RADNOR, Pa.–(BUSINESS WIRE)–Lincoln Financial Group (NYSE: LNC) today reported financial results for the first quarter ended March 31, 2024.
- Net income available to common stockholders was $1.2 billion, or $6.93 per diluted share.
- Adjusted operating income available to common stockholders was $71 million, or $0.41 per diluted share.
- Adjusted operating income available to stockholders was unfavorably impacted by significant items totaling $164 million, or $0.96 per diluted share, including:
- A legal accrual of $90 million, or $0.53 per diluted share
- Severance expense of $39 million, or $0.23 per diluted share
- Balance sheet true-up related to the sale of the wealth management business of $19 million, or $0.11 per diluted share
- Tax-related items of $16 million, or $0.09 per diluted share.
- The primary differences between net income and adjusted operating income resulted from the following non-economic factors:
- $1.1 billion of the net income, or $6.64 per diluted share, was primarily due to changes in market risk benefits driven by the increase in interest rates and equity markets.
- $153 million of the net income, or $0.89 per diluted share, was primarily driven by a change in the fair value of an embedded derivative related to the Fortitude Re reinsurance transaction, with a direct offset in other comprehensive income.
- Estimated RBC ratio was in the range of 400 – 410% at quarter end.
“Our first quarter results, excluding the impact of significant items, exceeded our expectations,” said Ellen Cooper, Chairman, President and CEO of Lincoln Financial Group. “We made continued progress with the strategic realignment in each of our four businesses and executed well, with some notable highlights. Our Annuities business reported its highest earnings quarter in nearly two years, with 5% sequential growth in ending account balances, Group Protection delivered another strong quarter of earnings growth and margin expansion, Life earnings were consistent with our expectations, and Retirement Plan Services sales increased almost 19% from the prior year.
“While our progress won’t always be linear, we see this year as our opportunity to meaningfully advance on our strategy. We will continue to position our businesses for profitable growth, build foundational capital, and optimize our operating model. We believe our results this quarter represent a solid foundation for success in 2024.”
Business Highlights
Our 2024 first-quarter results were driven by continued progress in each of our businesses executing on their respective strategic priorities.
- Group Protection delivered operating income of $80 million, the second highest earnings quarter in its history and an increase of almost 13% over the prior-year period. Group Protection’s margin grew 60 basis points year-over-year to 6.2%, attributable to disciplined pricing and lower expenses.
- Annuities reported $259 million in operating income, down 5.5%, driven by unfavorable impacts including a balance sheet true-up in preparation for the close of the sale of the wealth management business of $19 million and tax-related impacts of $12 million. Excluding the impact of these items, Annuities generated earnings of $290 million, its highest earnings quarter in nearly two years. Ending account balances increased 5% sequentially.
- Life Insurance reported an operating loss of $(35) million, compared to a loss of $(13) million in the first quarter of 2023. The year-over-year decline included a $(28) million impact from the Fortitude Re reinsurance transaction. The year-over-year decline in sales is a result of our intentional strategic realignment to products that are expected to deliver more stable cash flows and higher risk-adjusted returns, such as accumulation products.
- Retirement Plan Services delivered operating income of $36 million, down 16% year over year, driven by lower spread income. Ending account balances were $107 billion, up 15% compared to the first quarter of 2023. First-year sales growth was robust with a 53% year-over-year increase, driving positive flows, and we continue to take actions that support long-term sustainable growth and profitability.
