Lincoln National Corporation

Good morning, and thank you for joining Lincoln Financial Group's second quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you need us any time during the call, please press the star key followed by zero, and someone will assist you. Now, I would like to turn the conference over to Senior Vice President, Head of Investor Relations, Tina Madden. Please go ahead.

Thank you. Good morning, everyone, and welcome to our second quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement, and statistical supplement can all be found on the investor relations page of our website, www.lincolnfinancial.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 GAAP 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 related 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 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 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. Thank you for joining our call today. During the second quarter, we continued to make steady progress toward the three objectives we outlined earlier this year. Build upon a strong capital foundation to ensure enterprise stability across market cycles and support investment for future growth. Optimize our operating model to advance a scalable framework to maximize our resources and deliver profitable growth to improve free cash flow and grow the franchise. Let me briefly touch on each of these objectives, starting with foundational capital. We are pleased to update you that we ended the quarter with an estimated RBC ratio of more than 420% as we successfully closed the sale of our wealth management business. In our investor outlook from earlier this year, we communicated our goal to build and maintain an RBC buffer of 420, 20 points over our 400% RBC target, as we continue to take the necessary steps to minimize our capital volatility. The combination of the build of capital above our target level and the actions we are taking to increase free cash flow generation should provide greater capital flexibility over the next few years. This is an important milestone as we position our business for its next chapter. We also made further progress in optimizing our operating model this quarter and started to see the benefits of the expense reductions we made earlier this year. Additionally, we received the license for our affiliated Bermuda subsidiary, which will help us stay competitive in new business segments and support our financial objectives, such as enhancing our free cash flow. Lastly, we advanced against our objective of delivering profitable growth as we transform Lincoln into an organization characterized by businesses, segments, and products with more stable cash flows, and higher risk-adjusted returns. As we look ahead, we expect to continue to grow and diversify our group business across products and market segments, evolve our annuity business with a well-balanced product mix that includes expansion of spread and spread-like products, reposition our life business to emphasize more risk sharing and accumulation products, and position our retirement business for future growth. We are a market leader in our at-scale businesses and will leverage our competitive advantages, including our powerful franchise, trusted brand, distribution leadership, and broad product portfolio to lay the groundwork for future expansion. While this is a multi-year journey and the strategic realignment in each of our four businesses is at different stages, we are executing well as demonstrated this quarter in our overall sales levels and, most importantly, in our sales mix. Turning to our second quarter performance, our results were solid and exceeded our expectations as we continued to execute on our strategic priorities with a few key highlights. Our annuities business grew earnings by 10% year over year, delivering its highest earnings quarter in two years, and achieving its second strongest sales quarter in over four years. Group protection continued its momentum, delivering earnings in line with its record prior year quarter and strong sales growth across all products and segments. Our life business, excluding the impact of below target alternative investment income, delivered earnings in line with our expectations and a sequential increase in sales. And finally, retirement plan services produced sequential earnings growth and sales within the range of the last few quarters. Now turning to retail solutions, which includes our annuities and life businesses. Our annuity strategy focuses on growth while shifting to a more balanced mix. We aim to achieve this by expanding our addressable market and enhancing our competitiveness through the optimization of our capabilities. The strong earnings delivered this quarter in our annuities business were broad-based and reflected continued progression and solid returns on a diversified book of business. Total annuity sales of 3.8 billion were up 48% from the prior year quarter. Sequentially, sales were up 34% and sales levels were higher across all product categories with more than 70% of the overall sales in the quarter in spread and spread-like products. We are building on our long-standing relationships with distribution partners to further expand shelf space in select product categories and utilizing our leading distribution framework to provide marketing, training, and data to support our partners and enlarge our footprint. Our fixed sales more than doubled year over year and increased more than 70% sequentially as we applied the capabilities we have built over the course of the last year to sustain a consistent