The paragraph is an introduction to Lincoln Financial's 2025 First Quarter Earnings Conference Call, led by Tina Madon, the Senior Vice President and Head of Investor Relations. It informs listeners that all necessary financial documents can be accessed on the company's website and that the call includes discussions on non-GAAP measures. It also serves as a reminder that any forward-looking statements made during the call, such as expectations regarding financial performance or upcoming transactions, are subject to risks and uncertainties that could lead to materially different actual results.

The paragraph discusses the risks and uncertainties outlined in their recent earnings release and other SEC filings. It mentions that forward-looking statements are current as of today, with no obligation to update them. Ellen Cooper, the Chairman, President, and CEO, is addressing the call, expressing gratitude for participation and highlighting the macroeconomic challenges such as market volatility. She explains that despite these challenges, the company is using strategic actions taken over the past two years, like strengthening their balance sheet and diversifying their business, to navigate the uncertain market with greater flexibility and resilience.

The article discusses several strategic initiatives undertaken by Lincoln to enhance financial stability and growth. These include maintaining a capital buffer and implementing hedging programs to safeguard against market downturns, diversifying business operations to reduce sensitivity to equity market fluctuations, and maintaining a high-quality investment portfolio aligned with their liability profile. The company reported a 14% increase in adjusted operating income over the past year, showcasing the success of these initiatives. Lincoln focuses on three core objectives: maintaining strong capital foundations with an RBC ratio above 420%, optimizing their operating model by improving operational efficiency and investing in technology and talent, and launching a Bermuda-based reinsurance subsidiary to support financial goals.

The paragraph discusses strategies for achieving profitable growth and stable cash flows by adjusting product mixes and distribution strategies across Lincoln’s four businesses. Notable progress has been made in expanding the group business, evolving the annuity business, and reshaping the life product portfolio. A new long-term partnership with Bain Capital aims to bolster these efforts, with Bain becoming a strategic investment manager and collaborator. This alliance is expected to enhance investment management capabilities, encourage product innovation, and validate Lincoln's franchise strength, contributing to sustainable growth and long-term value creation.

Over the past two years, Lincoln has taken disciplined actions to become more balanced and resilient, positioning itself well for a recessionary environment while fulfilling commitments to shareholders and policyholders. In the first quarter, Lincoln's Group Protection business reported a 26% increase in earnings and improved margins, while Annuities saw a 33% increase in sales driven by a diversified product mix. Life business sales grew 7% with a focus on risk-sharing products, and Retirement Plan Services saw an 8% increase in total deposits. Retail Solutions, including Annuities and Life, showed strong progress, with total annuity sales reaching $3.8 billion, driven by traditional VA sales and actions to grow spread-based products, with fixed annuity sales increasing over 50%.

RILA experienced growth in the recent quarter, with increased sales driven by the success of its second-generation product and strong distribution partnerships. While variable annuities saw robust sales, market volatility typically pushes demand towards spread-based products. RILA's diverse annuity portfolio allows it to adapt to changing customer preferences and maintain its position as a leading provider. In the Life business, sales increased by 7% year over year due to strategic product and distribution enhancements. The company is focusing on delivering accumulation and protection products with risk-sharing, expanding features for future growth, and optimizing its wholesaler network to boost customer reach and support its evolving product strategy.

The paragraph discusses the company's efforts to enhance its Life business for future growth by leveraging product, distribution, and underwriting teams. In the Workplace Solutions division, including Group Protection and Retirement Plan Services, there was a significant year-over-year earnings increase of 26% and margin expansion. These outcomes were driven by record sales growth, strong persistency, disciplined pricing, and investments in product and service expansion. Group sales rose by 9%, with substantial growth in supplemental health products, contributing to a more balanced business portfolio. The company is investing in its operating model and strengthening strategic broker partnerships to deliver integrated solutions and maintain a strong market presence across local and regional segments.

The company is investing in digital capabilities and expanding its product suite, emphasizing supplemental health and leave management to enhance the customer experience and drive profitable growth. In the national segment, they are leveraging their expertise in disability and leave management to differentiate their value proposition. The group's performance exceeded expectations through disciplined execution. In the Retirement Plan Services, first-year sales matched strong 2024 results, with a robust 2025 pipeline expected to boost sales growth. Total deposits increased by 8% due to higher salaries and participant contributions. The company is focused on meeting customer needs, enhancing retirement business capabilities, and optimizing operations to drive growth.