Earnings Summary
|
|
As of or For the Three Months Ended |
||||
|
|
3/31/23 |
3/31/24 |
|||
|
Net income (loss) |
$ |
(881 |
) |
$ |
1,222 |
|
Net income (loss) available to common stockholders |
|
(909 |
) |
|
1,191 |
|
Net income (loss) per diluted share available to common stockholders1 |
$ |
(5.37 |
) |
$ |
6.93 |
|
Adjusted income (loss) from operations |
|
288 |
|
|
105 |
|
Adjusted income (loss) from operations available to |
|
|
|||
|
common stockholders |
|
260 |
|
|
71 |
|
Adjusted income (loss) from operations per diluted share available to common stockholders1 |
$ |
1.52 |
|
$ |
0.41 |
|
|
|
|
|||
|
1In periods where a net loss or adjusted loss from operations is presented, basic shares are used in the diluted EPS and adjusted diluted EPS calculations, as the use of diluted shares would result in a lower loss per share. |
|||||
Condensed Reconciliation of Net Income to Adjusted Income from Operations1
|
|
For the Three Months Ended |
|||||
|
|
3/31/23 |
3/31/24 |
||||
|
Net income (loss) available to common stockholders — diluted |
$ |
(909 |
) |
$ |
1,191 |
|
|
Less: |
|
|
||||
|
Preferred stock dividends declared |
|
(25 |
) |
|
(34 |
) |
|
Adjusted for deferred units of LNC stock in deferred compensation plans |
|
(3 |
) |
|
3 |
|
|
Net income (loss) |
|
(881 |
) |
|
1,222 |
|
|
Less: |
|
|
||||
|
Non-economic market risk benefit impacts, related to net annuity products, after-tax |
|
(1,018 |
) |
|
1,141 |
|
|
Net life insurance product features, after-tax |
|
(95 |
) |
|
(103 |
) |
|
Change in fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans, after-tax |
|
7 |
|
|
153 |
|
|
Investment gains (losses), after-tax |
|
(45 |
) |
|
(65 |
) |
|
Other |
$ |
(18 |
) |
$ |
(9 |
) |
|
Adjusted income (loss) from operations |
$ |
288 |
|
$ |
105 |
|
|
Adjusted income (loss) from operations available to common stockholders |
$ |
260 |
|
$ |
71 |
|
|
1 Refer to the full reconciliation of Net Income to Adjusted Income from Operations at the back of this press release. |
||||||
- The 2024 first quarter included a $1.1 billion net gain primarily due to changes in market risk benefits driven by the increase in interest rates and equity markets.
- $153 million of the net income was driven by a change in the fair value of an embedded derivative primarily related to the Fortitude Re reinsurance transaction, with a direct offset in other comprehensive income.
Variable Investment Income
|
Alternative Investment Income, after-tax1 |
For the Three Months Ended |
||||
|
|
3/31/2023 |
6/30/2023 |
9/30/2023 |
12/31/2023 |
3/31/2024 |
|
Annuities |
$2 |
$5 |
$3 |
$3 |
$2 |
|
Life Insurance |
37 |
53 |
34 |
39 |
58 |
|
Group Protection |
2 |
2 |
2 |
2 |
1 |
|
Retirement Plan Services |
1 |
3 |
2 |
2 |
1 |
|
Other Operations |
— |
— |
— |
— |
— |
|
Consolidated |
$42 |
$63 |
$41 |
$46 |
$62 |
|
1 Excludes alternative investment income on investments supporting our modified coinsurance and coinsurance with funds withheld agreements as we have limited economic interest in those investments. |
|||||
|
Prepayment Income, after-tax |
For the Three Months Ended |
||||
|
(in millions) |
3/31/2023 |
6/30/2023 |
9/30/2023 |
12/31/2023 |
3/31/2024 |
|
Annuities |
$1 |
$— |
$1 |
$1 |
$1 |
|
Life Insurance |
2 |
1 |
— |
2 |
— |
|
Group Protection |
— |
— |
— |
— |
— |
|
Retirement Plan Services |
— |
1 |
— |
— |
1 |
|
Other Operations |
— |
— |
— |
— |
— |
|
Consolidated |
$3 |
$2 |
$1 |
$3 |
$2 |
Items Impacting Segment Results
|
|
For the Three Months Ended March 31, 2024 |
||||
|
(in millions) |
Annuities |
Life Insurance |
Group Protection |
Retirement Plan |
Other Operations |
|
After-tax segment impacts: |
|
|
|
|
|
|
Alternative investment income compared to long-term target(1) |
$(1) |
$(5) |
$— |
$— |
$— |
|
Prepayment income(2) |
1 |
— |
— |
1 |
— |
|
Annual assumption review |
— |
— |
— |
— |
— |
|
Legal accruals |
— |
— |
— |
— |
(90) |
|
Tax items |
(12) |
(1) |
— |
— |
(3) |
|
Other |
(19) |
— |
— |
— |
(39) |
|
Total impact |
$(31) |
$(6) |
$— |
$1 |
$(132) |
|
(1) |
Alternative investment income comparison to long-term target assumes a 10% annual return on the alternative investment portfolio. |
||||||
|
(2) |
Prepayment income is actual income reported in the quarter. |
||||||
“Other” in the table above includes severance expense of $39 million related to organizational changes and a $19 million balance sheet true-up in preparation for the close of the sale of the wealth management business.
