Executive Summary / Key Takeaways

• Lincoln National Corporation is executing a multi-year transformation focused on enhancing risk-adjusted returns, reducing earnings volatility, and driving profitable growth through strategic shifts in its business mix and operational efficiencies.
• The company delivered strong third-quarter 2025 results, marking its fifth consecutive quarter of year-over-year adjusted operating income growth, underpinned by robust sales in Annuities and Group Protection, and a significant improvement in Life Insurance earnings.
• Capital strength remains a core tenet, with the estimated Risk-Based Capital (RBC) ratio well above the 420% buffer, supported by proceeds from the Bain Capital partnership and disciplined capital deployment into strategic initiatives.
• Lincoln is actively reshaping its portfolio by emphasizing capital-efficient, spread-based products in Annuities and Group Protection, optimizing its legacy Life Insurance block, and scaling institutional funding agreements, all aimed at improving long-term free cash flow conversion.
• Technological investments in digital capabilities, InsurTech integration, and product innovation are differentiating Lincoln in competitive markets, enhancing customer experience, and supporting its strategic pivot towards higher-margin business.

A Legacy of Adaptation and Strategic Pivots

Lincoln National Corporation, operating under the Lincoln Financial brand, has a rich history dating back to 1905, evolving into a diversified financial services powerhouse in the United States. The company offers a comprehensive suite of wealth accumulation, wealth protection, group protection, and retirement products. Its journey has been marked by continuous adaptation, from significant reinsurance agreements in 2001 with Swiss Re (SRE) to its strategic entry into the Registered Index-Linked Annuities (RILA) market in 2018, which has since become a vital driver of spread-based earnings growth.

The period leading into 2023 initiated a profound multi-year strategic transformation. This involved building a robust capital foundation, optimizing the operating model for efficiency, and pursuing profitable growth with a focus on more stable cash flows. This strategic pivot is evident in the Group Protection business, which saw its margin improve from 1% in 2022 to 5.5% in 2023. Key actions in 2023 included significant reinsurance agreements with Fortitude Reinsurance Company Ltd. for blocks of in-force Universal Life with Secondary Guarantees (ULSG), MoneyGuard, and fixed annuity products. Further strengthening its financial position, Lincoln sold its wealth management business in the second quarter of 2024 and launched its Bermuda-based reinsurance subsidiary, LPINE, in the same year. These initiatives culminated in an estimated RBC ratio exceeding 430% by the end of 2024, alongside targeted expense reductions and an enhanced investment strategy, contributing to a 16% improvement in full-year 2024 adjusted income from operations.

The strategic evolution continued into 2025 with pivotal developments. In May, Lincoln issued $500 million in 2.33% Senior Notes due 2030, utilizing the proceeds to extinguish existing debt, and subsequently entered into a facility for $1 billion in 6.79% Senior Notes due 2055. A landmark event occurred on June 5, 2025, with the closing of a long-term strategic partnership with Bain Capital. This involved Bain Capital acquiring a 9.9% common equity stake for $825 million and establishing a 10-year, non-exclusive investment management agreement for a portion of Lincoln's general account assets. This partnership aims to expand scale and private asset origination, further accelerating Lincoln's strategic objectives. By the third quarter of 2025, Lincoln had fully transitioned to retaining all of its fixed annuity business, exiting external flow reinsurance agreements to enhance spread-based earnings. The company also launched new private market funds in partnership with Bain Capital and Partners Group (PGPHF) in September 2025, further diversifying its product offerings and investment capabilities.

Technological Edge: Fueling Efficiency and Differentiation

Lincoln National Corporation's competitive differentiation is increasingly rooted in its strategic investments in technology and innovation, which are integral to its operating model and product development. The company is actively modernizing its service model and advancing digital offerings to deliver a more integrated and seamless customer experience. This expanded technological infrastructure provides real-time insights, enabling faster, data-driven decisions across its businesses.

A core aspect of this technological advantage lies in its InsurTech capabilities, which facilitate direct connections into benefits administrative systems. This integration significantly enhances ease of use and access for customers, a benefit particularly pronounced in local markets where smaller businesses often seek streamlined solutions. Furthermore, Lincoln is developing and deploying advanced digital tools for brokers, employers, and employees. These tools are designed to boost productivity, efficiency, and effectiveness throughout the sales and service lifecycle. The company's expertise in lead management also serves as a key differentiator, assisting employers and employees in navigating the complexities of various benefits, including paid family leave, short-term disability, long-term disability, and supplemental health. Automated sales processes for new business in both the life and annuity segments further streamline operations and improve efficiency.

