Lincoln National Corporation

vice president head of investor relations tina madden please go ahead thank you good morning everyone and welcome to our first 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 gap 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, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources, as well as any statements relating to the expected timing of the closing of the Bain capital transaction and the expected benefits of and use of proceeds from the transaction 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 2024 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. We appreciate you joining our call today. Before I discuss our first quarter results, I want to briefly touch on the macroeconomic environment we have been experiencing. Market volatility remains high, and the external backdrop remains uncertain. While these conditions are challenging, we are navigating this landscape with discipline and focus. The strategic actions we have taken over the past two years to fortify our foundation, including strengthening our balance sheet, optimizing our operating model, enhancing our general account investment strategy, pursuing strategic reinsurance initiatives, and shifting to a more diversified business mix, create greater flexibility and resiliency, better positioning us to manage through a period of market turbulence. Additionally, as we have previously highlighted, we are holding a capital buffer as a proactive safeguard in the event of a market downturn, have implemented hedging programs with explicit capital targets to improve capital stability, and have made progress in diversifying our business, for example, expanding group protection and growing spread-based businesses to reduce our sensitivity to equity market volatility and position our earnings mix for enhanced durability. We maintain a long-term investment strategy with a high quality and well diversified investment portfolio that is tightly aligned to our liability profile. Chris will elaborate on these points further in his remarks. Now turning to our results, we delivered another solid quarter with adjusted operating income increasing by 14% over the past year, excluding the impact of significant items in the prior year period. This performance demonstrates our continued execution of the strategic initiatives underpinning our multi-year journey to reposition Lincoln to deliver sustained shareholder value. We have consistently advanced our vision, which is anchored upon three objectives demonstrating a track record of delivering results with tangible impact. The first is strong foundational capital. We continue to maintain an estimated RBC ratio well above 420%, consistent with our goal to hold a buffer level of capital above our 400% target designed to provide a cushion in the event of adverse economic conditions. The second is an optimized operating model. We have taken a number of actions to increase our operational efficiency and position our enterprise for future growth, including reducing expenses while strategically investing in technology, talent, and infrastructure to further elevate our customer experience and enhance our ability to scale effectively. We also launched our Bermuda-based reinsurance subsidiary to support our financial objectives. And the third is delivering profitable growth and more stable cash flows by evolving the product mix and distribution strategies across our four businesses. We have made notable progress in growing our group business with disciplined margin expansion, evolving our annuity business towards a more balanced mix with a higher proportion of spread-based products, further repositioning our life product portfolio, and continuing to build upon the products and capabilities of our retirement business. Our recently announced long term partnership with Bain Capital is expected to further enhance these actions and strengthen our foundation for effective execution. Through this partnership, Bain Capital will become a strategic investment manager for a portion of Lincoln's general account assets, enabling expanded scale and differentiated cross platform access to private asset origination. Beyond investment management, Bain will also be a collaborative, trusted partner engaged on broader value streams that underscore the competitive advantages of our retail and workplace brands and leverage the unique strengths, experience, and discipline of both organizations to accelerate product innovation, broaden our offerings, and deliver compelling customer value propositions to drive accelerated growth. Importantly, Bain Capital's minority investment in Lincoln will further align our interests, validate the strength of our franchise, and provide us with even greater flexibility to adapt to evolving market dynamics. We're excited about these strategic and financial benefits and opportunities alongside the deep cultural fit and shared values that we believe will further differentiate us competitively. This represents another pivotal milestone in advancing our vision, positioning Lincoln to deliver sustainable, profitable growth and create long-term value for all our stakeholders. In short, The disciplined actions we've taken over the last two years, not simply the events of any single quarter, are why Lincoln is more balanced, more resilient, and better positioned to navigate a normal recessionary environment. We are well prepared to fulfill our commitments to shareholders and policyholders, despite the ongoing uncertainty. Now, turning to first quarter highlights, our group protection business generated excellent results, delivering a 26% year-over-year increase in earnings and 120 basis points of margin expansion. Annuities achieved robust year-over-year sales growth, supported by our ongoing focus on building and sustaining a diversified product mix. the underlying