Capital and Liquidity
|
|
For the Three Months Ended |
|||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/23 |
3/31/24 |
|||||
|
Holding company available liquidity1 |
$ |
454 |
$ |
457 |
$ |
455 |
$ |
458 |
$ |
466 |
|
RBC Ratio2 |
~380% |
~380% |
|
375-385% |
|
407% |
|
400-410% |
||
|
Book value per share (BVPS), including AOCI |
$ |
33.89 |
$ |
28.49 |
$ |
13.04 |
$ |
34.81 |
$ |
38.46 |
|
Book value per share, excluding AOCI3 |
$ |
56.04 |
$ |
58.58 |
$ |
63.03 |
$ |
55.30 |
$ |
61.63 |
|
Adjusted book value per share3,4 |
$ |
66.05 |
$ |
64.37 |
$ |
63.53 |
$ |
64.97 |
$ |
65.01 |
|
1 |
Holding company available liquidity presented for the quarters ended 3/31/2023 and 6/30/2023 does not include the $500 million prefunding used to repay $500 million of debt that matured at 9/30/2023, and the quarter ended 3/31/2024 does not include the $300 million prefunding of a 2025 maturity. |
|
2 |
The RBC ratio is calculated as of December 31 annually, but is reported in the March statutory reporting, and as such, the quarterly ratios presented for 3/31/2023, 6/30/2023, 9/30/2023 and 3/31/2024 are considered estimates based on information known at the time of reporting. |
|
3 |
Refer to the reconciliation to book value per share, including AOCI, at the back of this release. |
|
4 |
This measure has been updated, effective beginning with the fourth quarter of 2023, to exclude reinsurance-related embedded derivatives and the underlying portfolio gains (losses), given the size of the impact of the fourth quarter 2023 reinsurance transaction. Such amounts in the prior periods presented, and the impact of this change to such prior periods, were not meaningful. |
Annuities
|
|
As for or For the Three Months Ended |
|||||||||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/23 1 |
3/31/24 |
Change |
||||||||||
|
Total operating revenues |
$ |
1,141 |
|
$ |
1,190 |
|
$ |
1,197 |
|
$ |
(525 |
) |
$ |
1,269 |
|
11.2% |
|
Total operating expenses |
|
841 |
|
|
880 |
|
|
915 |
|
|
(846 |
) |
|
952 |
|
13.2% |
|
Income (loss) from operations before taxes |
|
300 |
|
|
310 |
|
|
282 |
|
|
321 |
|
|
317 |
|
5.7% |
|
Federal income tax expense (benefit) |
|
26 |
|
|
39 |
|
|
34 |
|
|
42 |
|
|
58 |
|
123.1% |
|
Income (loss) from operations |
$ |
274 |
|
$ |
271 |
|
$ |
248 |
|
$ |
279 |
|
$ |
259 |
|
(5.5)% |
|
|
|
|
|
|
|
|
||||||||||
|
Total sales |
$ |
3,164 |
|
$ |
2,582 |
|
$ |
2,728 |
|
$ |
4,365 |
|
$ |
2,847 |
|
(10.0)% |
|
Net flows |
$ |
(331 |
) |
$ |
(1,108 |
) |
$ |
(874 |
) |
$ |
285 |
|
$ |
(1,993 |
) |
NM |
|
Average account balances, net of reinsurance |
$ |
146,331 |
|
$ |
148,260 |
|
$ |
151,312 |
|
$ |
147,419 |
|
$ |
155,291 |
|
6.1% |
|
Return on average account balances2 |
|
75 |
|
|
73 |
|
|
66 |
|
|
76 |
|
|
67 |
|
|
|
1 |
Day one impacts related to the reinsurance transaction with Fortitude Re caused line-item volatility in the fourth quarter 2023. |
|
2 |
Reported ROA including the impact of the following significant items: 1Q’23: $11M dividends received deduction true-up; 3Q’23: $(12)M assumption review; 4Q’23: $14M model refinement; and 1Q’24: $(19)M balance sheet true-up in preparation for the close of the sale of the wealth management business and $(12)M of tax-related items. |
- Income from operations was $259 million for the first quarter, down 5.5% over the prior year. The year-over-year reduction was driven by the unfavorable impact of $31 million of significant items related to a balance sheet true-up in preparation for the close of the sale of the wealth management business of $19 million and $12 million in tax-related expenses.
- We continued our track record of strong annuity sales, which once again exceeded $2.5 billion in the quarter.
- Net outflows were approximately $2 billion in the quarter, compared to net outflows of $331 million in the prior-year quarter, the result of higher interest rates coinciding with higher account balances.
- Average account balances, net of reinsurance, for the quarter were $155 billion, up 6%, compared to $146 billion in the prior-year quarter, primarily driven by growth in variable annuities. RILA represented 19% of total annuity end-of-quarter account balances, net of reinsurance, an increase of 4 percentage points compared to the prior-year quarter.