Product innovation is another area where technology provides a competitive edge. In its RILA offerings, Lincoln differentiates through distinctive and expanded product features and crediting strategies, such as the unique index features of its second-generation RILA product. For Fixed Indexed Annuities (FIAs), recent enhancements include a new 1 Year Cap Lock account tracking the S&P 500® and an exclusive 1 Year Participation account tracking the Nasdaq Priva™ Index, available with Lincoln OptiBlend® FIAs, designed to offer greater upside growth opportunity and diversification. In Life Insurance, the company launched Lincoln WealthBuilderSM ECV IUL, an accumulation-focused product with early cash value benefits, as part of its new Elite Indexed Universal Life (IUL) Portfolio. Additionally, within Variable Annuities, the exclusive LVIP American Funds Vanguard Active Passive Growth Fund provides a unique investment option.

The strategic partnership with Bain Capital is expected to further amplify these technological and investment advantages. This collaboration aims to provide unique asset sourcing capabilities and differentiation in asset strategy, accelerating growth in spread-based products. The launch of new private market funds, such as the Lincoln Bain Capital Total Credit Fund and the Lincoln Partners Group Royalty Fund, leverages Lincoln's distribution leadership and experience in managing mutual fund complexes. For investors, these technological and innovation efforts are critical. They strengthen Lincoln's competitive moat by enhancing customer engagement, improving operational efficiency, enabling differentiated product offerings, and supporting capital-efficient growth. These advancements are crucial for attracting and retaining customers, driving profitable sales, and achieving higher risk-adjusted returns in a competitive and evolving market.

Disciplined Execution: Q3 2025 Financial Performance

Lincoln National Corporation delivered robust financial results in the third quarter of 2025, marking its fifth consecutive quarter of year-over-year adjusted operating income growth. This performance underscores the company's broadening momentum and disciplined execution of its strategic priorities. Adjusted operating income available to common stockholders for Q3 2025 was $397 million, or $2.04 per diluted share. Net income available to common stockholders for the same period was $411 million, or $2.12 per diluted share. The annual assumption review in Q3 2025 resulted in a minor $2 million net benefit to adjusted operating income, reflecting a continued alignment between underlying experience and go-forward expectations.

Alternative investment returns in Q3 2025 were largely in line with expectations, delivering an annualized return of just under 10%, or $101 million after tax, which was $2 million below target. The company's investment yield on invested assets improved to 4.64% for Q3 2025, up from 4.37% in Q3 2024. Gross unrealized losses on fixed maturity available-for-sale (AFS) securities decreased by $2 billion for the nine months ended September 30, 2025. Management has affirmed that these unrealized losses did not necessitate an impairment recognition in earnings, citing no intent to sell these securities before recovery of their amortized cost, and attributing the difference to factors other than credit loss. The effective tax rate for Q3 2025 was 15%, while for the nine months ended September 30, 2025, it was 0% due to pre-tax losses incurred in the first quarter of 2025.

Segmental Performance Highlights (Q3 2025)

Annuities: This segment reported operating earnings of $318 million, an $18 million year-over-year increase. This growth was primarily driven by higher average account balances, net of reinsurance, and sustained growth in spread income. Sales reached $4.5 billion in Q3 2025, with spread-based products, including fixed annuities and RILA, accounting for 63% of new business. Fixed annuity sales increased by 36% year-over-year, and RILA sales grew by 21% year-over-year. RILA account balances increased 16% over the prior year quarter, representing 22% of total balances, net of reinsurance. The company's strategic shift to fully retain all fixed annuity business is expected to enhance spread-based earnings over time.

Life Insurance: The Life Insurance segment delivered operating earnings of $54 million, a significant improvement from $14 million in the prior year quarter. This turnaround was attributed to the stabilization of mortality experience, increased investment income, and continued expense discipline. Sales were approximately $300 million in Q3 2025, with executive benefits contributing two-thirds of that volume. Net General & Administrative (G&A) expenses declined 4% year-over-year, reflecting ongoing underlying efficiency.

Group Protection: Operating earnings for Group Protection were $110 million, consistent with the prior year's record third quarter. The segment's margin was 8.1%, a modest decline of 40 basis points year-over-year, primarily due to a moderation in the disability loss ratio, which rose to 76.7% (excluding assumption review impacts) from 70.5% in Q3 2024. This was influenced by a month of unfavorable severity in LTD experience and lower LTD recoveries, though LTD incidence remained positive. Conversely, Group life results remained strong, with a loss ratio of 65.3% (excluding assumption review impacts), down from 71.8% in Q3 2024. Premium growth was 5% year-over-year, and sales growth was nearly 40% year-over-year, with supplemental health sales increasing 33% year-over-year.

