Lincoln National Corporation (NYSE:LNC) Q2 2025 Earnings Call Transcript

Lincoln National Corporation (NYSE:LNC) Q2 2025 Earnings Call Transcript July 31, 2025

Lincoln National Corporation misses on earnings expectations. Reported EPS is $ EPS, expectations were $1.91.

Operator: Good morning, and thank you for joining Lincoln Financial’s 2025 Second Quarter Earnings Call. [Operator Instructions] Now I would like to turn the call over to the Senior Vice President, Head of Investor Relations, Tina Madon. Please go ahead.

Tina Madon: Thank you. Good morning, everyone, and welcome to our second quarter earnings call. We appreciate your interest in Lincoln. Our quarterly press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used in today’s call, including adjusted income from operations or adjusted operating income and adjusted income from operations available to common stockholders to their most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today’s call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources, are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer.

After their prepared remarks, we’ll address your questions. Let me now turn the call over to Ellen. Ellen?

Ellen R. Gail Cooper: Thank you, Tina, and good morning, everyone. We appreciate you joining our call today. Our second quarter performance was strong with adjusted operating income increasing 32% year-over-year, underscoring the progress we have made as we advance our growth strategy with discipline and focus across Lincoln. Before I walk through the quarter’s highlights, I wanted to step back and reflect on what we have accomplished since we began this journey at the beginning of 2023. The fundamental principles of foundational capital, an optimized operating model and a strategy for profitable growth are coming through in our results. With clear evidence of building momentum balanced against a strategic awareness of where more work needs to be done.

We have evolved the direction of the company with a focus on increasing our risk-adjusted return on capital, reducing the volatility of our results and growing our franchise, and we’re starting to see the benefit of those actions. A few highlights worth noting. This marks the fourth consecutive quarter of year-over-year adjusted operating income growth. It’s the seventh consecutive quarter with an estimated RBC ratio in excess of our target of 400% and the fifth quarter in a row with an estimated RBC ratio exceeding our 20 percentage point buffer. Over the past several years, we have also made significant progress in optimizing our operating model, creating a more efficient and scalable organization. We have reduced expenses, streamlined processes and enhanced our digital capabilities, while strategically investing in talent and infrastructure in each of our businesses.

We have also advanced our investment strategy and launched our Bermuda-based reinsurance subsidiary. Becoming a leaner, more efficient organization strengthens our ability to deploy capital more effectively, elevate the customer experience and respond to market opportunities with greater agility. At the same time, each of our businesses has made progress on strategies to shift to products and segments with higher margins, more stable cash flow profiles and greater capital efficiency. The first half of this year saw all 4 businesses deliver double-digit sales growth, a portion of which came from products that have historically not been key drivers for Lincoln. Underneath the surface, we continue to increase the core capital generation of the company, investing that capital in areas that are expected to sharpen our competitive advantages, broaden our strategic moat and drive growth in our free cash flow over the longer term.

Results will not be linear. Markets can be volatile and the economic backdrop could change, but we remain steadfast in our commitment to deliver results that drive long-term value. Our momentum is building. Our track record is increasingly evident and we’re excited about the path forward. Now turning to the highlights for the quarter. Our results this quarter demonstrate that the strategic repositioning of each of our businesses is beginning to translate into improved fundamentals, supported by a more diverse and profitable business mix. Key highlights at the segment level included our Group Protection business, which delivered a record quarter for earnings and its highest- ever margin. Annuities generated its third highest sales quarter, supported by a more diverse and balanced product mix.

Retirement Plan Services saw a year-over-year increase in total deposits resulting from strong first year sales growth. Life insurance achieved positive earnings driven by favorable mortality and improved expenses. Now turning to our business results, starting with retail solutions, which includes annuities and life insurance. Annuities produced robust sales of $4 billion, a 6% sequential increase supported by our ongoing focus on building and sustaining a diversified product mix. Spread-based products comprised 2/3 of the overall mix with fixed annuity sequential growth of 41% and RILA’s sequential growth of 12%. Each of our 3 major product categories exceeded $1 billion in sales. And additionally, all sales in the quarter supported our strategic and financial goals with strong profitability and capital efficiency.

We continue to lean into our distribution leadership where we have the reach and scale to leverage our long-standing relationships, offer a compelling value proposition and broaden our addressable markets enabling us to reach more customers seeking to retire with confidence and financial security. Our distribution partners deeply appreciate our customer-centric approach which is designed to equip producers with the insights, tools and capabilities to enhance productivity and ease of doing business. Our scalable support model helps partners grow their businesses through marketing and training assistance, a smooth and automated sales process and ongoing high-quality customer service. The breadth of products we offer in fixed RILA and variable annuities is also a key competitive strength, reinforcing Lincoln as a holistic solutions provider that can adapt to customer preferences in various market environments.