Life Insurance
|
|
As for or For the Three Months Ended |
||||||||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/23 |
3/31/24 |
Change |
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
Total operating revenues |
$ |
1,757 |
|
$ |
1,760 |
$ |
1,723 |
|
$ |
1,667 |
|
$ |
1,541 |
|
(12.3)% |
|
Total operating expenses |
|
1,780 |
|
|
1,725 |
|
1,952 |
|
|
1,681 |
|
|
1,591 |
|
(10.6)% |
|
Income (loss) from operations before taxes |
|
(23 |
) |
|
35 |
|
(229 |
) |
|
(14 |
) |
|
(50 |
) |
NM |
|
Federal income tax expense (benefit) |
|
(10 |
) |
|
2 |
|
(56 |
) |
|
(8 |
) |
|
(15 |
) |
(50.0)% |
|
Income (loss) from operations |
$ |
(13 |
) |
$ |
33 |
$ |
(173 |
) |
$ |
(6 |
) |
$ |
(35 |
) |
NM |
|
|
|
|
|
|
|
|
|||||||||
|
Average account balances, net of reinsurance |
$ |
49,100 |
|
$ |
50,049 |
$ |
50,130 |
|
$ |
45,608 |
|
$ |
42,280 |
|
(13.9)% |
|
Total sales |
$ |
130 |
|
$ |
123 |
$ |
144 |
|
$ |
144 |
|
$ |
91 |
|
(30.0)% |
- Loss from operations was $(35) million for the quarter, $22 million lower than the loss from operations of $(13) million in the prior-year quarter. The year-over-year change was driven primarily by the impact of the Fortitude Re reinsurance transaction that closed in the fourth quarter of 2023.
- Total sales were 30% lower year over year, driven by our intentional shift to a capital-efficient new business mix.
- Average account balances, net of reinsurance, were $42 billion, down 14% compared to the prior-year quarter, driven by the impact of the Fortitude Re transaction.
Group Protection
|
|
As of or For the Three Months Ended |
||||||||||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/23 |
3/31/24 |
Change |
|||||||||||
|
Total operating revenues |
$ |
1,388 |
|
$ |
1,400 |
|
$ |
1,388 |
|
$ |
1,387 |
|
$ |
1,425 |
|
2.7 |
% |
|
Total operating expenses |
|
1,299 |
|
|
1,262 |
|
|
1,302 |
|
|
1,322 |
|
|
1,324 |
|
1.9 |
% |
|
Income (loss) from operations before taxes |
|
89 |
|
|
138 |
|
|
86 |
|
|
65 |
|
|
101 |
|
13.5 |
% |
|
Federal income tax expense (benefit) |
|
18 |
|
|
29 |
|
|
18 |
|
|
13 |
|
|
21 |
|
16.7 |
% |
|
Income (loss) from operations |
$ |
71 |
|
$ |
109 |
|
$ |
68 |
|
$ |
52 |
|
$ |
80 |
|
12.7 |
% |
|
|
|
|
|
|
|
|
|||||||||||
|
Insurance premiums |
$ |
1,251 |
|
$ |
1,263 |
|
$ |
1,251 |
|
$ |
1,250 |
|
$ |
1,285 |
|
2.7 |
% |
|
Total sales |
$ |
128 |
|
$ |
96 |
|
$ |
71 |
|
$ |
398 |
|
$ |
144 |
|
12.5 |
% |
|
Total loss ratio |
|
75.0 |
% |
|
71.3 |
% |
|
75.2 |
% |
|
76.6 |
% |
|
75.0 |
% |
|
|
|
Operating margin |
|
5.6 |
% |
|
8.6 |
% |
|
5.4 |
% |
|
4.1 |
% |
|
6.2 |
% |
|
|
- Income from operations was $80 million in the quarter, compared to $71 million in the prior-year quarter, driven by lower expenses and pricing discipline.
- Group Protection’s margin grew 60 basis points year over year to 6.2%, attributable to disciplined pricing and lower expenses. Total loss ratio was 75.0% in the quarter in line with the prior-year quarter, resulting from lower life incidence offset by higher disability results, which were historically low in the first half of 2023.
- Insurance premiums were $1.3 billion in the quarter, up 3% compared to the prior-year quarter.
- Group Protection sales for the quarter were $144 million, up 13% compared to the prior-year quarter, driven by broad-based growth across products and market segments.
