Lincoln National Corporation

At any time, please press the star key followed by the number zero, and someone will assist you. Now, I would like to turn the call over to Senior Vice President, Head of Investor Relations, Tina Madden. Please.

Good morning, everyone, and welcome to our 2024 first quarter earnings call. We appreciate your interest in Lincoln. Our quarterly press release, statistical supplement, and new this quarter, our earnings supplement can all be found on the investor relations page of Lincoln's website, www.lincolnsfinancials.com. These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations or adjusted operating income, and adjusted income from operations available to common stockholders to their most comparable gap measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, Share repurchases, 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 our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2023 Annual Report on Form 10-K, most recent quarterly reports on Form 10-Q, and from time to time in our other filings with CSCC. 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 today. Presenting this morning are Ellen Cooper, Chairman, President, and CEO, and Chris Nezapor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen.

Ellen? Thank you, Tina, and good morning, everyone. We appreciate you joining our call today. I want to start by reiterating that we are continuing to progress with Lincoln's strategic repositioning and our first quarter reflects advancement toward our longer-term priorities. Last quarter, we shared our investor outlook, which was grounded in three key objectives. First, a strong capital foundation that is built and maintained for enterprise stability across market cycles while supporting investment for profitable growth. optimizing our operating model to advance a scalable framework for managing enterprise resources such as expense efficiencies and general account optimization. And third, delivering profitable growth by strategically realigning towards businesses and products with more stable cash flows, focusing on maximizing risk-adjusted returns while decreasing sensitivity to equity markets. Within our four businesses, we are executing well on our strategies to achieve these targeted outcomes, and we are confident in our ability to deliver results that will drive long-term value creation for our shareholders. While this is a multi-year journey and results may not always be linear, the actions we are taking now position Lincoln to deliver sustainable growth in the years ahead. We will leverage our powerful franchise, trusted brand, distribution prowess, and broad product portfolio to meet customer needs across our four businesses. These attributes will continue to serve as a solid foundation for our future growth. Let me now briefly touch on our first quarter performance. Our results, excluding the impact of significant items, exceeded our expectations. Although each of our businesses is at a different stage of strategic realignment We are pleased with their execution with some notable highlights. Our annuities business reported its highest earnings quarter in nearly two years, and group protection delivered a strong quarter of year-over-year earnings growth, solid premium growth, and margin expansion. Retirement plan services generated more than $1 billion in sales, its highest level in seven quarters, and the performance of our life business was in line with our expectations. These outcomes reflect our disciplined focus on positioning our business for increased growth and enhanced margins in keeping with our overall strategic vision. Now turning to retail solutions, which includes annuities and life. As I mentioned earlier, annuities had a very strong earnings quarter, excluding the impact of significant items, reflecting solid returns on a diversified book of business. Ending account balances increased 5% sequentially, driven by favorable equity markets, which provided a strong tailwind to earnings. Coming off a record fourth quarter in 2023, sales were lower at approximately $2.8 billion, but importantly, reflected a well-balanced product mix as we continue to focus on the growth of spread-based categories. In fixed annuities, we are growing our addressable market and extending our reach to new segments by optimizing our capabilities, which includes strategic positioning across fixed product categories and with our distribution partners. Additionally, our Ryla business continues to be an important area of focus and a growth segment of the market. With more competitors entering this product category, our Ryla sales were down year over year. However, we are launching our second generation Ryla product this month with refreshed features and unique crediting strategies to further support the profitable growth of our Ryla business. VA with guaranteed living benefit sales were up year over year and continues to be an integral part of our overall product solutions and delivers a strong customer value proposition. However, this product category remains a smaller contributor to our total annuity sales, representing less than 20% of sales in the quarter. Our annuities business continues to benefit from our broad strategic partner network and the engagement of our large wholesaling force with financial professionals. And as we look ahead, we see a strong pipeline to support further momentum in 2024. In summary, These results reflect the strength of our annuities business as we continue to achieve our objectives for capital efficiency and meet our target product returns while providing customers with a broad range of solutions to meet their evolving needs. Now turning to life. As I mentioned earlier, the performance of our life business in the first quarter was consistent with our expectations. The year-over-year and sequential declines in life sales are driven by our intentional strategic realignment as we de-emphasize long-term guarantees such as guaranteed BUL and commoditized lower margin segments of the term market. We are taking additional steps to shift the focus of our life business to products