As I previously mentioned, our fixed annuity sales increased by 41% sequentially as we continue to leverage the foundational capabilities we built to sustain a consistent and growing presence in the fixed marketplace, including investment strategy enhancements, distribution expansion and capital efficient reinsurance, optimizing our mix of internal and external reinsurance and retaining a greater portion of our spread-based earnings will further accelerate the profitability and risk-adjusted returns of our overall annuities business. RILA generated a fifth consecutive quarter of sales in excess of $1 billion and the fifth consecutive quarter of sequential growth as we maintained momentum with a strong competitive position in this market. The continued growth in sales was driven by our ability to differentiate through unique features and crediting rate strategies as our second-generation RILA product continues to resonate with customers.

We also benefited from further leveraging our distribution leadership to expand in targeted channels to drive additional market penetration and growth. Finally, traditional variable annuities remain integral to the diversification of our product suite, producing strong free cash flows and risk-adjusted returns, while delivering a compelling customer value proposition. In summary, these results reflect the success we are achieving in delivering a diversified product mix that meets customers where they are across different life stages, risk tolerances and economic environments. This strategy to diversify our mix to more spread- based earnings translates into more predictable and resilient cash flows over time, while meeting our risk-adjusted return targets and balancing the financial contribution across products.

We remain confident in our strategic trajectory and our ability to leverage our competitive strengths to achieve our profitability and return objectives. Now turning to Life Insurance. In our retail life business, we’ve taken decisive steps to reposition the franchise for long-term value creation. We have intentionally been pivoting towards accumulation and protection products with more risk sharing and have been building out product features to expand our solution set, positioning us for future growth. A key part of this transformation is our distribution evolution. We focused on building a distribution footprint that sits closer to the financial professional. This proximity better positions us to provide support to our customers by giving us sharper insights, more streamlined connectivity and enhanced efficiency in reaching our target segments, which is expected to support durable growth.

Sales increased 15% year-over-year and 25% sequentially with broad-based momentum across our products as our actions over the last several years begin to take hold. On a year-over-year basis, we saw executive benefits, which can vary from period to period, continued to gain traction with sales in this segment tripling. We value this business as a product category where we have strong competitive positioning and one that also generates more predictable cash flows. We’re also seeing continued momentum in IUL where we’re growing our addressable market through enhanced products, expanded distribution access and new digital tools to enhance the client experience. It’s another area where we’re leaning in to capture future growth while staying disciplined on achieving risk-adjusted returns.

Overall, our retail life strategy is grounded in a clear focus shift our mix towards products and channels that support our long-term enterprise objectives, including compelling value propositions for our customers, efficient capital deployment and focused future growth. As I have previously highlighted, the repositioning of our life business will continue to take time. However, we are confident that leveraging our strengths in product, distribution and underwriting to support our customers will increase our competitive differentiation and drive higher earnings growth. Next, turning to Workplace Solutions, which includes our Group Protection and Retirement Plan Services businesses. As I mentioned earlier, Group delivered another record quarter, and we are very pleased with the strategic momentum of this business.

Earnings grew by 33% year-over-year and the margin increased by 250 basis points to 12.5%. These results highlight our disciplined execution in diversifying this business through targeted segment and product strategies, while prioritizing profitable growth as we position Group to become a sustained, larger portion of Lincoln’s overall earnings mix. Premiums grew 7% year-over-year, supported by robust sales and continued strong persistency. These outcomes reflect our disciplined approach to pricing, which is a cornerstone of our strategy for growth in competitive markets both for new business and renewals. They also reflect the benefits of the investments we have made in our operating service and claims models as well as the execution of our segment level strategy which has resulted in an expanded market presence.

Sales increased by 16% year-over-year. At a segment level, local markets drove most of this growth as our momentum in the space continues to accelerate. Building a consistent presence in this market represents significant growth opportunity while supporting our profitability objectives. Central to the success we are achieving are the targeted investments we have made over the last 2 years to grow this segment and deepen our ability to deliver on what customers consider most important, integrated solutions that emphasize ease, access and efficiency. We have also invested in a broader, more comprehensive product suite that deepens our value proposition to local market employers. Additionally, we continue to make consistent progress in our other segments growing and retaining our customers, which reinforces the durability of the strategy that we have been implementing over the last few years.

In our Regional segment, we are sustaining a strong position by deepening strategic broker partnerships to better support employers and their benefit decisions. We are making ongoing investments in an improved customer experience through expanded digital capabilities and a deeper product portfolio with a focus on supplemental health and leave management. In our National segment, we are leveraging our expertise in combining product breadth, including supplemental health products, consultative guidance and more digital engagement tools to provide high-quality customer service, strengthen our competitive differentiation and drive sustained and profitable growth. On a product basis, sales of supplemental health products to both new and existing customers increased meaningfully this quarter, supported by the investments in our distribution and service models as well as enhancements to our product features.