Retirement Plan Services
|
|
As of or For the Three Months Ended |
||||||||||||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/23 |
3/31/24 |
Change |
|||||||||||||
|
Total operating revenues |
$ |
328 |
$ |
334 |
$ |
327 |
|
$ |
322 |
|
$ |
322 |
(1.8 |
)% |
|||||
|
Total operating expenses |
|
277 |
|
279 |
|
277 |
|
|
278 |
|
|
281 |
1.4 |
% |
|||||
|
Income (loss) from operations before taxes |
|
51 |
|
55 |
|
50 |
|
|
44 |
|
|
41 |
(19.6 |
)% |
|||||
|
Federal income tax expense (benefit) |
|
8 |
|
8 |
|
7 |
|
|
6 |
|
|
5 |
(37.5 |
)% |
|||||
|
Income (loss) from operations |
$ |
43 |
$ |
47 |
$ |
43 |
|
$ |
38 |
|
$ |
36 |
(16.3 |
)% |
|||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Deposits |
$ |
3,209 |
$ |
2,897 |
$ |
2,700 |
|
$ |
2,972 |
|
$ |
3,802 |
18.5 |
% |
|||||
|
Net flows |
$ |
535 |
$ |
201 |
$ |
(272 |
) |
$ |
(332 |
) |
$ |
391 |
(26.9 |
)% |
|||||
|
Average account balances |
$ |
91,457 |
$ |
94,099 |
$ |
96,473 |
|
$ |
96,045 |
|
$ |
103,240 |
12.9 |
% |
|||||
|
Return on average account balances |
|
19 |
|
20 |
|
18 |
|
|
16 |
|
|
14 |
|
||||||
- Income from operations was $36 million in the quarter, a 16% decline compared to the prior-year quarter, primarily driven by lower spread income.
- Total deposits for the quarter were $3.8 billion, an increase of 18.5% over the prior-year quarter driven by significant sales growth of 53% year over year and strong recurring deposit growth of 8%.
- Net flows totaled $391 million for the quarter.
- Average account balances for the quarter were $103 billion, increasing 13% from the prior-year quarter.
Other Operations
|
|
As of or For the Three Months Ended |
|||||||||||||||
|
|
3/31/23 |
6/30/23 |
9/30/23 |
12/31/20231 |
3/31/24 |
Change |
||||||||||
|
Total operating revenues |
$ |
43 |
|
$ |
46 |
|
$ |
38 |
|
$ |
(884 |
) |
$ |
27 |
|
(37.2)% |
|
Total operating expenses |
|
150 |
|
|
181 |
|
|
180 |
|
|
(744 |
) |
|
321 |
|
114.0% |
|
Income (loss) from operations before taxes |
|
(107 |
) |
|
(135 |
) |
|
(142 |
) |
|
(140 |
) |
|
(294 |
) |
NM |
|
Federal income tax expense (benefit) |
|
(20 |
) |
|
(29 |
) |
|
(29 |
) |
|
(35 |
) |
|
(59 |
) |
NM |
|
Income (loss) from operations2 |
$ |
(87 |
) |
$ |
(106 |
) |
$ |
(113 |
) |
$ |
(105 |
) |
$ |
(235 |
) |
NM |
|
1 |
Day one impacts related to the reinsurance transaction with Fortitude Re caused line-item volatility in the fourth quarter 2023. |
|
2 |
Income (loss) from operations does not include preferred dividends. |
- First quarter 2024 operating loss included the impact of a legal accrual of $90 million, severance expense of $39 million, and a $3 million tax-related expense.
Unrealized Gains and Losses
The Company reported a net unrealized loss of $9.8 billion (pre-tax) on its available-for-sale securities as of March 31, 2024. This compared to a net unrealized loss of $9.6 billion (pre-tax) as of March 31, 2023, with the year-over-year decrease primarily due to higher treasury rates.
The tables attached to this release define and reconcile the non-GAAP measures adjusted income (loss) from operations, adjusted income (loss) from operations available to common stockholders, book value per share, excluding AOCI, and adjusted book value per share to net income (loss), net income (loss) available to common stockholders, and book value per share, including AOCI, calculated in accordance with GAAP.
This press release contains statements that are forward-looking, and actual results may differ materially. Please see the Forward-looking Statements – Cautionary Language at the end of this release for factors that may cause actual results to differ materially from the company’s current expectations.
For other financial information, please refer to the company’s first quarter 2024 statistical supplement, which is available in the investor relations section of its website http://www.lincolnfinancial.com/investor.
About Lincoln Financial Group
Lincoln Financial Group helps people to plan, protect and retire with confidence. As of December 31, 2023, approximately 17 million customers trust our guidance and solutions across four core businesses – annuities, life insurance, group protection, and retirement plan services. As of March 31, 2024, the company had $310 billion in end-of-period account balances, net of reinsurance. Headquartered in Radnor, Pa., Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE: LNC) and its affiliates. Learn more at LincolnFinancial.com.