In the closing remarks, the speaker highlights the company's strong quarterly performance, attributed to their competitive advantages, operational efficiency, and strategic execution. They are focused on delivering value for shareholders, customers, and employees, despite potential short-term market challenges. Chris Neczypor then reports on the company's third consecutive quarter of year-over-year adjusted operating income growth and successful strategic execution. He outlines the company's consolidated and segment performance, investment portfolio, and a recent transaction with Bain Capital. For the first quarter, the company reported an adjusted operating income of $280 million or $1.60 per diluted share, with the alternative investments portfolio achieving a 7.6% annualized return.

The paragraph discusses the financial results of a company for a given quarter. The company reported a net loss of $756 million, primarily due to market risk benefits affected by lower interest rates and equity markets, despite a hedge program performing as expected. Adjusted operating income, however, was $298 million. The group segment showed strong performance with a 26% increase in operating income to $101 million, supported by premium growth, higher new sales, and disciplined pricing. The improvement was attributed to robust premium growth, strong disability results supported by a favorable labor market and interest rates, and a shift toward higher-margin businesses like supplemental health.

The paragraph discusses financial results and expectations for a business, highlighting increased expenses due to investments in digital capabilities, distribution, and claims management. Despite these investments, the company achieved margin expansion. The disability loss ratio improved year over year, aided by low LTD incidence rates and effective repricing. The group life loss ratio also improved, despite slightly higher mortality, thanks to growth in supplemental health. Future risk results are expected to follow a seasonal improvement pattern. However, potential changes in macro conditions, like higher unemployment, may impact disability performance, although pricing discipline and diversification are expected to sustain strong margins through 2025. Additionally, annuities reported stable first-quarter operating income with a 5% increase in average account balances, driven by 20% growth in RILA balances.

Earnings declined in the fourth quarter due to fewer fee days and lower average account balances, exacerbated by a decline in the equity market and variable annuity net outflows. Continued market volatility may further impact fee income. For every 1% change in annuity AUM due to market fluctuations, there's an anticipated $15 million impact on annualized earnings. Spread income is growing, with spread-based products now accounting for 28% of total account balances. RILE account balances, which increased by 11%, play a significant role in this spread growth. Despite market declines potentially affecting fee income, the company's strategy to diversify into spread-based products and manage expenses aims to maintain annuities as consistent earnings and cash flow contributors through 2025. Retirement plan services saw a dip in first-quarter operating income mainly due to a one-time operational loss, though earnings remained stable when excluding this impact. Net outflows amounted to $2.2 billion due to a large plan termination.

The paragraph discusses the financial performance and strategic initiatives of a financial services business. Despite a termination impacting net flows, sales momentum is strong and total deposits grew by 8%, with recurring deposits increasing by 13%. Average account balances rose 10% year-over-year to $113 billion, though end-of-period balances decreased to $109 billion. A $2 million impact on annualized earnings is expected for each 1% change in retirement AUM due to market conditions. There is a focus on sustainable earnings growth despite potential headwinds. In life insurance, the company reported a smaller operating loss of $16 million in the first quarter compared to $35 million the previous year, due to improved mortality rates and lower net general and administrative (G&A) expenses, albeit offset by lower alternative investment returns. Mortality improved sequentially with fewer and less severe claims. Net G&A expenses decreased by 8%, aligning with strategic cost structures. Alternative investments, crucial for supporting long-duration liabilities, have averaged over a 10% return annually over the last five years, though market volatility can impact returns. The company expects these actions to drive earnings growth in 2025.

In the second quarter, the company expects market volatility to continue impacting returns in the short term, but anticipates convergence with historical averages over time, supporting earnings growth in the life business. The first quarter's results showed improved mortality experiences and benefits from a streamlined expense base. The company ended the quarter with a strong RBC ratio above 420%, maintaining a capital buffer. Deleveraging remains a focus, with a slight improvement in the leverage ratio. Investment performance was solid, though alternative investments returned 1.9%, below the 2.5% target. The company also recapped a strategic partnership with Bain Capital.

