Lincoln National Corporation

Good morning and thank you for joining Lincoln Financial Group third quarter 2023 earnings webcast. 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 star followed by the zero and someone will assist you. Now I will turn the conference over to the Chief Accounting Officer and Interim Chief, Head of Investor Relations, Admiral Cohen. Please go ahead, sir.

Thank you. Good morning and welcome to Lincoln Financial's third quarter earnings call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, including those regarding 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 2022 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 the call, including adjusted income from operations or adjusted operating income, and adjusted income from operations available to common stockholders to their most comparable GAAP measures. Presenting on today's call are Ellen Cooper, Chairman, President, and CEO, and Chris Nezapor, Chief Financial Officer. 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 Ellen.

Thank you, Adam, and good morning, everyone. Before I turn my attention to this quarter's results, I first want to provide you with an update on the reinsurance transaction we announced with Fortitude RE in the second quarter of this year. We are very pleased to announce today that both our regulator, the Indiana Department of Insurance, and our partner's regulator, the Bermuda Monetary Authority, have approved the transaction. With these approvals, we expect the transaction to close this month with economic benefits in line with what we originally communicated with an effective date of October 1st of this year. This significant milestone is the culmination of months of hard work on behalf of our teams and marks a big step forward in our efforts to de-risk, strengthen the company's balance sheet, and improve ongoing free cash flow. Now turning to this quarter's remarks. We entered 2023 with a clear focus on taking actions to support rebuilding our capital position and delivering long-term profitable growth. We have a powerful franchise, trusted brand, distribution leadership, and broad diversified product solutions across our four businesses. These elements serve as a solid foundation as we reposition the company to deliver increasing value to our shareholders. While our third quarter results fell short of our expectations, I firmly believe we are continuing to make good progress on improving the underlying strength of the business, taking the necessary steps to repair the balance sheet, and evaluating additional actions to further accelerate our path to recovery. It is worth mentioning that the advancements we are making and the evolution taking place inside the walls of the company to reset and rebuild will not always be apparent in our quarterly financial results, and this quarter is a clear example of that. We have more work to do to deliver strong results consistently, and it will take some time. Over the past year, we have taken swift and targeted actions with a strategic focus in three key areas, rebuild and protect capital, preserve the franchise and grow profitably, and invest in our infrastructure and talent. Our actions have been aligned to these areas and include, first, shifting new business to a more capital efficient mix while maintaining a robust level of sales. While a shift like this takes time, we are on track in all four of our businesses to achieve sales growth that utilizes less capital while meeting or exceeding target returns. Broadly speaking, as we look forward to the fourth quarter and into 2024, we expect continued sequential growth in sales, and we have a number of product enhancements and distribution initiatives planned that will further support this objective. Second, Executing on SPARC, our enterprise-wide expense and technology modernization initiative, where we are on track with the incremental savings we have discussed with you previously. Third, improving the profitability of our group protection business, which continues to be critically important to our long-term strategy. We have spoken with you about our goal of reaching and then sustaining the high end of our target margin for group, which is 7%, and we are progressing toward that goal. Fourth, we are continuing to evaluate additional internal and external solutions to unlock the value of our in-force. And finally, strong execution is all about people. Over the past year or so, we have assembled a leadership team that has the right people in the right roles to drive results-driven outcomes and lead the organization forward. We are benefiting from fresh perspectives across every aspect of our business, which includes taking a hard look at every facet of our strategy, execution, processes, and infrastructure. Overall, we are executing on our capital rebuild and capital generation efforts and have modestly improved our RBC year-to-date, despite some headwinds, while positioning the businesses to support long-term growth. Turning to a few comments on third quarter results. We recorded a $144 million charge to operating income related to this year's assumption review, which was primarily driven by the life business and relates to updated policyholder behavior and mortality assumptions. We have a rigorous process in place and feel confident in our updated assumptions. Group. which produced notably strong performance in the first half of the year, delivered results below our expectations in the third quarter. Chris will provide further context on the results, but I want to remind you that we have been taking deliberate actions to support our longer-term margin expansion initiatives, and we have been successful in driving year-over-year margin improvement. These include executing on our repricing strategy, which is enabling us to meet profitability targets while maintaining strong retention, progressing well with wins in our higher margin supplemental health products, which are a growing area of our business, and seeing success in the overall repositioning of our business through our new market segment strategies. As we've