Retirement Plan Services (RPS): RPS reported operating income of $46 million, a slight increase from $44 million in the prior year quarter. This improvement was driven by higher account balances amidst a favorable equity market backdrop and spread expansion. First-year sales reached $2.4 billion, and total deposits increased 20% year-over-year, resulting in positive net flows of $755 million. Average account balances increased nearly 8% year-over-year, with end-of-period balances reaching $123 billion. Base spreads were 107 basis points, reflecting normalization after a prior-quarter administrative adjustment.

Fortifying the Balance Sheet: Capital and Liquidity

Lincoln National Corporation's capital position remains a cornerstone of its strategic transformation. The company consistently maintains an estimated RBC ratio well above its 420% buffer, providing a strong excess capital position above its target. This robust capital base has been significantly bolstered by the proceeds from the Bain Capital partnership and growth in retained free cash flow.

In a strategic move to optimize its business mix, Lincoln fully transitioned to retaining all fixed annuity business originated, exiting its external flow reinsurance agreement. A portion of the Bain transaction proceeds will be strategically deployed to support this retention, leveraging the Bermuda-based affiliate and an optimized asset allocation framework to expand profitability over time. The institutional funding agreement program has also scaled significantly, with $1.9 billion in issuance completed year-to-date in 2025, further contributing to the company's spread-based earnings growth.

Debt management remains a priority. The net proceeds from the issuance of $500 million in 2.33% Senior Notes due 2030 were utilized to early extinguish long-term debt during the second quarter of 2025 through a tender offer. The company also entered into the Trust II Facility Agreement for $1 billion in 6.79% Senior Notes due 2055. As of September 30, 2025, Lincoln had $139 million of outstanding borrowings from its inter-company cash management program, primarily for liquidity management. The company maintains substantial liquidity resources, including an estimated maximum borrowing capacity of $7 billion under the FHLBI facility, with $4.6 billion available based on qualifying assets, and $2 billion outstanding. Additionally, Lincoln Life Annuity Company of New York (LLANY) has an estimated maximum borrowing capacity of $750 million under the FHLBNY facility, with no outstanding borrowings. The company also had access to $2.6 billion through committed repurchase agreements, none of which were utilized as of September 30, 2025. The net collateral payable position on derivative contracts increased to $8.7 billion as of September 30, 2025, from $7.1 billion as of December 31, 2024.

Competitive Landscape: Strategic Positioning and Differentiation

Lincoln National Corporation operates within a competitive yet rational U.S. insurance and retirement services market, contending with major players such as MetLife (MET), Prudential Financial (PRU), American International Group (AIG), and Principal Financial Group (PFG). Lincoln's strategic positioning leverages its strong brand heritage, extensive distribution channels, and deep regulatory expertise to carve out distinct advantages.

In the annuities market, Lincoln's go-to-market strategy, combined with its broad product suite and consultative wholesaler model, enables it to broaden addressable markets and reach more customers. The company differentiates itself through innovative features and crediting strategies in RILA products, and by offering unique product features in fixed indexed annuities that are not available on all competitor platforms. While the market remains competitive, Lincoln's focus on profitable growth over pure top-line sales ensures that new business meets its 12% plus return targets. For instance, in fixed annuities, Lincoln has focused on securing placement on "walled gardens" – platforms with a smaller number of competitors – and developing unique crediting strategies that compete on value beyond just price.

In Group Protection, Lincoln emphasizes servicing customers with excellence as a strategic differentiator. Its investments in InsurTech, digital tools for brokers, employers, and employees, and lead management expertise provide a competitive edge, particularly in local markets and for complex benefit navigation. This focus on integrated solutions and ease of use helps build more persistent client relationships, even while implementing rate increases. Lincoln's leadership in disability and leave management expertise further differentiates its value proposition in the national segment.

Compared to its rivals, Lincoln's strengths lie in its niche expertise in retirement plan services, offering comprehensive compliance and education tools that foster strong customer loyalty, particularly among mid-sized employers. Its regulatory and compliance expertise allows for faster innovation cycles in compliance-heavy products, potentially leading to stronger customer retention and capital efficiency. However, Lincoln may face vulnerabilities in technological integration and global reach compared to more diversified players like MetLife or Prudential Financial, which could impact its ability to capture market share in rapidly evolving digital insurance solutions. While direct quantitative comparisons of market share for all niche competitors are challenging to ascertain, Lincoln's strong performance in its targeted segments suggests effective execution within its chosen competitive arenas. The strategic partnership with Bain Capital is designed to address potential gaps by enhancing asset sourcing and differentiation in investment strategy, which is crucial for maintaining competitiveness in spread-based products.