The paragraph outlines a transaction in which Bain Capital will acquire a 9.9% equity stake in Lincoln at a premium price, totaling approximately $825 million. Bain will be restricted from selling the shares for three years, after which they can sell a portion annually. Additionally, an investment management agreement will be established, focusing on various asset classes with a commitment to grow assets under management to at least $20 billion within six years. The agreement is for 10 years, emphasizing a long-term partnership with competitive fees. The deal aims to expand Lincoln's spread-based products and accelerate growth while optimizing existing portfolios and enhancing capital returns to shareholders.

The insurance industry has evolved over the past decade, with alternative investment firms enhancing value across various areas such as investing, product development, distribution, and capital sourcing. Lincoln and Bain Capital have formed a strategic partnership to grow current products and develop new ones, aiming to differentiate and generate value for stakeholders. Despite market downturn risks impacting earnings similar to peers, Lincoln has taken steps over the past two years, including building a capital buffer above the historically targeted RBC ratio, to insulate itself from potential economic slowdowns.

The paragraph discusses strategic efforts by a company to minimize capital volatility through hedging and discontinuing certain volatile products. They are shifting focus towards diversifying earnings sources with less sensitivity to equity markets, particularly by growing their group business, which significantly increased its contribution to operating earnings. Despite potential market challenges, the company is confident in its growth strategies. In a subsequent Q&A section, Ryan Krueger from KBW asks for details on the financial impact of a partnership with Bain, specifically regarding its effect on 2027 free cash flow per share and whether improvements are expected through higher cash flow or potential share repurchases. Chris Neczypor responds to Ryan's inquiry.

The paragraph discusses financial strategies and outcomes for a company, focusing on how it plans to allocate incoming capital, specifically an $800 million acquisition. The capital will primarily be used to grow earnings through fixed annuities and institutional spread products, as well as potentially enhancing the legacy LifeBlock business through reinsurance and asset repositioning. Share repurchases were not a primary consideration for these proceeds. Additionally, it mentions improved earnings in the life business segment due to favorable mortality rates, highlighting that the first quarter is typically strong due to seasonality, which contrasted with poor performance in the previous quarter. The commentary includes references to past seasonal analysis provided in an outlook deck.

The paragraph discusses a transaction involving Bain, where the speaker, Chris Neczypor, explains the rationale for issuing new equity rather than Bain purchasing stock on the open market. He emphasizes the strategic benefits of creating alignment with Bain as a partner, noting that it will help accelerate the company's strategic priorities, particularly in growing spread-based earnings. Neczypor argues that buying 10% in the open market is unrealistic and that purchasing capital at the holding company level allows for investment in growth areas. He also mentions that over the past two years, the company has generated significant capital, invested it back into the business, and plans to return capital to shareholders once their leverage ratio targets are met.

The paragraph discusses the company's strategic improvements and investments, emphasizing the role of Bain's equity capital in accelerating these efforts. The focus is on diversifying the business, removing inefficiencies, and reinvesting in areas like group operations, margin expansion, and capital buffers. The sale of LFN last year improved the company's capital foundation. The company aims to grow spread-based earnings and diversify equity risk in its annuities business by investing in areas like fixed annuities and RILA. There is a mention of a recent decline in the return on assets (ROA) in the annuity business, attributed to a shift in business mix, with VA having higher ROA compared to RILA and fixed annuities.

The paragraph discusses the anticipated trends in return on assets (ROA) as the company shifts focus from variable annuities (VA) to registered index linked annuities (RILA) and fixed annuities, leading to expected ROA decreases over time. Despite this, the company aims for improved risk-adjusted returns through increased spread growth. While there is no specific ROA target mentioned, the overall returns are projected to improve as capital is allocated to accelerate growth in spread-related areas. Additionally, the conversation touches on the RBC ratio, indicating no significant changes or concerns, despite minor quarterly variations due to factors like seasonality, preferred dividends, and tax payments.

In this discussion, Chris Neczypor highlights the positive performance drivers, primarily free cash flow and earnings, with specific improvements in areas like retail life mortality. Wes Carmichael inquires about potential pressures on the disability loss ratio in a recessionary environment. Chris refers back to a previous conversation, noting a 300 basis points margin improvement over the previous year, attributing two-thirds to strategic actions and one-third to favorable macroeconomic conditions. He mentions the team's strong execution and a still favorable macro environment in the first quarter, indicating cautious optimism while remaining attentive to economic changes.

