficiency
capital foundation
case
creation
customer experience
demand
depth distribution
distribution footprint
distribution relationship
employee
executive benefit
force
living benefit
margin expansion
market mix
market sensitivity
part
period sale
premium
price
priority capital
product service
profitability capital
progress priority
quality profile
realignment stage
runway
sale core
sale line
service capability
set
volume
LNC Transcript
Lincoln National Corporation (LNC) Q1 2026 Earnings Call Transcript
Unknown5-7
The earnings call presents a mixed outlook. Strong liquidity, improved leverage, and a high RBC ratio are positive, but concerns arise from management's vague responses, especially on PFML impact and alternative returns. The Q&A reveals market volatility's adverse effects on operations and a cautious growth strategy focusing on profitability over volume. Despite strong financial metrics, lack of clear guidance and potential risks lead to a neutral short-term stock price prediction.
Lincoln National Corporation (LNC) Q4 2025 Earnings Call Transcript
Positive2-12
The earnings call summary and Q&A indicate strong financial performance, with significant growth in sales and net income, improved margins, and successful capital management. Despite some uncertainty regarding specific guidance and external factors, the overall sentiment is positive due to robust earnings, strategic investments, and capital returns to shareholders. The company's strategic positioning and market trends further support a positive outlook.
Lincoln National Corporation (LNC) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary indicates positive financial performance with growth in annuities and retirement plan services, and stable margins in Group Protection. The Q&A section adds confidence with stable earnings drivers and plans for capital deployment, although some details were deferred to future calls. Despite minor concerns like modest margin decline and lack of immediate share repurchase details, the overall sentiment is positive, supported by strong earnings and market strategy. The absence of market cap data limits the precision of impact prediction, but the overall outlook suggests a positive trend.
Lincoln National Corporation (LNC) Q2 2025 Earnings Call Transcript
Positive7-31
The earnings call reveals several positive factors: improved margins, strong growth in first-year sales, and increased deposits in Retirement Plan Services. The Q&A highlights management's confidence in margin expansion and sales growth, despite some uncertainty in restructuring impacts. The partnership with Bain Capital and a strategic focus on digital capabilities are promising. Although there are some declines in annuities and retirement earnings, positive guidance and strategic moves outweigh these concerns, suggesting a positive stock price movement in the short term.
LNC Slides
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