The operator of the conference call introduces the participants and gives instructions for the question and answer portion. Tina Madon, Senior Vice President and Head of Investor Relations, thanks the participants and directs them to the company's website for relevant documents. She also provides a reminder that any statements made during the call about future expectations, actions, or trends are considered forward-looking statements and may be subject to risks and uncertainties.

The article discusses the risks and uncertainties facing the company, as well as their progress in repositioning and strengthening their business. The company has made significant strides in repairing their balance sheet, delivering organic growth, and building their leadership team. Their focus for the future will continue to be on strengthening their balance sheet.

In 2023, the company closed a reinsurance transaction and announced the sale of their wealth management business, which are expected to improve their capital position and free cash flow. Their RBC ratio also increased above their target and is expected to improve even further with the sale. The company is also making progress in shifting to a more capital-efficient mix in all their businesses. The group protection business showed strong growth and profitability. The leadership team has executed well and is refining the strategy for future transformation. The company is investing in technology and infrastructure to support future growth.

The company delivered improved operating performance in the fourth quarter and full year, with strong sales in annuities and stable earnings in life insurance. They are actively addressing expenses and exploring strategic initiatives for growth. Annuity sales reached a record high in the quarter, driven by fixed annuities and expected to grow with new product enhancements. Life insurance sales declined due to a strategic realignment towards more stable products.

The company expects the shift towards higher-margin products to continue, with a focus on workplace solutions such as group protection and retirement plans. They have seen strong growth and earnings in this segment, driven by pricing actions and a favorable external environment. The company is also investing in infrastructure and customer experience to support future growth and margin expansion.

The company's retirement plan services experienced lower sales due to a decrease in demand for stable value products caused by higher interest rates. However, the company's employer retention remained strong and recurring deposits increased. The company is taking actions to improve the business and has a positive outlook for future growth and profitability. The company's strategic priorities include strengthening their balance sheet, improving free cash flow, and growing their franchise profitably.

The company has three key advantages that will help them expand their market leadership: leveraging distribution strength, emphasizing products in core markets, and offering a customer-centric service model. They plan to grow and diversify their business across products and size segments, with a focus on stable cash flows and higher returns. They are also evaluating strategic initiatives to strengthen their capital foundation and optimize their operating model. The company is at an important point in their journey and the outlook for the future looks promising.

Chris Neczypor recapped the company's solid results for the fourth quarter and highlighted their progress in executing strategic priorities, strengthening their balance sheet, and focusing on profitable growth. He discussed three main areas: the company's full year and fourth quarter results, their investment portfolio, and their financial outlook. The company reported adjusted operating income available to common stockholders of $246 million in the fourth quarter, with two items to note: alternative investments falling below their target and a one-time favorable item in their Annuities business. Net income for the quarter was a net loss of $1.2 billion.

The paragraph discusses the financial results of a company's nonoperating income, specifically focusing on the negative impact of lower interest rates and the performance of their VA hedge program. The segment results for Group Protection are also mentioned, with an increase in operating income compared to the previous year due to improvements in both disability and life loss ratios. The full year results for Group Protection are also briefly touched upon, showing a significant increase in operating income compared to the previous year.

The company's margin expansion efforts have led to improved financial results, with a focus on achieving a sustainable margin of 7%. Annuities and Retirement Plan Services have both reported decreases in operating income, but the company expects improvement in these areas in 2024. Annuities will continue to be a key driver of earnings and free cash flow, while Retirement Plan Services were impacted by higher expenses and stable value outflows due to interest rate changes.

In the quarter, the company saw a 9% increase in average account balances, reaching over $100 billion for the first time. The Life Insurance segment reported an operating loss of $6 million, with the impacts of the Fortitude transaction and annual assumption review being offset by improved alternative investment income. The company expects some headwinds in the life business to lessen in the next few years, with modestly positive earnings expected in 2024. The total invested assets decreased by $28 billion following the reinsurance transaction, in line with the company's investment strategy.

The company's investment portfolio remains strong, with a high credit rating and minimal losses. The commercial mortgage loan portfolio has also performed well, with no major issues or delinquencies. The company's alternative investments have generated solid returns. The outlook presentation on the company's website provides more detail on their strategic priorities and financial metrics, as well as an outlook for adjusted operating earnings in 2024.

The paragraph discusses the company's outlook and their plans for transformation. They plan to hold more capital, optimize their operating model, and focus on profitable growth. They also mention strategic financial and operational initiatives that will contribute to their growth and provide a timeline for their execution. The company acknowledges the potential challenges and uncertainties, but remains confident in their ability to increase free cash flow over the next few years.

The company has recently taken steps to reduce organizational complexity and optimize their structure, which will result in cost savings but may impact the first half of the year. They are also exploring ways to diversify their product strategy and potentially use affiliated reinsurance to drive profitable growth and improve free cash flow over the next few years. By 2026, they expect free cash flow conversion to improve and operating income to continue growing, driven by improvement across all business segments.

The drivers for growth in Annuities and Retirement Plan Services are expected to be low single digits, while the group and retail life businesses will see more significant growth due to improved mortality and spreads. The company plans to maintain a RBC level above 420% and is committed to minimizing capital volatility. The 2026 metrics should not be seen as long-term targets, as free cash flow conversion is expected to increase over time due to reserve building for the legacy Life portfolio becoming less of a drag.

