Lincoln(LNC) - 2024 Q3 - Quarterly Results

Notes This section provides definitions for non-GAAP financial measures and key operational terms used throughout the report Non-GAAP Performance Measures and Definitions This section outlines the company's use of non-GAAP financial measures, which management believes provide a clearer understanding of ongoing business performance - Adjusted Income (Loss) From Operations is a key non-GAAP measure that excludes several items from GAAP net income to better represent ongoing business performance[52] - The company uses several adjusted stockholders' equity and book value per share metrics to eliminate market volatility from changes in interest rates and equity markets[53] - Sales are defined differently across product lines, such as Annuities and Retirement Plan Services sales based on deposits[55] Credit Ratings This section presents the senior debt and financial strength ratings for Lincoln National Corporation and its key insurance subsidiaries Credit Ratings This section details the senior debt and financial strength ratings for the company and its key insurance subsidiaries as of October 31, 2024 Financial Strength and Debt Ratings (as of Oct 31, 2024) | Entity / Rating Type | AM Best | Fitch | Moody's | Standard & Poor's | | :--- | :--- | :--- | :--- | :--- | | Senior Debt Ratings | bbb+ | BBB+ | Baa2 | BBB+ | | The Lincoln National Life Insurance Company | A | A+ | A2 | A+ | | First Penn-Pacific Life Insurance Company | A | A+ | A2 | - | | Lincoln Life & Annuity Company of New York | A | A+ | A2 | A+ | Consolidated Financials This section provides an overview of the company's consolidated financial performance, including income statements, balance sheets, and key metrics Consolidated Statements of Income (Loss) The company reported a consolidated net loss of $(528) million for Q3 2024, primarily driven by a market risk benefit loss Consolidated Income Statement Highlights (in millions) | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,111 | $4,203 | -2.2% | | Total Expenses | $4,814 | $3,169 | +51.9% | | Income (Loss) Before Taxes | $(703) | $1,034 | NM | | Net Income (Loss) | $(528) | $853 | NM | | Diluted EPS | $(3.29) | $4.79 | NM | Consolidated Balance Sheets Total assets increased by 17.2% to $396.8 billion, with stockholders' equity rising significantly due to reduced unrealized investment losses Consolidated Balance Sheet Highlights (in billions) | Metric | Sep 30, 2024 | Sep 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Investments | $131.8 | $132.5 | -0.5% | | Total Assets | $396.8 | $338.6 | +17.2% | | Total Liabilities | $387.8 | $335.4 | +15.6% | | Total Stockholders' Equity | $9.0 | $3.2 | +181.7% | Earnings, Shares and Return on Equity After-tax adjusted income from operations significantly increased to $392 million, with book value per share rising 260.2% year-over-year Key Performance Metrics | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | After-tax adjusted income from operations (millions) | $392 | $84 | NM | | Adjusted income from operations EPS (diluted) | $2.06 | $0.29 | NM | | Book value per share | $46.97 | $13.04 | +260.2% | | Book value per share, excluding AOCI | $62.67 | $63.03 | -0.6% | | Adjusted income from operations ROE | 12.1% | 1.8% | +10.3 ppt | Key Stakeholder Metrics The company improved its leverage ratio to 28.4% and increased holding company available liquidity by 66.8% year-over-year Stakeholder Metrics Highlights | Metric | Sep 30, 2024 | Sep 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Common Dividends (millions) | $77 | $76 | +1.3% | | Leverage Ratio | 28.4% | 30.7% | -2.3 ppt | | Holding Company Available Liquidity (millions) | $759 | $455 | +66.8% | Select Earnings Drivers By Segment Consolidated deposits grew 31.5% to $8.8 billion, driven by Retirement Plan Services and Annuities, despite overall net outflows Q3 2024 Deposits and Net Flows by Segment (in millions) | Segment | Deposits | Net Flows | | :--- | :--- | :--- | | Annuities | $3,383 | $(1,637) | | Life Insurance | $1,262 | $738 | | Retirement Plan Services | $4,180 | $651 | | Consolidated Total | $8,825 | $(248) | - Consolidated deposits increased 31.5% YoY, while consolidated net flows were $(248) million, an improvement from $(325) million in Q3 2023[62] Sales By Segment Total sales showed strong growth in Annuities and Retirement Plan Services, while Life Insurance sales declined Sales by Segment (in millions) | Segment | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Annuities | $3,375 | $2,728 | +23.7% | | Life Insurance | $122 | $144 | -15.3% | | Group Protection | $84 | $71 | +18.3% | | Retirement Plan Services | $4,180 | $2,700 | +54.8% | Operating Revenues and G&A Expenses Total adjusted operating revenues slightly decreased, while total General and Administrative (G&A) expenses declined by 7.1% G&A Expenses as a % of Operating Revenues | Segment | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Annuities | 8.6% | 11.5% | | Life Insurance | 7.9% | 8.0% | | Group Protection | 13.6% | 13.8% | | Retirement Plan Services | 24.3% | 24.9% | | Total | 12.4% | 13.2% | Operating Commissions and Other Expenses Total operating commissions and other expenses decreased by 6.0%, primarily due to lower commissions and general and administrative expenses Operating Expenses Breakdown (in millions) | Expense Category | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | General and administrative expenses | $632 | $670 | -5.7% | | Commissions | $546 | $603 | -9.5% | | Amortization of DAC, VOBA, etc. | $299 | $270 | +10.7% | | Total Operating Commissions & Other Expenses | $1,371 | $1,458 | -6.0% | Segment Operational Data This section provides detailed operational and financial performance data for each of the company's business segments Annuities The Annuities segment reported a 21.4% increase in income from operations, supported by a rise in account balances despite net outflows Annuities Segment Performance | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Income from operations (millions) | $301 | $248 | +21.4% | | Total operating revenues (millions) | $1,195 | $1,197 | -0.2% | | End-of-period account balances (billions) | $165.2 | $146.7 | +12.6% | Life Insurance The Life Insurance segment significantly improved its income from operations, turning a loss into a gain despite declining operating revenues Life Insurance Segment Performance | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Income (loss) from operations (millions) | $22 | $(173) | NM | | Total operating revenues (millions) | $1,589 | $1,723 | -7.8% | | Average account balances, net of reinsurance (billions) | $44.1 | $50.1 | -12.1% | | Total in-force face amount (billions) | $1,081.8 | $1,086.5 | -0.4% | Group Protection The Group Protection segment delivered strong results with a 60.3% increase in income from operations and improved operating margin Group Protection Segment Performance | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Income from operations (millions) | $109 | $68 | +60.3% | | Operating Margin | 8.4% | 5.4% | +3.0 ppt | | Total Loss Ratio | 71.4% | 75.2% | -3.8 ppt | Retirement Plan Services The Retirement Plan Services segment saw a modest increase in income from operations and a significant positive shift to net inflows Retirement Plan Services Segment Performance | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Income from operations (millions) | $44 | $43 | +2.3% | | Net Flows (millions) | $651 | $(272) | NM | | Return on Average Account Balances (bps) | 16 | 18 | -2 bps | Other Operations Other Operations reported an improved loss from operations of $(84) million, a 17.6% improvement from the prior year Other Operations Performance (in millions) | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total operating revenues | $52 | $38 | +36.8% | | Total operating expenses | $157 | $170 | -7.6% | | Income (loss) from operations | $(84) | $(102) | +17.6% | DAC