Lincoln(LNC)2025-02-21 22:09Interest Rates and Economic Environment - The Federal Reserve increased the federal funds rate target range to 5.25% to 5.50% in July 2023, with subsequent decreases announced in December 2024 to a range of 4.25% to 4.50%[180]. - A decline in market interest rates could reduce the company's return on investments and may necessitate strengthening recorded policy liabilities, impacting net income[178]. - Increased interest rates may lead to a decline in the fair value of fixed-income securities, adversely impacting the company's capital position[181]. - The company experienced increased outflow rates in its Annuities business during 2024, primarily due to a rise in full surrenders linked to the elevated interest rate environment[182]. Regulatory and Legislative Changes - Legislative and regulatory changes could impact the company's insurance subsidiary capital requirements and profitability, as seen with the NAIC's temporary guidance approved in August 2023[191]. - The SEC adopted extensive rule changes in March 2024 requiring companies to include climate-related disclosures in their reports, with California's new laws starting in 2026 imposing additional requirements[202]. - The Inflation Reduction Act established a 15% corporate alternative minimum tax for corporations with average adjusted net income exceeding 1.0 billion, effective for tax years beginning after December 31, 2022[213]. - Changes in tax laws could increase corporate taxes and negatively affect financial results, with potential new taxes being imposed[212]. - The company is monitoring potential changes in regulations regarding economic scenario generators, which could significantly affect statutory reserves and required capital for certain products[191]. - Regulatory scrutiny has increased, with potential fines and penalties impacting business operations and financial condition[206]. - The company faces risks related to compliance with privacy laws and regulations, which could result in increased costs and potential legal liabilities[193]. - The use of AI and big data in business practices is under regulatory scrutiny, which may lead to increased compliance costs and changes in business operations[200]. - The company is subject to evolving ESG standards, which may lead to reputational risks and increased operational costs[202]. Financial Performance and Risks - Changes in equity markets significantly affect the profitability of the company's products, with strong equity markets leading to higher account balances and increased fee income[183]. - The company’s hedging strategies may not fully offset changes in the carrying value of guarantees on certain products, potentially resulting in volatility in financial results[186]. - Adverse capital and credit market conditions may affect liquidity needs and access to capital, potentially impacting profitability[223]. - The inability of subsidiaries to pay dividends could harm the company's ability to meet obligations due to regulatory restrictions[225]. - A decrease in capital and surplus may lead to a downgrade in credit and insurer financial strength ratings[228]. - The RBC ratio is influenced by statutory surplus amounts and product mix, with potential increases in reserves during equity market declines[230]. - In November 2023, S&P changed its RBC capital adequacy model, affecting the statutory capital required to maintain ratings[231]. - The company faces legal and regulatory actions that could result in substantial financial liabilities and harm to reputation[216]. - The insurance subsidiaries' earnings impact their surplus, which constrains capital growth and dividend payments[227]. - The company recorded a goodwill impairment of 634 million related to its Life Insurance segment in Q3 2022[242]. Reinsurance and Mortality Risks - As of December 31, 2024, the company ceded $1.0 trillion of life insurance in force to reinsurers for reinsurance protection[255]. - The collectability of reinsurance is dependent on the solvency of reinsurers, and insolvency could adversely affect financial results[256]. - Significant adverse mortality experience may lead to higher reinsurance costs or reduced availability of coverage[247]. - Catastrophic events, including pandemics, could materially impact liabilities for contract holder claims and overall financial condition[250]. - Changes in assumptions for reserves could result in inadequate reserves for future policy benefits and claims[235]. - The company has faced numerous rate increase actions on in-force business from reinsurers, which may affect profitability and could lead to additional reserves being required[257]. Investment and Asset Management - As of December 31, 2024, 39% of the carrying value of the company's total investments consisted of illiquid asset classes, which may pose challenges in selling these holdings in a timely manner[281]. - The company faces default risk on mortgage loans, which are primarily collateralized by commercial properties, potentially impacting profitability[285]. - Increased default rates in mortgage loan investments could materially affect the company's business and financial condition[285]. - The company has exposure to various industries and counterparties, increasing credit risk due to potential defaults[286]. - Collateral requirements related to declines in market value of specified assets may adversely affect the company's liquidity[287]. Operational and Competitive Challenges - The company completed the sale of its wealth management business in May 2024, which may impact future operations and financial results[272]. - The company may face significant operational disruptions if third-party vendors experience difficulties, which could impair its ability to serve customers[270]. - The company’s financial results could be adversely affected by unforeseen liabilities or performance issues following acquisitions[271]. - The company’s ability to attract and retain qualified employees is critical, with intense competition for talent impacting its operations[259]. - Intense competition in the financial services industry could negatively impact the company's profitability and market share[288]. - Independent sales representatives distributing the company's products may also sell competitors' products, affecting sales performance[290]. - Competitors may offer more attractive products or higher commission rates, leading to a potential loss of business for the company[291]. Cybersecurity and Liability Risks - The company has not experienced a material security breach to date, but acknowledges the increasing sophistication of cyberattacks and the potential for future incidents[264]. - The company’s cyber liability insurance may not be sufficient to cover all losses resulting from cyberattacks or security breaches[268]. - The company may incur substantial liability if found to infringe on third-party intellectual property rights, which could adversely affect its business[261]. - The company faces risks related to compliance with privacy laws and regulations, which could result in increased costs and potential legal liabilities[193].