Our suite of supplemental health products is a key focus given its strong customer value proposition, attractive margins and significant growth potential compared to our traditional offerings. This quarter’s results reinforce our confidence in the sustained growth and earnings potential of our group business with a strong foundation, disciplined execution, including pricing, and meaningful opportunities to further expand in its addressable markets, group is positioned to continue to be an increasingly meaningful driver of our earnings and free cash flow growth. Now turning to Retirement Plan Services, or RPS. RPS’ first year sales increased by nearly 50% year-over-year, driven by stable value sales and total deposits increased by 10%. As we look ahead, we have a strong pipeline of known wins, which we anticipate will materialize in the second half of this year.

This sales momentum demonstrates that the offerings in our core recordkeeping and institutional market segments are resonating with customers. We remain focused on initiatives to strengthen our operational and service capabilities in RPS as we advance our objective to build sustainable and profitable growth in this business over the long term. In closing, we remain steadfast in our commitment to deliver sustainable long-term value for our shareholders. The progress we’ve made is not only reflected in our financial performance, but also in the strategic clarity with which we are executing. The strength of our operating model and the resilience of our capital position. We are deepening our strategic moat, shifting to higher-margin, capital-efficient growth, investing in areas that sharpen our competitive edge and evolving into a more agile, scalable organization.

We are building a stronger Lincoln grounded in a more resilient foundation and positioned to realize greater potential, a market- leading franchise shaped by disciplined transformation. We are better positioned to operate in a dynamic environment, align capital deployment with strategic priorities and unlock value where we’ve built momentum and scale. We are energized by our strong trajectory and confident in our path forward. And with that, I will turn the call over to Chris.

Christopher Michael Neczypor: Thank you, Ellen, and good morning, everyone. Our second quarter results reflect another period of strong performance, locking our fourth consecutive quarter of year-over-year adjusted operating income growth. This consistent progress demonstrates the effectiveness of our strategy, the disciplined execution across our businesses and the sustained momentum we’re generating throughout the enterprise. Collectively, our businesses made meaningful advancements on their strategic initiatives, further strengthening Lincoln’s foundation to deliver increasingly stable cash flows and attractive risk-adjusted returns. We remain confident and encouraged by our trajectory as we continue positioning Lincoln for durable long-term success.

This morning, I’ll focus on 3 areas. First, I’ll walk through our consolidated results for the second quarter. Second, I’ll go through the details of our segment level performance. And third, I’ll provide a brief update on our capital position and investment portfolio. Let’s begin with a recap of the quarter. This morning, we reported second quarter adjusted operating income available to common stockholders of $427 million or $2.36 per diluted share. There were no significant items in the quarter. Additionally, our alternative investment returns were in line with expectations, delivering a 10% annualized return or $101 million. Turning to net income. We reported net income available to common stockholders of $688 million or $3.80 per diluted share.

The difference between GAAP net income and adjusted operating income was driven primarily by the positive movement in market risk benefits amid a stable interest rate environment and higher equity markets, partially offset by a decline in the value of our related hedge instruments. Importantly, our hedge program explicitly targets capital. While the heightened equity market volatility in the early part of the quarter contributed to some variability in hedge items, performance was within the range of expectations given that level of volatility. Now turning to our segment results. Let’s start with Group, which delivered a record quarter with operating earnings of $173 million, up 33% from $130 million in the prior year second quarter. And the margin was 12.5%, up 250 basis points for the same period.

This record performance was driven by 3 primary factors: First, life results improved meaningfully year-over-year, driven by lower incidents and improved severity. While mortality outcomes can exhibit quarter-to-quarter volatility, we continue to see broad-based improvement consistent with our expectations. Second, disability results remained favorable, supported by an ongoing tight labor market, a still supportive interest rate environment and incidence levels that remain near historic lows. At the start of this year, we indicated that if LTD incidence rates reverted towards our longer-term expectations, it would represent roughly a 100 basis point margin headwind in 2025. However, based on what we are currently observing, incidence rates continue to track favorably compared to quarterly expectations, and we anticipate maintaining a level of favorability in the third quarter.

Should incidence rates revert towards historical levels, the anticipated margin headwind would remain. But as of now, these positive trends are persisting. And third, our strategic shift toward higher-margin business is driving sustained margin expansion. By broadening our customer base, diversifying our product portfolio and maintaining disciplined pricing, we continue to realize the anticipated benefits of these strategic actions. As we noted coming into the year, we anticipated this strategy alone would drive roughly 100 basis points of year-over-year margin improvement, and our results have been exceeding this expectation. Now turning to Group product line results for the quarter. Our life loss ratio improved considerably with the loss ratio declining to 67.2% compared to 75.6% in the second quarter of 2024, reflecting favorable incidents and favorable volatility with life severity.

As we look ahead to the second half of the year, it’s worth noting that our strong performance in the comparable period last year benefited from particularly favorable life experience and could result in a higher life loss ratio year-over-year, assuming a more normal mortality backdrop. The disability loss ratio also improved year-over-year, coming in at 64.2% compared with 65.9% in the prior year quarter. This was driven by lower-than-anticipated incidence rates and strong claims management outcomes. Taking a step back and looking at the overall group business, we expect our margin for the second half of 2025 to be broadly in line with the margin achieved during the second half of 2024. Lastly, I’d like to briefly address the annual experience refund associated with one state’s Paid Family leave program.

