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Lincoln National Corp (LNC) Q1 2024 Earnings Call Transcript Highlights: Strategic Progress ...

GuruFocus Research
·4 min read

  • Adjusted Operating Income: $71 million or $0.41 per share.

  • Net Income: $1.2 billion or $6.93 per diluted share.

  • Annuities Operating Income: $259 million, with ending account balances up 5% sequentially.

  • Group Protection Operating Income: $80 million with a margin of 6.2%.

  • Retirement Plan Services Operating Income: $36 million, with a decline driven by stable value outflows and crediting rate actions.

  • Life Insurance Operating Loss: $35 million, with mortality generally in line with expectations.

  • Alternative Investments Return: Annualized 9% or $78 million for the quarter.

  • Estimated RBC Ratio: Between 400% to 410%.

  • Commercial Mortgage Loan Portfolio: Represents 15% of total invested assets, with strong performance and conservative positioning.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Annuities business reported its highest earnings quarter in nearly 2 years, showing strong performance and growth.

  • 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 7 quarters.

  • The company is making strategic investments to enhance digital and self-service capabilities, improving customer interaction and operational efficiency.

  • Lincoln National Corp is progressing well with its strategic repositioning, focusing on businesses and products with more stable cash flows and maximizing risk-adjusted returns.

Negative Points

  • Life business experienced year-over-year and sequential declines in sales due to strategic realignment and de-emphasis on long-term guarantees.

  • Significant items impacted the quarterly results negatively by $170 million or $1 per share, including legal accruals and severance costs.

  • Fixed Annuity sales were down year-over-year, reflecting challenges in maintaining competitive positioning amidst new market entrants.

  • Retirement Plan Services reported a decline in earnings year-over-year due to lower spread income.

  • The company's overall results were impacted by a handful of significant items, despite underlying results being better than expectations.

Q & A Highlights

Q: Can you provide an update on your progress towards affiliated reinsurance in Bermuda? A: Christopher Michael Neczypor, Executive VP & CFO of Lincoln National Corporation, stated that there is no significant update from the last quarter regarding the affiliated reinsurance in Bermuda. The company continues to make progress and remains focused on this initiative.

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Q: How is the hedging program performing, especially in relation to the capital position in LNBar? A: Christopher Michael Neczypor explained that the hedging program is performing well, with the company maintaining excess capital from a regulatory perspective approximately 1.5 years into the program. They are pleased with the performance and will consider the possibility of taking a dividend as the year progresses.

Q: What are your thoughts on the cadence of fixed annuity sales and the potential for capital optimization through flow reinsurance? A: Ellen R. Gail Cooper, Chairman, President & CEO, noted that while fixed annuity sales were down year-over-year, the company has built capabilities to maintain a consistent presence in the fixed marketplace. This includes a capital-efficient solution and strategic asset allocation, contributing to a strong sales pipeline moving into 2024.

Q: Are there any plans regarding the capital structure, particularly with upcoming debt maturities? A: Christopher Michael Neczypor discussed the company's focus on maintaining a buffer over 400 RBC, aiming for 420. Post the Osaic transaction, they plan to reduce overall debt levels and prioritize repaying high-cost capital, such as the preferred equity due in 2027.

Q: Can you discuss the year-over-year decline in Annuity sales and how it compares with competitors? A: Ellen R. Gail Cooper addressed the decline in Annuity sales, emphasizing the company's focus on capital efficiency and achieving target returns. She highlighted the upcoming launch of a refreshed RILA product, expected to drive differentiation and growth in a competitive market.

Q: What is the status of the Life Insurance business, particularly in light of the losses adjusted for notable items? A: Christopher Michael Neczypor clarified that the first quarter typically experiences heavier seasonality related to mortality, which impacts the Life Insurance business. He reiterated that the quarter's results were in line with expectations, considering the seasonal factors and the impact of the Fortitude Re transaction.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.