previously stated, we expect Group to be a larger part of our business mix and a key contributor over time. I also want to address expenses. We are seeing elevated expense pressure across the enterprise, which has been a contributing factor to the pressure on our earnings year to date. From my perspective, this is a critical area of focus and opportunity as we look forward, and we are currently examining our expense base across the organization. now turning to sales highlights for each of our businesses starting with our two retail solutions businesses annuities and life insurance where we serve 2.6 million individuals in the u.s we saw sequential sales growth in both businesses and we expect this momentum to carry into the fourth quarter in annuities while third quarter sales declined 16 percent year over year we saw sequential growth of 6% as we launched a range of product enhancements and actions with our distribution partners. The largest driver of this growth was our fixed annuities business, where we saw sales increase 23% as we took actions to strategically position ourselves across fixed product categories and with select distribution partners. In life insurance, our third quarter sales were down 16% year over year, while we saw sequential growth of 17% driven by a strong quarter in our money guard suite of products and executive benefit. Sales in these products can be lumpy from period to period. As we evolve our business with a sharper focus on capital efficiency, we continue to expect sales in certain term and variable universal life product segments to decline, and both term and VUL sales were down meaningfully year over year and sequentially. In summary, in our two retail businesses, we are benefiting from a diversified product mix that enables us to be a solutions provider to our customers while meeting or exceeding our capital efficiency and new business return targets. Next, I'd like to turn to workplace solutions, which is comprised of our group protection and retirement plan services businesses. We serve more than 50,000 employers and close to 14 million employees with our differentiated product offerings and service capabilities. With group and retirement together delivering workplace benefits and services that support employers, financial professionals, and employees, we have a unique position in the market. In group protection, premiums grew 4% versus the prior year quarter, a direct result of the strong relationships and positive customer experience we deliver across each of our focused market segments. This has enabled us to achieve strong persistency while executing on the pricing actions that are a core part of our margin expansion strategy. In what is typically our lowest sales volume quarter of the year, sales were down approximately 19% year-over-year. On a year-to-date basis, we've seen strong momentum in employee paid sales representing 60% of total group sales and up 8 percentage points year-over-year. We are seeing continued strength in supplemental health where sales more than doubled year-to-date. Looking ahead, the fourth quarter is our highest sales volume quarter, and based on our strong pipeline, we are expecting robust sales, enabling us to head into 2024 with solid momentum. Lastly, in retirement plan services, while first-year sales were down more than 50% year over year, we see significant momentum heading into the close of the year and have a healthy pipeline of cases that will be implemented in 2024. Recurring deposits rose 6% year-over-year as our service model supports our customers in helping to drive higher contribution rates and an increasing number of participants. In addition, we are experiencing another year of nearly 100% client retention as our existing clients favor our digitally-enabled, high-touch customer approach. To sum up, our workplace solutions businesses continue to meet or exceed capital efficiency and new business return targets. We are enhancing our customer-focused strategies and expect these actions to lead to long-term, sustainable growth in these businesses going forward. Before I turn the call over to Chris, I want to leave you with three key takeaways. First, we are laser focused on profitable growth across all segments. We saw sequential sales growth in our two retail businesses in the third quarter, and as we head into 2024, we have a strong pipeline across all four businesses to support growing our best in class annuities business, executing the pivot in our life business, and delivering higher profitability in workplace solutions. Second, we have a clear path in place and we have significant resources across the enterprise committed to achieving our financial objectives, strengthening our balance sheet, including rebuilding our capital levels, reducing the volatility of that capital, and increasing ongoing free cash flow. This includes our transaction with Fortitude RE, which I spoke about up front, and we will continue to evaluate additional internal and external solutions to unlock the value of our in-force. And finally, I will continue to be as transparent as possible with our stakeholders. As I mentioned earlier, we're benefiting from having fresh eyes and perspectives across the organization, evaluating all aspects and facets of our business. We have a lot to accomplish and hold ourselves fully accountable to delivering on our objectives. We've been making significant progress, which will support strengthening and repositioning of the company for long-term value creation. Given the substantial amount of in-depth analysis that is underway, we anticipate providing you with more specifics early next year on our outlook for key financial objectives and the drivers that will get us there. Our path forward is not going to be linear. but we're taking the necessary steps and working through the near-term challenges while also making significant progress under the surface to strengthen the company. I want to reiterate my confidence in the team and our ability to deliver. I will now turn the call over to Chris to take you through the financials in more detail.