with more stable cash flows and higher risk-adjusted returns such as accumulation products. We expect to further support this shift with product and distribution actions. For example, on the distribution side, we realigned our life team to optimize our wholesaler footprint, putting us closer to our key strategic partners to better enable and accelerate our product shift, and we are already seeing a stronger pipeline in accumulation products. While the transformation of our life business will take time, Leveraging our strengths in product distribution and industry-leading underwriting, coupled with strengthening our customer-centric service model with enhanced digital delivery, will help us deliver against this important strategic priority. Next, turning to workplace solutions, which includes group protection and retirement plan services. Our group business delivered the second-best earnings quarter in its history, and further expanded its margin to 6.2%, reflecting strong improvement year over year. We continue to advance towards our 7% sustainable margin target for this business, prioritizing margin expansion over top line growth. Pricing discipline remains a primary focus as we profitably grow our group business. The renewal cycle for 2024 effective business illustrates this discipline. We achieved our targeted rate increases with just a modest decline in persistency. And despite this reduction, our ability to generate 3% total premium growth year over year reinforces the strength of our relationships and ability to deliver value to customers. Additionally, sales were 13% higher than in the prior year quarter due in part to a 25% increase in supplemental health. Offering a strong supplemental health product suite allows us to meet the financial wellness needs of our customers across all segments. Now let me touch on a few specifics regarding the execution of our group objectives. Our segment level strategies are key pillars of our margin expansion efforts. We are transforming how we do business and are making strategic investments to ensure that our end-to-end offerings align with the unique needs of each segment. We have expanded our digital and self-service capabilities to help customers interact how and where they want. We have also upgraded our underwriting technology to reduce turnaround times and drive process efficiencies, and we have re-engineered our client service model to improve our distribution partnerships and claimant experience. These investments will support future growth in small market, the fastest growing part of the market, while maintaining our leadership position in both the regional and national markets. Additionally, enhanced capabilities and expanded product offerings are driving the growth we are achieving in supplemental health premium. Over time, these investments will lead to a more diversified book of business, and enable us to continue achieving our financial targets in the coming years. We are confident that our strategy and ability to advance the performance of our group business will result in it becoming a more significant part of our overall portfolio. This objective is consistent with our long-term strategy to achieve a balanced mix of earnings from businesses and products with more stable cash flows and higher risk-adjusted returns. Now turning to retirement plan services, or RPS, where earnings declined year over year, as expected, due to lower spread income. However, first-year sales were robust, increasing more than 50% for the same period while achieving our target returns. The increase was broad-based across segments, with particular strength in the mid-large market, where we have focused on reinforcing the key points of our competitive differentiation and on increasing our engagement with our distribution partners. Our success has also stemmed from the unique approach we take to serving our clients across our retirement business. We offer a highly consultative model focused on the quality of participant outcomes complemented by a broad suite of product offerings. Combined, these attributes position us to compete effectively within our target markets. As a result, Our momentum continues to build, and although it is still early in the year, we have a strong pipeline of known wins. While the conversion rate on this will vary from quarter to quarter, we expect a robust level of sales in 2024, reinforcing that our strategy is gaining traction. RPS has positive net flows of nearly 400 million, driven by increased sales, seasonally strong recurring deposits, and excellent plan sponsor retention. We have seen strong flows into some of our newer offerings, such as Your Path, where assets under management have grown almost 50% year over year. We continue to innovate and invest in our retirement business, improving the products and services we provide to our clients. We are also increasing the operational efficiency of this business, consistent with our objective to optimize our overall operating model. To wrap up, I want to reiterate my confidence that the strategic repositioning underway here at Lincoln will drive sustainable growth and improve the profitability, operational efficiency, and capital flexibility of our franchise. We are a market leader across our four businesses and have significant foundational competitive advantages that will enable us to achieve these objectives. Our first quarter performance was strong, with many signs of growth and positive change. We are seeing a number of green shoots that are tangible evidence of our transition taking hold and the momentum building across our business. Our actions are strengthening our competitive differentiation within our core markets and in how we deliver value to our partners and customers. They are also increasing our nimbleness and flexibility as we rebalance our product portfolio and build on our innovation as we enter new markets. Together, these elements will drive meaningful value for our shareholders over the long term. I look forward to sharing additional updates with you in the coming quarters, and with that, let me turn the call over to Chris.