In the paragraph, Tom Gallagher from Evercore ISI asks Chris Neczypor about the improved claims experience in the Life Insurance segment and seeks clarification on the differences in the GAAP P&L components, specifically about remeasurement experience and elevated benefits. Chris responds by confirming that favorable mortality impacts both GAAP and statutory results positively. He explains that better mortality leads to benefits in statutory outcomes, especially since a capital cushion is held against alternatives. The decrease in mortality during the first quarter positively affected policyholder remeasurement, as reserve releases covered claims. Overall, the liability on certain products like GOL and term is accrued over time, impacting the results positively.

The paragraph discusses a financial update provided by Chris Neczypor in response to a question from Tom Gallagher about a recent one-time event affecting earnings. Neczypor explains that a large case termination, which was anticipated and discussed in previous quarters, impacted net outflows for a segment. Excluding this event, cash flows were positive. Additionally, a separate smaller one-time item caused a $2 million impact, which will not recur. He notes that ongoing trends include market-driven support for assets under management but offset by stable value outflows due to rising markets and interest rates. Future run rates depend on market developments, with the one-time item not expected to recur. The paragraph ends with the operator introducing the next question from Joel Hurwitz.

In the paragraph, Chris Neczypor provides an update on the company's expense initiatives in response to a query from Joel Hurwitz. He explains that the favorable expenses observed in the quarter are largely due to previously implemented operational efficiencies. The expected benefits of these actions, which were initiated last year, are beginning to materialize, particularly in the Life segment. Neczypor outlines that while some benefits are evident this year, the full impact will be more pronounced by 2025. He also mentions that savings from these efficiencies are being reinvested into business areas with growth potential, such as claims management and digital capabilities, contributing to margin expansion. Overall, the positive expense performance is attributed to intentional cost management and reinvestment strategies.

In the paragraph, Chris Neczypor discusses the improvement in long-term disability results, stating that both lower incidence and better recovery rates have contributed to improvements, although they won't specify individual numbers for each factor. He emphasizes that while there is some correlation between the two, the improvements are largely due to business investments and strategic actions. Then, Alex Scott from Barclays asks about the competitive environment in the annuities market, mentioning that some peers have faced more pressure on MYGA sales and decreased FIA sales. Ellen Cooper responds, noting that their annuity sales for the quarter were 3.8 billion and highlighting their strategic focus on spread-based businesses despite the competitive pricing environment.

The paragraph discusses the company's strategy for achieving profitable growth, emphasizing long-term partnerships and a focus on returns rather than top-line growth. They aim for a 12% plus return on products like fixed and RILA by leveraging broad distribution capabilities and unique strategies. For fixed products, they focus on competing within limited "walled garden" spaces and offering unique crediting strategies. In the competitive RILA market, they introduced a new product with unique features to enhance their competitive edge and expand shelf space. The approach highlights targeting strategic growth and innovation to maintain a strong market position.

The paragraph discusses a strategic partnership with Bain Capital, which provides a competitive edge through unique sourcing and asset strategies. The collaboration aims to optimize investment strategies and facilitate growth, particularly by launching new products like private funds in partnership with Bain Capital and Partners Group. The company plans to leverage its distribution leadership and its ability to offer long-term, complex customer solutions for expansion into adjacent markets.

The paragraph discusses the strategic introduction of private funds that are complex and long-term in nature, aiming to complement existing offerings. The focus is on launching these products with the right partners and ensuring favorable economics. Additionally, it highlights the competitive advantage gained from extensive experience in managing mutual funds, positioning them well for retail fund opportunities. Chris Neczypor adds that there is a significant intersection of private asset management with insurance across various value streams, hinting at potential growth in spread products and the importance of partnerships in creating value over the coming years, particularly involving relationships between insurers and asset managers in areas like private equity and retirement capital sourcing.

The paragraph marks the conclusion of a Q&A session and announces the end of a conference call. Participants who did not get their questions answered will be contacted after the call. Tina Madon invites attendees to email any follow-up questions to investor relations. The operator then officially ends the call, allowing participants to disconnect.

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