In the past, this refund was recognized in the quarter it was received. For example, this quarter, we recorded a refund of $15 million compared to $23 million in the prior year period. Prior to these 2 years, recognition often occurred in the third quarter. To better align recognition of this annual refund with the full year operations to which it relates and consistent with practices observed in the industry, we will accrue the refund on a quarterly basis going forward. This approach provides improved matching between the refund and our underlying business activity during the year. The quarterly accrual amounts will represent our best estimates and remains subject to annual adjustments. Overall, our focused, disciplined execution and ongoing efforts to grow group protection into a larger and increasingly profitable segment within Lincoln’s overall earnings mix remains a top priority.

This quarter’s record results further reinforce our conviction in the long-term growth potential, sustainability and strategic importance of the group business as we look ahead. Now turning to annuities. Annuities generated second quarter operating income of $287 million compared to operating income of $297 million in the prior year quarter. The decline was primarily driven by traditional variable annuity outflows, partially offset by ongoing growth in our spread income, which enhances our long-term earnings stability. Sequentially, earnings declined modestly from $290 million in the first quarter, reflecting lower average account balances. In the second quarter, average account balances net of reinsurance were roughly flat compared to the prior year quarter as strength in RILA where balances grew 13% was offset by traditional variable annuity net outflows.

Turning to spreads. Spread income continues to grow with spread-based products representing 28% of total annuity account balances net of reinsurance, a 2 percentage point increase from a year ago. RILA account balances increased 15% over the prior year quarter and now represent 22% of total balances, also net of reinsurance. Net flows for spread-based products remained strong in the quarter, nearing $1 billion, underscoring steady progress in our strategic diversification. Lastly, ending account balances net of reinsurance, increased sequentially across all product lines and finished the quarter approximately 5% higher than the average balances during the period. This positions us favorably and provides a tailwind as we look toward the third quarter.

Overall, we remain confident in the strategic trajectory of our annuities business, supported by our strong capital position and our ability to drive sustainable quality earnings over the long term. Retirement Plan Services reported second quarter operating earnings of $37 million compared to $40 million in the prior year quarter, but sequentially up from $34 million in the first quarter. Year-over-year results remained pressured from stable value outflows experienced over the past 12 months, partially offset by equity market favorability. Our base spread was 99 basis points in the quarter down 4 basis points sequentially and year-over-year, in part due to a onetime administrative adjustment impacting interest credited. As we look ahead to the second half of the year, we expect spreads to move back toward first quarter levels.

Net outflows totaled $585 million for the quarter, showing sequential improvement from $2.2 billion in outflows in the first quarter but remaining elevated year-over-year. With ongoing strength in sales momentum and pipeline activity, we anticipate overall net flows will turn positive in the third quarter. Account balances benefited from equity market performance with average account balances increasing 5% year-over-year. End- of-period balances reached $116 billion, up 7% sequentially and were 4% above the quarter’s average account balance, providing a tailwind for earnings as we enter the third quarter. While the recent headwinds to stable value flows have more than offset the positive impacts of equity market-driven growth and expense discipline, we remain confident in the underlying growth of retirement plan services over the long term.

Lastly, turning to Life Insurance. Life reported operating earnings of $32 million for the second quarter reflecting substantial improvement compared to an operating loss of $35 million in the prior year quarter and sequential improvement from the operating loss of $16 million reported last quarter. The year-over-year and sequential improvements were broad-based driven by higher alternative investment returns, improved mortality and expense discipline. Mortality results for the quarter improved modestly, driven by lower claim incidents, while severity remained broadly in line with expectations. As previously noted, mortality can fluctuate quarter-to-quarter. Turning to expenses. We continue to see year-over-year improvement, driven by disciplined expense management.

Net G&A expenses declined 2% compared to the prior year quarter, reflecting sustained underlying efficiency. Maintaining expense discipline remains critical to supporting earnings improvement and profitable growth in Life. Annualized alternative investment returns for the quarter were 10%. As a reminder, alternative assets are a good fit for our life liabilities, and these assets provide important earnings support for the business. Overall, our second quarter performance was aligned with our expectations and reflects ongoing progress across key areas of the life business, improving mortality trends, higher alternative investment returns and effective expense management. While quarterly variability can occur, we remain confident in the underlying trajectory of our life business as we look towards the next few years.

Now for a brief update on capital. We again ended the quarter with an estimated RBC ratio well above 420%, consistent with our strategy of maintaining a capital buffer above our 400% target. With our transaction with Bain Capital now closed, we have further strengthened our deployable excess capital position, enhancing our flexibility to strategically execute and invest across several priority areas. As always, our disciplined approach will guide our deployment decisions. Given our strengthened position, I wanted to provide clarity on how to think about the deployment of this excess capital. If you think about some of the larger strategic objectives in transforming Lincoln, big picture, they can be categorized as one, growing group benefits to become a much larger piece of the overall Lincoln model.

