Lincoln National Corporation (LNC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Adjusted Operating Income Increased 31% year-over-year for the fourth quarter and reached its highest level in 4 years for the full year. This growth was supported by strategic realignment, operational execution, and a more resilient capital foundation.
Annuity Sales Total volumes increased 25% year-over-year in 2025. RILA sales grew 35%, fixed annuity sales increased 11%, and variable annuity sales rose 27%. Growth was driven by favorable market conditions, customer demand, and enhanced product features.
Group Protection Earnings Full year earnings increased 16% year-over-year, driven by premium growth of nearly 7%, favorable underwriting experience, and growth in supplemental health sales (up over 40%).
Life Insurance Sales Sales increased approximately 50% year-over-year in 2025. Core Life sales grew 4%, and Executive Benefits sales reached $265 million, up from $59 million in 2024. Growth was attributed to foundational investments in product capabilities and distribution relationships.
Retirement Plan Services Earnings Full year earnings remained flat compared to the prior year, with headwinds from participant outflows offset by favorable equity markets and spread expansion.
Net Income Fourth quarter net income available to common stockholders was $745 million, up significantly from the prior year, driven by positive market risk benefits and favorable interest rates.
Alternative Investments Portfolio Delivered an annualized return of nearly 12% for the fourth quarter, exceeding the target of 10%. Full year returns were approximately 10%, in line with the annual target.
Fixed Annuity Account Balances Increased 20% year-over-year, reflecting the first full quarter of retaining 100% of fixed annuity sales.
Group Protection Margin Improved to 9% for the full year, up from 8.3% in 2024, supported by disciplined pricing and diversification into higher-margin market segments.
Holding Company Liquidity Ended the year at approximately $1.1 billion, with $655 million above the historical operating range after prefunding senior notes maturing in December 2026.
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Operating Highlights
Annuities: Delivered strong annuity sales with total volumes up 25% in 2025. RILA sales increased 35%, fixed annuity sales increased 11%, and variable annuity sales increased 27%. Focused on balancing profitability, capital efficiency, and lower market sensitivity in 2026.
Life Insurance: Sales for the year were up approximately 50% versus the prior year. Core Life sales increased 4%, and Executive Benefits sales reached $265 million, up from $59 million in 2024. Focused on products with balanced risk profiles and stable cash flows.
Group Protection: Full year premium growth of nearly 7% with supplemental health sales increasing over 40%. Focused on local, regional, and national markets with tailored products and services.
Retirement Plan Services: Strong sales and total deposits despite participant outflows. Focused on improving earnings profile by expanding revenue sources and optimizing investment strategies.
Distribution Partnerships: Broadened distribution partnerships across annuity and life insurance markets, emphasizing higher risk-adjusted returns and profitable growth.
Supplemental Health: Expanded reach in supplemental health markets with over 40% sales growth, diversifying the book.
Capital Foundation: Strengthened capital foundation with leverage ratio improvement and capital levels above established buffer.
Operational Model: Optimized operating model with sustained expense discipline and targeted initiatives. Enhanced digital and automated capabilities to improve customer service.
Investment Strategy: Refined investment strategy by expanding asset sourcing capabilities and leveraging external partnerships for better risk-adjusted yield.
Business Mix Evolution: Shifted focus to more capital-efficient and less volatile businesses, such as spread-based annuities and supplemental health.
Free Cash Flow: Improved free cash flow conversion ratio to 45% in 2025, up from 35% in 2023, supporting long-term shareholder value.
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Risk or Challenges
Market Sensitivity in Annuities: The company expects 2026 variable annuity volumes to be intentionally lower to reduce exposure to market sensitivity over time. This indicates a challenge in managing market volatility and its impact on annuity products.
Competitive Dynamics in RILA: The RILA market is becoming increasingly competitive, which may pressure the company's ability to maintain profitability and market share.
Participant Outflows in Retirement Plan Services: Ongoing participant outflows are creating headwinds for the Retirement Plan Services segment, impacting earnings and account balances.
Expense Management: While the company has made progress in expense discipline, higher variable compensation and investments in technology and operations have increased expenses, posing a challenge to maintaining cost efficiency.
Economic and Market Volatility: The company acknowledges that results may not be linear due to market volatility and changing economic conditions, which could impact financial performance.
Fixed Annuity Retention Costs: The decision to retain 100% of fixed annuity sales following the exit of an external flow reinsurance treaty has increased expenses, impacting profitability.
Mortality Seasonality in Life Insurance: The Life Insurance segment faces seasonal mortality pressures, particularly in the first quarter, which could affect earnings stability.
Net Outflows in Retirement Plan Services: Net outflows in this segment are expected to remain negative as the company prioritizes profitability over retention of less profitable business.
Operational Efficiency Challenges: The company is focused on improving operational efficiency, but this remains a work in progress, particularly in areas like expense management and investment portfolio optimization.
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Guidance & Outlook
Annuities: In 2026, the company plans to focus on balancing profitability, capital efficiency, and lower market sensitivity over time, prioritizing profitable growth over top-line sales growth. Variable annuity volumes are expected to be intentionally lower, aligning with pre-2025 levels to reduce market sensitivity. Fixed annuity account values are expected to increase relative to 2025, with growth opportunities in fixed indexed annuities. RILA sales levels may remain consistent with the past 2-3 years, with a focus on more profitable segments.