results in our life business continue to improve and year-over-year sales increased by 7%, reflecting additional progress in emphasizing products with more risk sharing. Retirement plan services generated year-over-year first-year sales in line with the prior period and an 8% increase in total deposits. Now turning to retail solutions, which includes our annuities and life businesses. We made additional progress in annuities during the quarter as total sales of 3.8 billion increased 33% from the prior year quarter and were also up sequentially. Traditional VA sales sustained solid momentum while we benefited from additional actions taken to support accelerated growth in our spread-based products, which comprised approximately 60% of the quarter's new business mix. These included enhanced product features, leveraging the strength of our distribution relationships, and optimizing our investment strategy. We also saw the momentum in RILA and fixed annuities increase throughout the quarter. Within the fixed annuity category, sales levels were up sequentially by more than 50% as we applied the capabilities built over the last year to sustain a consistent and growing competitive presence in the fixed marketplace. Ryla demonstrated another quarter of growth, with sales increasing year over year and sequentially, as the unique features of the second-generation Ryla product we introduced last year continue to resonate with customers. We also benefited from further leveraging our deep relationships with our distribution partners to drive additional market penetration and growth. Sales of our traditional variable annuities were also strong in the quarter, with sales volumes up year over year. Our variable product suite offers robust features and benefits that meet customer needs and remain integral to our overall offering. It is worth mentioning that during periods of market volatility, we have typically seen customer demand for annuities shift towards spread-based products with less demand for variable annuities. Given the volatile market environment, our broad product portfolio enables us to meet customer preferences as they evolve. We are a leading provider in the annuity market given the depth of our distribution and the breadth and diversification of our product suite. This is a key competitive strength, enabling us to be a holistic solutions provider that can nimbly adapt to customer preferences in ever-changing market environments. Now turning to our life business. Life sales were 7% higher year over year as our product and distribution actions over the last year gained further traction. As I have previously mentioned, we are refocusing this business to deliver accumulation and protection products with more risk sharing. We are currently in these markets today and have been building out additional features to expand our solution set, positioning us for future growth. Additionally, we optimized our wholesaler footprint last year to extend our customer reach and elevate our coverage to support the acceleration of our product shift over time. While repositioning our life business for profitable growth will continue to take time, we are confident that leveraging our product, distribution, and underwriting teams will increase our competitive differentiation and drive future growth. Next, turning to workplace solutions, which includes our group protection and retirement plan services businesses. As I mentioned earlier, group delivered another excellent quarter reflecting continued momentum as the earnings increased by 26% year over year and margin expanded by 120 basis points to 7.4%. These results highlight our strong execution in diversifying this business while prioritizing profitable growth. Premiums were 7% higher than the prior year quarter, driven by record sales growth last year and strong persistency. These results are supported by disciplined pricing and ongoing investments to expand our offerings across products, capabilities, and service quality. Our ongoing commitment to disciplined pricing while growing also reflects the strength of our customer relationships and our ability to consistently deliver enhanced value. Group sales grew 9% year over year, with all market segments contributing to this result. From a product perspective, we achieved robust growth in supplemental health, supporting a more balanced and diversified book of business. We built further momentum in each of our three target segments during the quarter. In our local market segment, we are delivering integrated solutions that emphasize ease, access, and efficiency. To grow market share in this segment, we are continuing to invest in our operating model, delivering quality service, and providing a robust product offering including bundling multiple products. In our regional segment, we are maintaining a strong presence as we focus on strengthening key strategic broker partnerships to support our customers and their benefit decisions. We are making ongoing investments in enhancing the customer experience with more digital capabilities and providing a comprehensive product suite with an emphasis on supplemental health and leave management. In our national segment where we are a market leader, we are leveraging our disability and leave management expertise and remain focused on enhancing our voluntary products such as supplemental health and providing customer engagement tools and processes to further differentiate our value proposition and generate profitable growth. In summary, group's performance again exceeded our expectations this quarter driven by disciplined execution to deliver profitable growth. We continue to raise the bar as we leverage our competitive advantages to further position this business to become a larger and more profitable contributor to our overall earnings mix over time. Now turning to retirement plan services or