Lincoln National Corporation

Good morning, and thank you for joining Lincoln Financial Group's first quarter 2021 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you need assistance at any time during the call, please press the star followed by the zero, and someone will assist you. Now, I'd like to turn the conference over to the Vice President of Investor Relations, Al Capersino. Please go ahead, sir.

Thank you, Catherine. Good morning and welcome to Lincoln Financial's first quarter earnings call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, deposits, expenses, income from operations, share repurchases, and liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued yesterday, as well as those detailed in our 2020 annual report on Form 10-K, most recent quarterly reports on Form 10-Q, and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after this date. We appreciate your participation today and invite you to visit Lincoln's website, www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include full reconciliations of the non-GAAP measures used on this call, including adjusted return on equity and adjusted income from operations, or adjusted operating income to the most comparable gap measures. Presenting on today's call are Dennis Glass, President and Chief Executive Officer, and Randy Freitag, Chief Financial Officer and Head of Individual Life. After their prepared remarks, we will move to the question and answer portion of the call. I would now like to turn the call over to Dennis.

Thank you, Al. Good morning, everyone. Lincoln had a strong start to the year against an improving but still challenging environment. We have continued to execute our reprice, shift, and add new product strategy, manage expenses, improve the customer experience, and maintain a strong balance sheet. First quarter earnings were affected by elevated pandemic-related claims in our life and group businesses, though this was partially offset by another quarter of strong returns from our alternative investment portfolio. We are pleased with the earnings power Lincoln showed in the quarter, and the outlook for our business is positive. Now let me touch on the major initiatives that are helping bolster our franchise and earnings power. First, as a result of our proactive and disciplined repricing actions, we are achieving targeted returns in each of our businesses. As a result of our reprice shift and add new product strategy and the fact that several peers followed our repricing actions, our sales pipelines had begun to expand and we expect continued sales recovery in the upcoming quarters. We're introducing eight new products in the first half of this year, which increase consumer choice, broaden the product portfolio, and enable our participation in more market segments. Our new product strategy also gives us a great deal of optionality. If interest rates remain low, our newly launched products will remain attractive given their strong consumer value propositions driven by their innovative product design. If rates continue to rise, in addition to these newer products, some offerings already on our shelf would once again resonate with consumers, and that would also be beneficial to Lincoln's sales results. Second, we're focused on actions to increase productivity across our manufacturing, operations, and distribution organizations while enhancing the customer and partner experience. We continue to report declining expense ratios in most of our businesses while at the same time investing in client-facing digital tools. Our demonstrated expense management capabilities will guide us as we start another meaningful expense savings program later this year. Third, we have successfully focused on improving the balance sheet. Both our RBC ratio and cash at the holding company have increased and remain above target. giving us the confidence to increase our share repurchase pace. Furthermore, as we evaluate risk transfer deals, we would expect for this to provide additional upside potential to our capital deployment if finalized. Now turning to the business segments. Starting with annuities, we continue to successfully leverage our industry-leading manufacturing capabilities to create new customer value propositions and expand our already broad product portfolio. Last year, we established ourselves as a leader in indexed variable annuities. This year, we're seeing growth in both IVAs and traditional variable annuities without living benefits, with total sales of non-living benefit VAs up 44%, versus the prior year quarter and 9 percent sequentially. Growth in these products combined with continued market demand for guaranteed living benefits led to total VA sales growth both versus the prior year quarter and sequentially. We had projected sales to begin the year at a similar pace to that seen in the fourth quarter and build over the course of the year as we benefit from products introduced both this year and last, and we are pleased to see that sales growth is ahead of our expected pace. In fact, this was the first quarter in a year that we saw sequential sales growth across all product categories in the annuities business. While we experienced negative net flows in the quarter, this is a direct result of management's actions to maintain rigorous return standards and to allow us to continue to direct capital to the highest and best use. In 