The second dynamic for the company is the mix shift as they allocate capital to higher risk-adjusting businesses, which will lead to a higher free cash flow conversion of 65% to 75%. This is a multiyear journey, but the actions taken in 2023 and the confidence in executing initiatives outlined will enable sustainable growth for Lincoln in the future. In the Q&A portion of the call, the operator asked about the severance costs and how they should be considered in the context of 2024 cash flow. The company's response was that the goal of the outlook is to show the growth in income over the next couple of years and the expected free cash flow conversion in 2025. They also mentioned that there is some uncertainty around timing due to the various initiatives outlined on Page 8.

The company is working on initiatives that will improve free cash flow, but the timing and costs of these initiatives are uncertain. Expenses are expected to decrease in the future, and the company is implementing workforce reductions to increase efficiency. Free cash flow is calculated after interest expense at the Holdco. The company is focusing on affiliate reinsurance as a potential source of improvement in free cash flow.

The speaker is focused on identifying inefficiencies on the balance sheet and is considering utilizing other domiciles, such as Bermuda, in addition to Barbados. They believe it is prudent to have multiple tools in their toolkit for optimizing the capital framework and managing guarantees in the annuity block. The speaker also mentions their goal of reaching a 420 RBC and reducing debt through their 2026 plan. They ended the year at 400-410% RBC and plan to continue rebuilding capital.

The speaker is optimistic about the company's financial position, especially with the upcoming capital from a deal. They plan to use some of the proceeds to pay off debt and consider other options for reducing debt, such as managing liabilities. The speaker also mentions the high cost of preferred stock and the potential for free cash flow in 2026. The analyst asks about the lack of free cash flow from Life Insurance and the potential for further reserve strengthening. The speaker responds that they are confident in their balance sheet but do not provide specifics about the reserves.

The speaker thanks Tom for his question about free cash flow and explains that it is the capital generation minus the amount invested in new business. They assure that they will continue to invest in the Life business and that the Fortitude deal has helped derisk the GUL block. They also mention the move to a more capital-efficient product portfolio and the potential for improving new business capital through different jurisdictions and domiciles. The speaker clarifies that free cash flow also takes into account new business capital. Ryan asks about affiliated reinsurance and the speaker explains that it could improve free cash flow and capital efficiency for new business, but also potentially release capital from the in-force upfront.

The company is considering all options for their business, including the possibility of setting up an affiliated reinsurance subsidiary. This would involve transferring some liabilities to the subsidiary, and using it as a tool for new business. The company is also focused on optimizing their legacy life liabilities, which could involve transactions like policy buyouts or hedging. They made significant progress last year with a transaction with Fortitude, but there is still potential for improvement in the next two years.

During a conference call, an operator introduces the next question from Mike Ward at Citi. Ward asks about a potential timeline for buyback resumption, to which Ellen Cooper responds that the company's focus is on strengthening the balance sheet, improving free cash flow, and achieving profitable growth. She also mentions a recent transaction involving the sale of $28 billion of liabilities and 40% of their GUL to Fortitude Re, which aligns with their strategic objectives. Ward then asks about the company's recent wealth management sales and what was given up in the transaction.

The company has made significant improvements to its balance sheet risk, capital, and free cash flow. They have decided to divest their Wealth Management business due to lack of scale, but it is a good business. This decision will result in a net capital benefit of $700 million and will not have a significant impact on earnings or free cash flow. The company's main focus is on maximizing strategic objectives. The deal for the Wealth Management business is solid due to its profitability and potential for growth with scale.

The Life segment earnings outlook for Lincoln is better than anticipated, with earnings projected to be flat in 2023 compared to $600 million in previous years. The degradation in earnings is due to factors such as assumption resets and lower interest rates, but some of these factors are expected to turn from headwinds to tailwinds in the coming years.

The next few years may not see a full recovery in prepay income and other dynamics, but there are factors that will eventually reverse. One example is the recovery of alternatives income, as well as potential for expense efficiency and spread expansion in the Life business. This leads to a relatively high earnings CAGR over the next three years, although it is off a low base. The Group segment is expected to have a strong 13% to 16% annual CAGR.

The speaker discusses the progress and confidence in the company's Group business. They mention the significant improvement in margins and investments made in the business, resulting in a 400 basis point increase in margins year-over-year. They also mention the strong topline growth and a target level that has already shown substantial progress. The speaker expresses confidence in the future growth rates of the Group business.

The company has realigned its strategy into three distinct business segments and has seen growth in sales in each of these segments. They are focused on driving sales through existing customers and investing in a differentiated experience for customers. The 2023 free capital generation is expected to be close to $400 million, with Q4 showing some improvement due to market performance.

The company had some credit losses in the first quarter, but overall there were no major differences compared to the fourth quarter. They did not take any dividends from LNBAR in the fourth quarter, but are increasingly comfortable with their new VA hedge program. They expect LNBAR to continue to improve in 2024 and 2025, but are being cautious due to it only being a year since implementing the new program. The company had good sales growth in the fourth quarter for their Group protection distribution, and there are opportunities for product development in this area.

The Group Protection business is a $5 billion premium protection business that focuses on group life and group disability. The company is looking to increase its voluntary business and has seen growth in employee contributions and sales in supplemental health benefits. They also have a unique value proposition in the small market segment, offering bundled products to smaller employers. The company is considering all strategic opportunities, including third-party opportunities, in the next few years.

The operator thanks the participants for their questions and announces that any remaining questions will be addressed later. Tina Madon then gives closing remarks and invites any follow-up questions to be emailed. The operator then concludes the call.

This summary was generated with AI and may contain some inaccuracies.