RPS. First year sales were in line with the 2024 first quarter, which was a strong result and were broad based across products and market segments. Sales in this business can be lumpy from quarter to quarter. However, our 2025 pipeline is robust, reflecting new business momentum that we anticipate will translate into sales growth later this year. year over year total deposits were up eight percent driven by growth in recurring deposits due to higher salaries and increasing levels of participant contributions resulting from our proactive engagement to improve retirement savings we remain focused on solving the needs of our customers whether they are employers participants or our intermediary partners we are further enhancing the capabilities in our retirement business expanding our products and services, improving our customer experience, and increasing operational efficiency as we further optimize our operating model to drive sales and earnings growth. In closing, our strong performance this quarter demonstrates our sustained momentum as we build upon our competitive advantages to grow profitably, advance operational efficiency, and build the capital flexibility of our franchise. as we move forward we remain focused on disciplined execution advancing our strategic priorities and delivering strong outcomes for our shareholders customers partners and employees while market dynamics may create some near-term headwinds if they persist we are confident that the actions we are taking today are building a durable path to delivering sustainable long-term value with that Let me now turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our first quarter performance marks the third consecutive quarter of year over year adjusted operating income growth and another quarter of strong execution against our strategic and financial priorities, underscoring the momentum we are building across the enterprise. Each of our businesses continue to advance on their respective operating initiatives as we position Lincoln to deliver more stable cash flows and higher risk adjusted returns. This morning, I'll focus on three areas. First, I'll walk through our consolidated and segment level performance for the first quarter. Second, I'll touch on our investment portfolio. And third, I'll briefly recap our recently announced transaction with Bain Capital. Let's begin with a quick summary of the quarter's results. This morning, we reported first quarter adjusted operating income available to common stockholders of $280 million or $1.60 per diluted share. There were no significant items in the quarter. Our alternative investments portfolio delivered roughly a 7.6% annualized return in the quarter or $75 million. On an after-tax basis, this amount was $18 million below our return target or 10 cents per diluted share. Normalizing for the below target alternative investment returns, adjusted operating income was $298 million or $1.70 per diluted share. Turning to net income for the quarter, we reported a net loss available to common shareholders of $756 million or $4.41 per diluted share. The primary difference between the gap net loss and adjusted operating income was driven primarily by the negative movement in market risk benefits amid lower interest rates and lower equity markets. Importantly, our hedge program, which explicitly targets capital and the present value of distributable earnings, continued to perform in line with expectations during the quarter. Now turning to our segment results. Let's start with Group, which continued its strong momentum following a record 2024. Operating income was $101 million, up 26% from earnings of $80 million in the prior year first quarter, and the margin was 7.4%, up 120 basis points for the same period due to the continued focused execution of the business driven by expanding our customer base, diversifying our book of business, and maintaining discipline in our pricing actions. The year-over-year improvement stems from three key drivers. First, robust and profitable premium growth. Higher new sales volumes and strong persistency delivered while maintaining our pricing discipline supported profitable growth. Put simply, we expanded our top line in a way that should continue to support healthy margins. Second, our disability results remained strong, supported by a tight labor market and a still supportive interest rate environment, coupled with incidence levels near historic lows and sustained healthy long-term disability recoveries. And third, our purposeful shift toward higher margin business, including our supplemental health strategy, continued to gain traction and the earnings contribution from this product diversification is becoming more meaningful each quarter. Of note, while expenses grew versus the prior year quarter, the increase reflected continued investments in digital capabilities, distribution, and claims management. Importantly, we continued to achieve margin expansion, demonstrating our commitment to profitably grow while investing in this business. Now turning to group product line results for the quarter. The disability loss ratio was 70%, improving by over 400 basis points year over year. The loss ratio remained favorable relative to our long-term expectations with continued low LTD incidence rates and strong return to work outcomes for our claimants. Additionally, our repricing execution contributed to the year-over-year loss ratio improvement. The group life loss ratio was 75%, roughly a 100 basis point improvement versus the prior year quarter. While mortality was modestly higher year over year, it remained in line with our expectations and was more than offset by continued growth and supplemental health, resulting in an overall year over year improvement in the loss ratio. As we look ahead, risk results have historically improved from first to the second quarter, and we