We’ve been deploying excess capital into this business over the past 2 years to invest in our capabilities and profitably grow and that trajectory will continue, but largely self-funded from the capital being generated from that business today. The second priority we’ve discussed is diversifying our annuity mix to be less dependent on variable and equity market risks and more leverage to growth in spread-based products. Here, as we’ve mentioned, deploying excess capital can accelerate our goals, and it will come in 2 forms. The first is retaining more of the fixed business we sell today, and you’ll start to see that in the fourth quarter. Reducing our reliance on flow reinsurance requires capital and a portion of the deployable excess capital we have today will be set aside to support this initiative.

At the same time, growing the top line in RILA and fixed in a capital-efficient manner by leveraging LPine and with an increased competitive advantages as we onboard the Bain asset sourcing will also require capital, and we plan for that over the next few years. The third priority we’ve talked about is continuing to optimize our legacy life portfolio. This block remains the biggest drag on our overall free cash flow, though has improved considerably over the past 2 years, post the reinsurance deal and expense actions taken. Deploying excess capital towards this objective can take a number of different forms, rotating the asset mix, restructuring existing captives and lowering run rate operating costs we’re exploring external reinsurance solutions.

And the team is actively working across all these fronts to assess the best return on capital. From a timing perspective, some of this excess capital will be deployed in third quarter and fourth quarter, while some may take through the end of next year. We’re excited about the opportunity ahead of us and the ability to grow our free cash flow and deliver a more diversified higher risk-adjusted return set of earnings as a result. Now turning to our investment performance. Overall, we delivered solid performance again in the second quarter, reflecting the ongoing high quality and diversification of our portfolio. Our results underscore our continued strategic emphasis on investment optimization. We remain focused on executing strategic actions aligned with our enterprise priorities, particularly the growth of spread-based earnings.

The onboarding of Bain Capital will enable us over time to deploy additional capital into structured and private strategies. These efforts complement broader initiatives to further optimize our investment portfolio while supporting objectives around sales growth, earnings potential and capital generation, including initiatives designed to enhance overall capital efficiency. Lastly, our alternative investment portfolio achieved a 2.5% return this quarter, meeting our targeted level, driven by strong performance across all underlying strategies. In closing, our strong second quarter results reinforce Lincoln’s accelerating momentum, highlighting continued earnings strength, higher-margin, capital-efficient growth, enabling sustainable free cash flow generation and attractive risk-adjusted returns.

Our strong capital position provides flexibility to strategically allocate resources not only to areas of established scale and profitability, but also to emerging opportunities that offer compelling prospects for profitable growth. We remain confident in our trajectory and our ability to deliver enduring shareholder value. With that, let me turn the call back over to Tina.

Tina Madon: Thank you, Chris. Let me turn the call over to the operator to begin Q&A. Operator?

Q&A Session

Operator: [Operator Instructions] Your first question comes from Ryan Krueger with KBW.

Ryan Joel Krueger: My first question was on Group and thinking more about the shift into smaller local markets and supplemental health products. I know you had cited 100 basis points of margin expansion from that this year, and I think you said you’re running ahead of that. Is that something that you expect to continue to cause margin expansion beyond this year? And can you maybe help think about where the margin in the Group business may ultimately get to over time from these changes?

Ellen R. Gail Cooper: So Ryan, I’m going to start with just and overall around the Group business, and then I’ll hand it over to Chris to specifically address the margin. So first of all, as you heard from our remarks, we are extremely pleased with the execution across our Group business. As you know, and exactly as you asked, we have a targeted segment strategy. And from a segment perspective, the place that we have been the most focused in terms of growing has been in the local market. The local market, first of all, we’ve been building out all the capabilities there that are required from an overall digital and technological perspective. And we’ve also been expanding our products because in the local market the expectation is that you will have a bundled set of overall products.

And it happens to be the highest margin and fastest-growing part of group as well. In addition to that, we also have been diversifying our products and a place where we have been doing that is in supplemental health. Supplemental health is also higher margin product. And we’ve been seeing really nice growth in both of those areas. And so we saw that come through again this quarter. We saw it. If you look at our overall sales, you’ll see that the sales increase of 16% year-over- year is fully, for the most part, attributed to growth in local markets, and that growth is also attributed to supplemental health. And I think the other thing that’s worth pointing out is that about 2/3 of the sales that came through in this particular quarter were employee paid, so voluntary benefits and also from existing customers where we are growing lines of coverage.

Christopher Michael Neczypor: And Ryan, let’s just talk about the margin for a second. You’re right. We said that we expected 100 basis points of margin improvement in 2025 from our strategic efforts. I would say though that, that was a broader comment than just growing [supp health] and local markets. I think those are 2 big examples, but the other is repricing the business. So specifically to your question, we’re probably further along in repricing the business relative to some of the other strategic initiatives, but we see a lot of runway in growing the supplemental health product portfolio and the local market from a segment perspective. I think if you step back, though, to your general question, as Ellen said, it was a great quarter for Group.