2021, we expect that earnings continue to benefit from our high-quality, in-force book that generates consistent cash flows and returns and provides excellent value for customers. In retirement plan services, we once again reported strong results driven by our digitally optimized model. This model, where high tech enables high touch, differentiates us in the virtual environment. Our innovative product development capabilities are driving results, and we are excited about the continued success of our target date fund alternative, YourPath, as well as the recent launch of Income America, an innovative and simplified income solution for retirement plan participants. Although total deposits were down slightly compared to the very strong prior year quarter, we are optimistic looking forward given our robust sales pipeline. We reported positive net flows once again this quarter, and while flows can be lumpy, we expect this momentum to persist as we remain well positioned in our target markets. It was another excellent quarter for the retirement business, and we expect to benefit from the tailwinds of an improved economic backdrop, our ongoing investments in the customer experience, and our expanding set of solutions aimed at helping Americans secure their retirement Within the life insurance business, we are positioning ourselves for growth through product innovation and distribution expansion. Sales in the quarter were flat sequentially, but we expect we'll ramp up over the course of the year as we begin to reap the benefits of solutions we recently launched into the market. We're seeing good momentum with some key new product rollouts. Our expanded BUL offerings continue to gain shelf space, and our innovative MoneyGuard Market Advantage product is appealing to new market segments. Additionally, we are beginning to attract a broader range of advisors, with nearly a quarter being producers who had not previously sold a MoneyGuard product. These new products, coupled with our existing life offerings and the industry's strongest distribution force position Lincoln for long-term success at attractive returns. Additionally, we are expanding our strong distribution network by adding our life insurance products to the shelf of a large P&C insurer where we have an existing annuity distribution partnership. We are seeing good early momentum and particularly with our term Excel solution, which is a fully digital experience and is enabling us to reach a different customer segment. I'm pleased with the solid results the life insurance business reported. I'm also excited that Lincoln is introducing products with new value propositions that are resonating with customers and helping to drive future growth. Lastly, on group protections, premiums rose more than 2% over the prior year quarter and nearly 7% sequentially, driven by improved persistency, price increases, and organic growth resulting from the economic recovery. Sales in what is typically a seasonally smaller quarter were down versus the strong prior year quarter. However, underlying drivers were positive as two-thirds of our sales were employee-paid products. As we communicated last quarter, we are taking actions to increase group protection margins. We are already seeing improved results, as factors such as pricing actions, higher persistency, and investments in our claim organization have put our margin, excluding the pandemic and excess alternatives income, in the lower end of our targeted range. We continue to expect further expansion, building gradually towards the upper end of our 5% to 7% margin target. Briefly on investment results. As I mentioned earlier, our portfolio is performing quite well. Overall credit quality remains high and has continued to improve in recent years, driven by our high-quality new money purchases and proactive de-risking. 96% of our fixed income assets are investment grade, with 59% rated A or higher. Our well-diversified commercial mortgage loan book has continued to perform well during the pandemic, with virtually no credit losses and minimal loan modifications. Additionally, our alternative performance was once again strong, driven by our portfolio construction that emphasized buyout and growth equity strategies with a quarterly return of 8%, significantly exceeding our long-term target quarterly return of 2.5%. In closing, I would note sales momentum is building at attractive returns driven by new product introductions that resonate with our customer and expanded shelf space across distribution channels. Continued equity market tailwinds should boost earnings from fees on assets under management in the annuities and RPS businesses. The outlook for the life insurance business is strong as our new products are starting to take hold in the market. Group protections underlying profitability is experiencing an ongoing recovery. Expense savings initiatives will continue to contribute to earnings growth. And our robust balance sheet, high-quality investment portfolio, strong free cash flow generation and capital ratios, as well as the opportunity to execute risk transfer deals, all leave Lincoln in an excellent position to fund expected sales growth while increasing our capital deployment. Based on these positive trends, 2021 is shaping up to be a successful year, and I expect we'll improve on this quarter's results. I will now turn the call over to Randy.