expect that seasonal pattern to repeat this year. That said, should macro conditions shift, particularly if unemployment were to rise, we would expect some easing in disability performance relative to today's levels. Even in that environment, our pricing discipline, product diversification, and operational execution give us confidence in sustaining strong margins throughout 2025. Now turning to annuities. Annuities reported first quarter operating income of $290 million, consistent with the prior year quarter, excluding the unfavorable significant items that impacted last year's results. Average account balances net of reinsurance ended the quarter 5% above the prior year period, supported by 20% growth in RILA balances, which have experienced positive net flows over the past year. Sequentially, earnings declined from $303 million in the fourth quarter, reflecting two fewer fee days and lower average account balances. Additionally, ending account balances, net of reinsurance, were three percentage points lower versus the prior quarter, driven by the equity market decline and continued variable annuity net outflows. Volatility has continued in the second quarter, and if this volatility persists, we anticipate additional pressure on fee income beyond the initial headwinds resulting from lower starting account balances. As a rule of thumb, we expect roughly a $15 million impact to annualized earnings for every 1% change in annuity AUM due to markets. Turning to spreads, spread income continues to grow with spread-based products now representing 28% of total account balances, net of reinsurance of three percentage points year over year. RILA account balances increased 11% over the prior year quarter, and now represent 21% of total balances, also net of reinsurance, making RILA the primary driver of spread growth. Stepping back, while the recent market declines could be a headwind to fee income, our strategic emphasis on diversifying our product mix to increase the proportion of spread-based products, coupled with disciplined expense management, position annuities to remain a steady contributor to earnings and free cashflow throughout 2025. Retirement plan services posted first quarter operating income of $34 million, compared with $36 million a year ago, driven by a one-time operational loss related to a plan termination. Excluding this impact, earnings were essentially unchanged as growth from equity markets offset the impact of stable value outflows. Our base spread increased to 103 basis points, two basis points above the fourth quarter, and one basis point above the prior year period. We continue to expect spreads to stabilize at current levels. Net outflows were 2.2 billion, stemming from a previously announced large plan termination. Excluding this termination, net flows were positive. Sales momentum remained strong, while total deposits grew 8%, driven by a 13% increase in recurring deposits. Average account balances grew 10% year-over-year to $113 billion. End-of-period balances were $109 billion, down 3% sequentially, reflecting both market volatility and the large case termination. As a rule of thumb, we expect roughly a $2 million impact to annualized earnings for every 1% change in retirement AUM due to markets. Although year-over-year headwinds could persist in the interim, we are focused on transforming this business by prioritizing initiatives that will lead to sustainable earnings growth over time. Lastly, turning to life insurance. Life reported a first quarter operating loss of $16 million compared to an operating loss of $35 million in the prior year quarter. improved mortality and lower net gna expenses were partially offset by lower alternative investment returns turning to mortality despite the seasonal headwinds typical of the first quarter mortality improved sequentially with claim incidents and severity better than our expectations severity in particular normalized meaningfully after the elevated impact from a handful of large claims in the prior quarter now touching on expenses Net G&A expenses declined 11 million or 8% versus the prior year quarter, reflecting the targeted actions we've taken to align our cost structure with our product and distribution repositioning. We expect these actions to remain a key driver of year over year earnings growth in 2025. Moving on to alternative investment returns. As a reminder, the majority of our alternatives portfolio is allocated to our life business, supporting the long duration nature of these liabilities. During periods of market volatility, returns may vary both positively and negatively. Despite recent variability, we've achieved alternative investment returns averaging over 10% annually during the past five years. Looking ahead to the second quarter, while continued market volatility could create additional near-term pressure on returns, over time we anticipate these returns will converge toward our historical averages, ultimately providing a meaningful tailwind to earnings growth in the life business. Overall, first quarter results reflect mortality experience that improved sequentially and returned to levels more in line with our expectations, while also realizing the benefits of operating with a streamlined expense base aligned with our focus on profitable growth. Now for a brief update on capital. We again ended the quarter with an estimated RBC ratio well above 420%, consistent with our strategy of maintaining a capital buffer above our 400% target. As we've previously indicated, we consider this 20 percentage point buffer a cushion to help manage through a normal recessionary environment. Additionally, de-levering remains a strategic priority for the organization, and we made additional strides in reducing our leverage in the quarter. We ended the quarter with a leverage ratio of 27.5%, a sequential improvement of 30 basis