If you think about the drivers, disability continue to see loss ratio improvement there. That’s really being driven by the incidence levels continuing to be favorable. Recoveries are relatively flattish from a metric perspective year-over-year. 2024 was exceptionally strong for us, as we had mentioned due to a lot of the process and operational improvements that we’ve made. So the dynamic that is occurring in the industry with lower incidence rates is certainly helping us as well. And frankly, at the moment, we don’t see that reverting. It certainly could. We’ve talked about some of the drivers from a macro perspective. But it’s — the positive trend there continues. The second thing that really benefited the quarter was the life loss ratio, which can be volatile quarter-to-quarter.

I think the improvement year-over-year was north of 8 points. We wouldn’t expect that necessarily to occur. We don’t see anything that it’s problematic. But when you look at our quarterly results from a loss ratio perspective, specifically for Group Life, you can see that there’s volatility. And then the third thing really for the quarter is just the fact, as we said, we continue to execute on the strategic initiatives and that flows through in a lot of the different dimensions. So then if you step back and you think about the back half of the year, I would just point you to a few things. First, as I said, we don’t really see any sign of deterioration in incidence rates. It could. But at the moment, we continue to see the trends there being positive.

And in Life, in particular, as a reminder, we had a very strong fourth quarter last year. So when you think about your margin, you put all that together for the back half of the year, I think as I mentioned in the prepared remarks, we would expect a similar margin for the second half of ’25 to the second half of ’24. So then you put that together with the first half. So the first half, we were around 10% plus the back half, somewhere around 8%. We would expect just from the way that, that math works a 9% plus margin for the year, which is 100 basis points of improvement relative to last year. So to the very beginning part of your question, the outlook that we had given at the beginning of the year where we said we would expect margins to be flat year-over-year given the fact that we had a 100 basis points of macro tailwinds that we didn’t know if it would persist.

Well, the reality is, is that things continue to be favorable from a macro perspective. But more important, the 100 basis points plus of Lincoln specific, if you will, strategic execution on growing the margin remains. So long answer to your question, but I think it’s important because at the end of the day, the macro could change, but the underlying momentum we have, we think will continue.

Ryan Joel Krueger: That was really helpful. And then a follow-up was just on the restructuring of the life captives. Can you give any perspective on how meaningful that could be to earnings and free cash flow? And is that something that could be more of a second half of this year event or more likely in ’26?

Christopher Michael Neczypor: So I don’t think we’re going to get into the numbers right now, Ryan. We need to go through the work. It’s something we’ve been working on for a while. It’s an example of a number of the different ways that we’ve looked at optimizing the Life portfolio. Once we have something more concrete, we’ll give you some ways to think about the return on capital. But as we talked about with the deployable excess capital, everything we’re doing is geared towards maximizing the return we’re going to get on that relative to the opportunities that we have in front of us. As it relates to timing, it’s hard to say, but the actual execution of something like that is one dynamic, but then the impact on earnings and free cash flow at a minimum would be next year, not this year.

Operator: Your next question comes from the line of Suneet Kamath with Jefferies.

Suneet Laxman L. Kamath: I wanted to start with the RILA product. It looked like your sales were quite strong, I think, plus 32%. And I think the industry was maybe plus 20%, so you’re gaining share. There was another company that sort of talked about some increased competition in RILA. So I just wanted to get a sense of what you’re seeing in the market? And then relatedly, it looked like the flows may have been down a decent amount year-over-year. So can you just talk about that? And again, the flows I’m specifically talking about is RILA.

Ellen R. Gail Cooper: Great. So thanks. So yes, we saw year-over-year as it relates to RILA, we saw about a 32% increase in overall sales. Having said that, if you recall, we introduced our second-generation RILA product in the third quarter of last year. And that was when we started to really see our sales accelerate. So you saw in the third quarter about $1.2 billion. And then relative sequentially, if you just look at where we were first quarter compared to where we are in second quarter, we’re up about 12% sequentially as the industry continues to grow. Importantly for us, and we’ve continued to highlight the fact that we are focused on profitable growth as opposed to top line sales growth. So it’s really critical to us that as we’re thinking about overall product sales, that we are also thinking about capital efficiency.

We’re thinking about ensuring that we are maintaining our profitability targets, et cetera. The second-generation RILA product has some unique features associated with it, crediting rate strategies, indices, et cetera, that are extremely popular and they are resonating, and that’s part of what is supporting us. And then additionally, and I also mentioned this in remarks, we’re expanding some of our distribution segments as well. So we’re seeing some new segments that are also seeing the RILA product attractive and we’re on those shelves, and we’re seeing some success there. So more to come as we continue to grow out the RILA product. As we mentioned, it’s an important part of our overall spread- based business strategy as is continuing to grow the overall fixed segment as well.

And I’ll hand it over to Chris for the second part of the question.