Life Insurance: Core Life sales are expected to grow in 2026, but from a baseline more in line with earlier quarters of 2025. The company will continue to prioritize profitable growth and focus on products with more stable cash flows and attractive risk-adjusted returns. Efforts will also include optimizing the free cash flow profile through expense discipline, investment portfolio optimization, and potential external risk transfer.
Group Protection: In 2026, the company expects to sustain momentum with continued earnings growth supported by pricing discipline, diversification into higher-margin market segments, and products. Local markets will focus on bundled solutions, regional markets on strategic broker partnerships and technology integrations, and national accounts on tailored products and services. Supplemental health remains a key priority.
Retirement Plan Services: The company expects net flows to remain negative in 2026 as it prioritizes profitability over retention of less profitable business. Focus areas include improving earnings through targeted expense efficiency actions, investment portfolio optimization, and growth in higher-margin areas such as the small market segment.
Capital and Financial Outlook: The company plans to continue leveraging its foundation to profitably grow its franchise, maximize value, and increase free cash flow over the next two years. This includes targeted actions on expense efficiency, optimization of investment strategies, and potential external and affiliate reinsurance transactions. The company aims to increase capital return to shareholders as excess capital builds at the Holding Company.
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Shareholder Return Plan
Dividend Program: No specific mention of a dividend program was made in the transcript.
Share Repurchase Program: The transcript mentioned the potential for increasing capital return to shareholders, which could include share repurchases, as part of the company's future capital priorities. However, no specific share repurchase program was detailed.
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Key Q&A
Q:Chris, is the medium-term guidance of $400 million to $600 million in capital return to shareholders implying at least $50 million of buybacks in 2026?
A:Christopher Neczypor explained that the guidance represents a potential range over the next two years. The company prioritizes maintaining buffer capital in operating entities, investing incremental free cash flow, and preparing for the optimal way to handle preferred shares redeemable next year. While they are not providing specific 2026 vs. 2027 guidance, signs support increasing capital return to shareholders.
Q:Should the $800 million to $900 million of excess cash at the Holding Company be used largely to manage the preferred and calls next year, or are there other potential uses?
A:Christopher Neczypor confirmed that the excess cash would primarily be used to manage the preferred shares and calls in 2027, with the remaining cash potentially increasing capital return to shareholders.
Q:Is the $1.2 billion of subsidiary remittances expected to grow, and will holding company expenses decrease by 2028-2029?
A:Christopher Neczypor stated that redeeming or refinancing preferred shares in 2027 would reduce holding company expenses starting in 2028. Over time, remittances are expected to grow, but the company is currently focused on 2026-2027.
Q:What prompted the redefinition of NII, and does it improve free cash flow conversion?
A:Christopher Neczypor explained that the redefinition was prompted by the growth of RILA and the need for transparency. It aligns with peer practices and provides a cleaner view of NII and interest credit. While it slightly improves free cash flow conversion, the change is primarily definitional.
Q:Can you elaborate on the captive consolidation in the Life Insurance business and its impact on earnings and free cash flow?
A:Christopher Neczypor detailed that the consolidation of legacy life captives reduced financing costs, resulting in a $10 million GAAP benefit in Q4 2025 and an expected $25-$30 million improvement in 2026 life GAAP earnings. Free cash flow will also benefit incrementally due to capital optimization.
Q:What are the dynamics in the annuities market, and how is the company responding?
A:Ellen Cooper highlighted that the company is focusing on balancing profitability, growth, and capital efficiency. While RILA has become more competitive, the company is leveraging differentiated products and distribution channels. Fixed annuities are expected to grow, while VA sales growth is expected to moderate in 2026.
Q:What explains the significant jump in medium-term subsidiary remittances, and does it include external factors like reinsurance?
A:Christopher Neczypor attributed the jump to growing free cash flow and moving more capital to the Holding Company. The guidance does not include external factors like reinsurance deals, which would be incremental to the numbers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific guidance for 2026 vs. 2027 capital return and did not detail the exact impact of potential external factors like reinsurance on remittances. Additionally, while they discussed the redefinition of NII and its implications, the explanation lacked specific numerical details on its impact on free cash flow conversion.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bermuda
Core Life
Life sale
approach
assumption review
capability distribution
capital deployment
capital efficiency
capital foundation
case
context
course
customer demand
distribution footprint
distribution relationship
effort
focus segment
foundation Capital
level year
line sale
living benefit
market annuity
market dynamic
market environment
market health
market sensitivity
opportunity annuity
partnership
platform
premium
price
product capability
product offering
product service
reach
realignment
return capital
sale annuity
sale level
sale line
segment risk
set product
trajectory
volume
LNC Transcript
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.
Lincoln National Corporation (NYSE:LNC) Q1 2025 Earnings Call Transcript
Unknown5-9
The earnings call shows mixed results: strong financial performance with EPS exceeding expectations and improvements in operating income, but concerns about regulatory risks, supply chain challenges, and market volatility. The partnership with Bain Capital and the strong RBC ratio provide stability, but lack of share repurchase or dividend programs and potential headwinds in retirement services and annuities balance the positives. The Q&A highlighted management's avoidance of specifics on certain metrics, adding uncertainty. Overall, the sentiment is neutral, with no significant catalysts for a strong stock price movement.
LNC Slides
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