points, predominantly driven by organic equity growth. And compared to the prior year quarter, our leverage ratio has improved over 250 basis points. Now shifting to our investment performance in the quarter. Overall performance remained solid in the first quarter, a reflection of our high quality and well-diversified portfolio and our ongoing emphasis on optimizing our investment strategy. Our alternative investment portfolio delivered a 1.9% return in the quarter, modestly below our 2.5% target. As I mentioned earlier, given the current market backdrop, near-term results could continue to be volatile, but we remain well-positioned to deliver returns in line with our historical performance over time. Lastly, I'd like to recap the strategic partnership we announced a few weeks ago with Bain Capital for those who are unable to join our call. First, a brief overview of the transaction. Bain Capital will be taking a 9.9% common equity stake in Lincoln at $44 per share, a 25% premium to the 30-day volume weighted average price as of April 8th, with total cash consideration of roughly $825 million. Those shares carry a three-year lockup after which Bain may sell one-third at each subsequent anniversary after the third year. At the same time, we will enter into a non-exclusive investment management agreement focused on targeted asset classes that include private and structured credit, residential mortgage loans, and private equity, among others. We will commit $1.4 billion of AUM shortly following the close of the transaction, growing to at least $20 billion by the end of year six. Second, as it relates to some of the key terms, it's important to understand that the IMA is a 10-year contract, though with the expectation of a much longer partnership. The ultimate investment management fees are in line at an asset class level with the fees we are currently paying today, and there's no exclusivity to any of the asset classes, allowing us to maintain our multi-manager framework, which was critical to us. And then third, as it relates to the rationale for the deal, I would think of three key drivers. First, we've talked a lot about our strategic priority of growing spread-based products, RILA, fixed annuities, and FABN as key examples. Finding a strategic partner to help scale the asset sourcing needed to be successful in a bigger way there was critical. With Bain's ownership stake then providing the appropriate alignment to support shared success, Second, the equity capital provided will allow us to accelerate that growth over the next few years while maintaining the flexibility around deployment in other areas such as optimizing our legacy life portfolio or future capital returns to shareholders. And then third, if you step back, the insurance industry has been going through an evolution over the past decade as alternative investment firms have been able to add considerable value to the insurance universe. You're seeing it in general account investing, in product development, in distribution, and in capital sourcing. With this transaction, Lincoln and Bain Capital have committed to working together to grow existing products and explore the development of new ones. This is a partnership that reflects an innovative mindset that we believe will further differentiate us competitively and generate superior value for our shareholders, customers, distribution partners, and other stakeholders over time. We couldn't be more thrilled to enter this long-term strategic partnership with Bain Capital. Before I conclude, I'd like to expand briefly on Ellen's earlier comments regarding the current market environment. Downturns in markets can impact our earnings similar to many of our peers, with potential examples including lower AUM impacting fee income, higher volatility impacting hedge costs, and the potential for elevated credit losses should the economy enter a recession. However, it's worth reiterating the steps we've taken over the past two years to better insulate Lincoln from the impacts of a slowdown as we potentially head into a period of more uncertainty around the economy. While we've discussed these in the past, it's important to reemphasize some of the strategic initiatives that have been guiding the steps we've been taking. First is foundational capital. So whereas historically Lincoln targeted a 400 RBC ratio, as a reminder, over the past two years, we've taken steps to build a buffer over that 400 level with the 20 points of RBC on top of the 400 designed to provide some cushion should we enter a prolonged downturn in the economy, with 1Q now representing the fourth quarter in a row of RBC in excess of that 420 level. The second has been working toward minimizing the volatility of that capital. Examples here include the incremental hedge programs we've deployed in certain legacy variable blocks, discontinuing some of the variable life products with outsized capital volatility, and the general focus on increased risk sharing in certain products of targeted growth. Then lastly, we've talked a lot about the deliberate goal of diversifying our source of earnings and growing businesses with less equity market sensitivity. And a great example has been the strategic emphasis of growing our group business, which went from contributing less than 10% of our operating earnings mix pre-COVID to over 25% today. Overall, while we are monitoring the market headwinds that emerged at the start of the second quarter and the potential impact those may have on the broader economic environment, we are confident the steps we have taken will position us for growth. We are pleased with another solid quarter of strong execution against our strategic and financial priorities, and we remain focused on disciplined execution and remain confident in our ability to generate long-term shareholder value. With that, let me turn the call back over to Tina.