Christopher Michael Neczypor: Right. So Suneet, I think the flows question is relatively straightforward. This is a block that is still relatively new, right? If you think about when we in the industry really started growing RILA for us who is probably about 5 or 6 years ago, maybe 7. But if you just think about the natural trajectory as those products come out of surrender period, you will see more outflows. The goal is to retain those policyholders into new RILA products. But at the end of the day, as that block ages, you would expect to see, and you’re seeing it with some of our peers as well, the outflows increase, but the goal obviously is then to have sales increase more than that to continue to grow the block.

Suneet Laxman L. Kamath: Okay. That makes sense. And then I guess my second question, I guess, for Chris. Just wondering how you’re feeling about that 45% to 60% free cash flow conversion guide that you gave us for ’26. And I just want to understand, like it seems to me that, that guidance was given pre-Bain. And so if one of the objectives here of the Bain Capital is to improve risk-adjusted returns and free cash flow conversion, it would seem that with the Bain Capital, you should be perhaps above the target that you gave pre-Bain, but I just wanted to make sure I’m thinking about it right.

Christopher Michael Neczypor: So I would say we’re feeling good about the outlook that we provided, although obviously, we give more of a concrete view at the end of the year, Suneet, as you know. I think the point on Bain is a nuanced one because as we just talked about, we’re going to deploy that capital over the next 18 months. So we’re not anchoring to a 2026 number as it relates to the returns that we’ll get on that capital. But I agree, longer term, if you think about both Lincoln is a product mix, the industry, the businesses that we’re growing and now the ability to deploy Bain into maximizing some of the areas that can be maximized, of course, the longer-term free cash flow conversion should be north of where it is.

And even if you go back 2 years to the outlook that we gave, we talked about the 2026 guide and then we also gave some thoughts on what the longer term would look like. So yes, at the end of the day, I would say, because we’re going to deploy the Bain Capital, capital over the next 18 months. I wouldn’t change your thinking as it relates to the trajectory that we’re on relative to what we talked about before. But absolutely, longer term, as we grow Group, as we’re more efficient with Bermuda, as we’re more efficient from an operating model, all of those things. And frankly, dealing with the legacy life block, all of those things would suggest a higher free cash flow conversion rate, but over time.

Operator: Your next question comes from the line of Alex Scott with Barclays.

Taylor Alexander Scott: I wanted to see if you could give us a little more color on some of the things you’re doing on distribution and group in particular. I mean it sounds like you’re pretty optimistic on the growth profile of that business. And just interested in what will be the drivers of that growth? Is it the capabilities and the platform? Is it the distribution and some of the things you’re doing there? I just want to get a better feel for how you’re going to grow.

Ellen R. Gail Cooper: Absolutely. Alex. As it relates to group and how we’re thinking about distribution or really how we’re thinking about competitive differentiation, it’s all of the above. So starting with the fact that a targeted segment strategy enables our team to really be focused at the segment level, starting with distribution where we have dedicated teams that are focused on the local, the regional and the national market and really strengthening relationships from that level. We very much have been focused on what we think of as strategic broker relationships, which are really critical. And again, dedicating people at the different market segments to be able to build and enhance those overall relationships. But while we’re doing that, we also very much have been investing in really building the capabilities, the digital capabilities, the technology capabilities.

And I would say that they’re really across a couple of different areas. First is, for example, thinking about InsurTech. And so thinking about our ability to connect into the benefits, administrative systems and to be able to provide more ease of use and more access. That’s important across all segments. It’s even more important in the local market where they just tend to be smaller businesses. And so that’s really critical. Having more digital tools. Those digital tools are, they’re for the brokers, they’re for the employers and they’re for the employees, and we’ve done a lot there. We’ve invested quite a bit in lead management, and that’s been an important part, particularly upmarket of what differentiates us there as employers and employees are trying to navigate between paid family leave, short-term disability, long-term disability, supplemental health, how all of that integrates.

And so that’s been an important part of the overall capability as well. I’m not sure if your question also extends over into our LFD, but let me just spend a minute on there. So as you know, we are really known for our distribution leadership. And so it gives us the ability to lean in as we continue to build out our products and also our capabilities both on the retail life side and also on the retail annuity side. So on the annuity side, for example, where we’re really leaning into having consistent presence, for example, in the fixed annuity markets, some of what we’re doing there is really deepening our partnerships. We are working directly with some of our distribution partners to have unique features that are specifically for their shelves that also will support our capabilities going forward.

And same thing on the life side, and I addressed that in our remarks as well, really working much more closely with the financial professional, providing them with digital tools, which has been critical, automated sales processes for new business, both on the life and annuity side. So all of the ease of use of working with us and providing tools and support are supporting us to be able to continue to grow the business.

Taylor Alexander Scott: That’s really helpful. The second question I had is just on the external reinsurance solution potential. And you mentioned that as one of the things you may use capital for. Could you just talk about the environment there and just appetite from the reinsurers and what you could potentially try to do? Like are we talking more of a shedding risk type transaction or something that could actually provide you some kind of capital associated with blocks that do have significant value? Like how should we think about potential external?

