Lincoln National Corporation (LNC) is a diversified insurance and retirement solutions provider that operates through four key business segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services. The company has a strong market presence and a trusted brand, leveraging its product portfolio and distribution prowess to meet the evolving needs of its customers.

In the fiscal year 2023, Lincoln National reported annual net income of -$752 million, annual revenue of $14,023 million, annual operating cash flow of -$2,074 million, and annual free cash flow of -$2,074 million. While the company faced some headwinds during the year, it has been actively executing a strategic repositioning to drive sustainable growth and improve profitability, operational efficiency, and capital flexibility.

For the first quarter of 2024, Lincoln National reported adjusted operating income available to common stockholders of $71 million, or $0.41 per share. This result was impacted by several significant items, including a $39 million impact from severance in the Other Operations segment, a $90 million legal accrual, and a $19 million balance sheet true-up related to the sale of the company's Wealth Management business. Excluding these items, the company's underlying results exceeded expectations, demonstrating progress in executing its strategic priorities.

Business Overview

Lincoln National operates through four key business segments:

Annuities

: The Annuities segment offers a range of fixed and variable annuity products, including registered index-linked annuities (RILAs), that provide customers with asset accumulation, retirement income, and protection solutions. This segment has been a strong performer for the company, with the Annuities business reporting its highest earnings quarter in nearly two years in the first quarter of 2024.

Life Insurance

: The Life Insurance segment provides a variety of life insurance products, including universal life, variable universal life, and term life insurance, to help customers protect their families and achieve their financial goals. The company is strategically realigning this segment to focus on products with more stable cash flows and higher risk-adjusted returns.

Group Protection

: The Group Protection segment offers group life, disability, and dental insurance products to employers and their employees, as well as to other institutions and their affiliates. This segment has been a key focus for Lincoln National, with the company prioritizing margin expansion over top-line growth and achieving a strong quarter of year-over-year earnings growth and margin expansion in the first quarter of 2024.

Retirement Plan Services

: The Retirement Plan Services segment provides employer-sponsored retirement plan products and services, including defined contribution plans, defined benefit plans, and nonqualified deferred compensation plans. This segment has seen robust sales growth, with first-year sales increasing more than 50% year-over-year in the first quarter of 2024.

Financials

Lincoln National's financial performance in the first quarter of 2024 was impacted by several significant items, as mentioned earlier. Excluding these items, the company's underlying results exceeded expectations, demonstrating progress in executing its strategic priorities.

In the Annuities segment, the company reported operating income of $259 million, which included $31 million in unfavorable significant items. Excluding these items, Annuities earnings increased $27 million year-over-year due to the benefits of higher average account balances and improvements in spread income. The segment's ending account balances increased 5% sequentially, driven by favorable equity markets.

The Group Protection segment reported operating income of $80 million, with a margin of 6.2%, compared to $71 million and a margin of 5.6% in the prior-year quarter. The improvement was driven by continued diversification of the business, execution of the company's pricing strategy, and disciplined expense management.

The Retirement Plan Services segment reported operating income of $36 million, compared to $43 million in the prior-year quarter. The decline was primarily driven by continued participant-driven stable value outflows and crediting rate actions, partially offset by an increase in fee income from higher account balances.

The Life Insurance segment reported an operating loss of $35 million, compared to a loss of $13 million in the prior-year quarter. The results were impacted by the run-rate effects of the Fortitude Re transaction, partially offset by improved alternative investment income.

Looking ahead, Lincoln National remains focused on executing its strategic repositioning to drive sustainable growth and improve profitability, operational efficiency, and capital flexibility. The company is confident in its ability to deliver results that will drive long-term value creation for shareholders, leveraging its powerful franchise, trusted brand, distribution prowess, and broad product portfolio.

Liquidity

As of March 31, 2024, Lincoln National had an estimated risk-based capital (RBC) ratio in the range of 400% to 410%, in line with year-end 2023. The company's capital position has been supported by stronger equity markets, which helped to partially offset the impacts from the legal accrual and severance expenses.

Lincoln National has been actively managing its capital structure, including the recent issuance of $350 million in senior notes due 2034. The company plans to use the proceeds from this issuance to fund the repayment of its 3.35% Senior Notes due 2025 and possible repurchases of other outstanding debt securities.

Additionally, the company expects to receive a capital benefit of approximately $650 million from the sale of its Wealth Management business to Osaic, which is expected to close this month. This transaction will provide Lincoln National with additional capital to support its RBC buffer and increase financial flexibility.

Risks and Challenges

Lincoln National faces several risks and challenges as it navigates its strategic transformation:

1. Equity market volatility: The company's Annuities and Retirement Plan Services segments are exposed to equity market risk, which can impact account balances and earnings.

2. Interest rate environment: Changes in interest rates can affect the company's ability to earn spreads on its fixed annuity and life insurance products, as well as the valuation of its investment portfolio.

3. Competitive landscape: The insurance and retirement solutions industry is highly competitive, and Lincoln National must continue to innovate and differentiate its product offerings to maintain its market position.

4. Regulatory environment: The company operates in a heavily regulated industry, and changes in laws and regulations could impact its business operations and financial performance.

5. Execution risk: The successful execution of Lincoln National's strategic repositioning is critical to achieving its long-term objectives, and any missteps could negatively impact the company's performance.

Conclusion

Lincoln National Corporation is a diversified insurance and retirement solutions provider that is actively executing a strategic repositioning to drive sustainable growth and improve profitability, operational efficiency, and capital flexibility. While the company faced some headwinds in the first quarter of 2024, its underlying results exceeded expectations, demonstrating progress in executing its strategic priorities.

The company's four business segments – Annuities, Life Insurance, Group Protection, and Retirement Plan Services – each play a critical role in Lincoln National's transformation. The Annuities business continues to be a strong performer, the Group Protection segment is delivering improved margins, and the Retirement Plan Services segment is seeing robust sales growth.

Looking ahead, Lincoln National remains focused on optimizing its operating model, enhancing its product portfolio, and leveraging its distribution capabilities to meet the evolving needs of its customers. With a strong capital position, the company is well-positioned to navigate the challenges of the insurance and retirement solutions industry and deliver long-term value for its shareholders.