Outlook and Guidance: A Path to Sustainable Value

Lincoln National Corporation is poised for continued momentum, with management expressing increased confidence in its long-term outlook. For the full year 2025, the Group Protection business is expected to achieve a margin in the mid-to-upper 8% range, representing approximately a 50 basis point improvement year-over-year. This projection is underpinned by disciplined pricing, diversification into higher-margin segments like local markets, and growth in supplemental health, despite an anticipated normalization in disability resolution rates. Looking further ahead to 2026, Group Protection is expected to sustain continued premium growth and underlying earnings improvement, supporting a margin at or above 8%.

In Life Insurance, the company anticipates a return to positive and growing earnings over time. This will be driven by strategic actions to right-size the expense base, a deliberate shift towards accumulation and protection products with more risk-sharing features, and an expectation of normalized mortality trends alongside continued spread expansion. The third quarter of 2025 is considered a good run rate for the business's underlying earnings power, once seasonal factors are accounted for, with future growth expected from increased net investment income and sustained expense discipline.

The Annuities business is guided toward continued success, with a strategic focus on diversifying its product mix towards spread-based offerings, particularly fixed annuities and RILA. The Bermuda-based reinsurance affiliate, Alpine, is a key enabler, optimizing internal and external reinsurance to retain more earnings from new fixed annuity business. While this transition may lead to slightly higher near-term acquisition expenses, it is expected to enhance long-term profitability. The Bain Capital partnership is also anticipated to accelerate growth in spread-based products by improving asset sourcing capabilities and providing additional capital.

For Retirement Plan Services (RPS), modest earnings growth is expected in 2025, supported by moderating spread compression, higher account balances, and continued expense discipline. A robust new business pipeline is expected to translate into sales growth later in 2025, leading to positive net flows despite some anticipated plan terminations. Management expects RPS base spreads to stabilize at current levels throughout the first half of 2025, followed by modest expansion in the second half of the year.

Lincoln has updated its 2026 outlook, widening the upper bound of expectations for free cash flow conversion from 45-55% to 45-60%. This reflects increased confidence in the ongoing business mix shift towards segments with higher free cash flow, improved capital efficiency of new sales, and the optimization of legacy blocks. Concurrently, the leverage ratio target for 2026 was improved from 25-28% to 25-26.5%, driven by expected organic equity growth and potential delevering actions. The company's management explicitly bases its outlook on a "relatively constructive economic backdrop" and continued "disciplined execution" of its strategic initiatives.

Key Risks and Challenges

Despite the positive trajectory, Lincoln National Corporation faces several risks and challenges. Litigation and regulatory matters, such as the ongoing appeals related to the Glover class action settlement and the Donald C. Meade putative class action, present potential financial exposures, with estimated reasonably possible losses up to approximately $150 million after-tax as of September 30, 2025. While management does not believe these are likely to have a material impact, adverse outcomes could affect consolidated financial statements.

A downgrade in the company's financial strength or credit ratings could trigger terms in derivative agreements and/or certain repurchase agreements, negatively impacting overall liquidity and potentially affecting contractual selling agreements with intermediaries, thereby hurting product sales. The effectiveness of Lincoln's hedging programs, while explicitly targeting capital, is subject to market volatility, timing differences, policyholder behavior, and basis risk, which could lead to unexpected changes in the fair value of guaranteed benefit riders.

Market volatility, including lower assets under management (AUM), higher hedge costs, and elevated credit losses, particularly in a recessionary environment, remains a concern. The company is also monitoring the normalization of favorable macroeconomic tailwinds, such as the record-low disability incidence rates that benefited Group Protection in 2024. Furthermore, the commercial mortgage loan portfolio, especially the office segment, is in a longer-term transition, requiring close monitoring.

Conclusion

Lincoln National Corporation is undergoing a profound and disciplined transformation, moving with conviction to enhance its risk-adjusted return on capital, reduce earnings volatility, and drive profitable growth. The company's strategic pivots, supported by a strong capital foundation, an optimized operating model, and a relentless focus on capital-efficient, spread-based businesses, are yielding tangible results. The robust third-quarter 2025 performance, marked by consistent adjusted operating income growth and strategic advancements across all segments, underscores the effectiveness of its execution.

Technological investments and product innovation are sharpening Lincoln's competitive edge, enabling differentiated offerings and streamlined customer experiences in a dynamic industry. The strategic partnership with Bain Capital further amplifies these capabilities, promising enhanced asset sourcing and accelerated growth. With a clear path to improving free cash flow conversion and reducing leverage, Lincoln is building a more resilient and diversified enterprise. While market volatility and litigation risks persist, the company's proactive risk management, disciplined capital deployment, and commitment to strategic initiatives position it for sustained long-term value creation, making it a compelling consideration for discerning investors.