Christopher Michael Neczypor: Yes. Alex, I guess I would say a couple of things. One, it’s too early for us to really talk about anything we’re focused on there with real detail. We’re studying all of the possibilities. I think at the end of the day, though, we’re focused as it relates to external reinsurance on the legacy life block. And so we obviously did a very large deal, a very complicated deal 2 years ago. It’s been a good deal for Lincoln, if you think about the growth and improvement in some of the free cash flow and the derisking that we were able to do there. So I think as we’ve talked about the focus as it relates to the potential to do another reinsurance deal would really be focused on that. I think how we do it is something that we’re looking at today.

But obviously, if you have deployable excess capital, it would lessen the need to include — you wouldn’t necessarily structure it the way that the previous deal for us was structured, right? You have a lot more options. And then at the end of the day, to your question about the environment, the environment is robust. It seems like every other week, there’s a new large complicated insurance transaction that’s out there. So we’ve done a lot of transactions over the past 5 years. We know all of the interested parties and to the degree that we decide there is something to do there. We’ll talk to you all about it, but it’s just one of the things that we’re studying today.

Operator: Your next question comes from the line of Wes Carmichael with Autonomous Research.

Wesley Collin Carmichael: I had a question, maybe a follow-up to Ryan’s on the Group. But in terms of GAAP profitability, I think remeasurement gains in the period were $104 million. And I know you had a significant benefit last year. But is there any help on how to think about what produced that gain this quarter? And as you headed into the assumption review, if you think there’s going to be any run rate impact from potential unlocking?

Christopher Michael Neczypor: So Wes, it’s a good question. Let’s just talk about what the line item is because I saw your note. I think it’s very straightforward, right? If you think about the results that we are delivering and the favorability that’s happening specifically in disability, you would expect that favorability to then flow through into that policyholder remeasurement line, right? Because ultimately, what it is, is you set reserves at the beginning of the year and included in those reserves that’s going to be the active claim — or the claims which have been reported and you have assumptions around that. And then there’s also an assumption for claims that have been incurred but not reported yet. And so when you have the reserve for that portion, you are making assumptions for how things are going to progress throughout the year, what the incidence rates will be, what the recovery rates will be, et cetera.

And so if you think about the fact that what we’ve been saying is that our recent results are tracking better than what the long-term averages would look like. Mechanically, you would expect to see this come through assuming that the favorability continues. So it is very much a by-product of the way the reserves work. It’s to be expected. In second quarter, as we’ve talked about, big picture, we have favorable seasonality in disability, and so that’s why you see both on the loss ratio. And then as a result, within the remeasurement line be a little bit bigger. You saw it last year as well. And so I wouldn’t — I would just think of it as the favorability in trends go relative to what we’ve talked about as the longer-term assumptions, you would expect to see that line item produce these types of results.

Wesley Collin Carmichael: That’s helpful, Chris. I guess just switching to RPS. You mentioned that a strong pipeline in the second half of the year. And just a little bit more color there, if you could. And I know there’s a planned termination in the first quarter, but any help on how you’re thinking about run rate earnings in that segment would be great?

Ellen R. Gail Cooper: Sure. So first of all, we — while we, first of all, messaged that our first year sales, we saw some really healthy sales in this particular quarter. They were up about 50% year-over-year. And importantly, because we’ve been talking to you about pressures around stable value outflows, a meaningful portion of those sales were in stable value. And one of the drivers of that is a new product that we believe can support us as we continue to go forward. As we — we often have a lot of insight into future pipeline as well. And so as we look at the go-forward sales that we expect in the back half of the year, we can see that they actually are quite healthy. So we feel good about the momentum. We’ve seen some really nice first year of sales momentum and also recurring deposits as well.

So total deposits have been healthy. And at the same time, we also acknowledged some pressure as it relates to earnings that has been mostly driven by stable value outflows, and we have a number of actions in place to continue to improve that.

Christopher Michael Neczypor: Yes. And I would just add, I think that’s well said. At the end of the day, the dynamics that we’ve been experiencing in RPS have been good underlying growth, but offset by stable value outflows. We actually saw moderation there this quarter. And so to the degree that stable value moves around, that’s going to have an outsized impact, just given the ROA on that business. But underneath the surface, we continue to grow the important parts of the business, we continue to have expense discipline. We do think that there’s more we can do there. And sequentially, earnings were up for RPS, which I think is a good sign relative to the past couple of quarters. But at the end of the day, this is still a business where we have to execute on our strategic priorities. It is still somewhat dependent on markets. And to the degree that stable value flows turned from negative to positive, that will provide a tailwind over time.

Operator: That’s all the time we had for questions today. If you did queue up to ask a question and your question hasn’t been answered, Lincoln Financial will reach out after the conclusion of today’s call. And I would like to turn the call back over to Tina Madon for closing remarks.

Tina Madon: So thank you for joining us this morning. And as the operator said, we’re happy to address any follow-up questions you may have. And please e-mail us at investorrelations@lfg.com.

Operator: And ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation, and you may now disconnect.