and Account Balance Roll Forwards This section details the changes in deferred acquisition costs, value of business acquired, and account balances across segments Consolidated DAC, VOBA, DSI and DFEL Roll Forwards Consolidated DAC, VOBA, and DSI balances increased by 1.1% year-over-year, while DFEL grew by 14.4% DAC, VOBA, DSI Roll Forward (in millions) | Component | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Beginning Balance | $12,435 | $12,316 | | Deferrals | $309 | $289 | | Operating Amortization | $(269) | $(264) | | Ending Balance | $12,475 | $12,341 | Account Balance Roll Forwards: Annuities The Annuities segment's net account balance grew 12.6% to $165.2 billion, driven by market performance despite net outflows Total Annuities Account Balance Roll Forward (in billions) | Component | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Beginning Balance | $175.5 | $161.1 | | Gross Deposits | $3.4 | $2.7 | | Net Flows | $(1.6) | $(0.9) | | Market/Other Changes | $7.3 | $(3.9) | | Ending Balance (Net) | $165.2 | $146.7 | Account Balance Roll Forwards: Life Insurance The Life Insurance segment's total net account balance decreased by 10.1% year-over-year, impacted by reinsurance transactions Total Life Insurance Account Balance Roll Forward (in billions) | Component | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Beginning Balance | $64.2 | $60.9 | | Gross Deposits | $1.3 | $1.3 | | Net Flows | $0.7 | $0.8 | | Market/Other Changes | $0.6 | $(1.8) | | Ending Balance (Net) | $44.7 | $49.7 | Account Balance Roll Forwards: Retirement Plan Services Retirement Plan Services' total account balance increased by 21.1% to $113.8 billion, fueled by strong net inflows and market value changes Total Retirement Plan Services Account Balance Roll Forward (in billions) | Component | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Beginning Balance | $107.9 | $96.6 | | Gross Deposits | $4.2 | $2.7 | | Net Flows | $0.7 | $(0.3) | | Market/Other Changes | $5.3 | $(2.4) | | Ending Balance | $113.8 | $93.9 | Investment Information This section provides details on the company's investment portfolio, focusing on fixed-income asset classes and credit quality Fixed-Income Asset Class The fixed maturity AFS securities portfolio totaled $87.0 billion, diversified across Financial Services, Consumer Non-Cyclical, and Utilities industries Top Corporate Bond Industry Concentrations (as of Sep 30, 2024) | Industry | Amount (billions) | % of Portfolio | | :--- | :--- | :--- | | Consumer non-cyclical | $12.8 | 14.8% | | Financial services | $12.5 | 14.3% | | Utilities | $11.3 | 12.9% | | Capital goods | $5.5 | 6.3% | | Consumer cyclical | $5.4 | 6.2% | Fixed-Income Credit Quality The investment portfolio maintains high credit quality, with 96.6% of fixed maturity AFS securities rated investment grade Fixed Maturity AFS Securities Credit Quality (as of Sep 30, 2024) | NAIC Rating | % of Portfolio | | :--- | :--- | | NAIC 1 (AAA-A) | 58.9% | | NAIC 2 (BBB) | 37.7% | | Total Investment Grade | 96.6% | | Total Below Investment Grade | 3.4% | GAAP to Non-GAAP Reconciliations This section provides detailed reconciliations between GAAP and non-GAAP financial measures, highlighting key adjustments Select GAAP to Non-GAAP Reconciliations Detailed reconciliations show the transformation from a GAAP net loss of $(528) million to an adjusted income from operations of $392 million Q3 2024 Reconciliation: Net Income to Adjusted Income from Operations (in millions) | Line Item | Amount | | :--- | :--- | | Net income (loss) | $(528) | | Total adjustments | $920 | | Adjusted income (loss) from operations | $392 | Reconciliation: Stockholders' Equity to Adjusted Stockholders' Equity (as of Sep 30, 2024, in millions) | Line Item | Amount | | :--- | :--- | | Stockholders' equity | $9,013 | | Less: Preferred stock | $(986) | | Less: AOCI | $2,682 | | Other adjustments (MRB, GLB, etc.) | $1,258 | | Adjusted stockholders' equity | $11,967 |