and growing competitive presence in the fixed marketplace. Ryla also continued to be a strategic focus and demonstrated solid momentum with sales increasing by more than 15% sequentially. We successfully launched our second generation product in the quarter. And although it is still early, the refreshed features and unique crediting strategies are resonating in the market. VA with guaranteed living benefits sales were up 28% year over year and continue to be integral to our overall product solutions while delivering 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. In summary, these results reflect the strength of our annuities business as we continue to achieve our objectives for a balanced product mix while providing customers with a broad range of solutions to fulfill their evolving needs. Now turning to life. We achieved 15% sequential sales growth as a result of our ongoing strategic realignment. We are adapting our business to focus on products with more stable cash flows and higher risk adjusted returns. And we are supporting this by repositioning our life distribution team to optimize our wholesalers footprint. This will improve our reach and elevate our coverage. And by doing so, we aim to better enable and accelerate our product shift. While the realignment of our life business will take time, we are confident that leveraging our strengths in product, distribution, and underwriting while strengthening our customer-centric service will increase our competitive differentiation and drive higher earnings growth. Next, turning to workplace solutions, which includes our group protection and retirement plan services businesses. Within Group, our strategy is to grow and achieve sustainable target margins by diversifying our business across products and market segments with an emphasis on expanding our presence in small market and supplemental health. Group delivered another excellent quarter, and we are very pleased with the results and strategic momentum of this business. Adjusted for the timing impact of an experience refund that Chris will further discuss, Earnings were in line with its record prior year quarter, resulting in an 8.2% margin. We continue to prioritize margin expansion over top-line growth. Premium growth of 3% reflected disciplined new business and renewal pricing, combined with persistency in line with our expectations, reinforcing the strength of our relationships and ability to deliver value to our customers. Sales levels for the second quarter, which have typically accounted for 15% to 20% of our annual sales volume, increased by 68% compared to a lower-than-usual quarter last year. This growth spanned all products and market segments, driven primarily by new business from existing customers, including supplemental health. These results highlight our continued execution to diversify our business and achieve profitable growth. Our targeted segment strategies, which are key pillars of our margin expansion efforts, are gaining further traction as we offer tailored solutions within each segment. As we continue to grow our leadership position in national and regional markets, we are also building the necessary capabilities to accelerate the expansion of our presence in the small market segment with strategic investments in talent, capabilities, and technology. To accelerate the pace at which our group business evolves, we are meeting our customers where they want to be met, expanding our digital and self-service capabilities, upgrading our underwriting technology, and re-engineering our client service model. These investments, along with expanded product offerings, are driving our growth. We are confident that executing our strategy to deliver sustainable results will help our group business become a more significant part of our overall business mix. Now turning to retirement plan services, or RPS. In RPS, our strategy is to continue growing in our core recordkeeping and institutional market segments through our differentiated service model. RPS's quarterly results were in line with our expectations. Although earnings declined year over year due to lower spread income, they grew 11% sequentially due to higher account balances and expense improvement. While first-year sales were flat year over year, total deposits increased by 13%. And as we look ahead to the remainder of the year, we continue to have a strong pipeline of known wins across all of our segments, which we anticipate will materialize beginning in the third quarter of this year. We continue to invest in RPS, benefiting from our flexible models to enhance the products and services we offer our customers. We are also increasing the operational efficiency of this business, which is consistent with our objective to optimize our overall operating model. In closing, I want to reiterate our conviction in our strategic repositioning. We see substantial opportunity to continue transforming Lincoln. Our foundation is built on at-scale retail and workplace businesses with leading distribution and a strengthened balance sheet. Our focus is on leveraging our competitive advantages to evolve our businesses, enhance differentiation, and create a platform for sustainable growth, increasing profitability, operational efficiency, and greater capital flexibility. Our strong second quarter performance sets the stage for further momentum. We are confident in our ability to deliver results that will drive long-term value creation for our shareholders. I look forward to sharing further updates with you in the coming quarters. With that, let me now turn the call over to Chris.