Lincoln(US:LNC)2026-02-19 22:22Market Conditions and Financial Impact - The company experienced increased outflow rates in its Annuities business during 2024 and 2025, primarily due to elevated interest rates leading to full surrenders [184]. - A decline in market interest rates could materially adversely affect the company's results of operations, financial condition, and cash flows, significantly reducing profitability [180]. - The company anticipates that changes in equity markets may significantly affect its business and profitability, with strong equity markets leading to higher account balances and fee income [185]. - Increases in interest rates may negatively affect the company's profitability, capital position, and the value of its investment portfolio [181]. - The company's statutory reserves and surplus for variable annuities are sensitive to equity market changes, with non-linear relationships affecting reserve calculations [235]. - Income from certain investments can be uneven and volatile, impacting earnings and leading to lower-than-expected returns [282]. - Default risk on mortgage loans, primarily collateralized by commercial properties, may adversely affect profitability [283]. - Exposure to various industries and counterparties increases credit risk, particularly in the event of defaults [284]. - Collateral requirements related to declines in market value of specified assets may adversely affect liquidity [285]. - Disruptions in capital and credit markets may limit access to necessary capital, affecting liquidity and financial flexibility [222]. Regulatory and Compliance Challenges - Legislative and regulatory changes, such as the NAIC's temporary guidance approved in August 2023, have increased the company's statutory capital and estimated RBC ratio as of December 31, 2025 [193]. - The company is monitoring potential impacts from new regulations, including the implementation of a new GOES for calculating annuity and life reserves effective January 1, 2026 [193]. - Compliance with existing and emerging privacy laws could result in increased compliance costs and changes in business practices, potentially adversely affecting the company's reputation and financial condition [195]. - The company faces challenges related to the use of AI and big data, which could lead to increased compliance costs and changes in business practices [203]. - Increased scrutiny regarding ESG matters may impact the company's reputation and business operations, with new regulations requiring climate-related disclosures starting in 2026 [205]. - Regulatory actions could lead to substantial fines or restrictions on business activities, adversely affecting financial condition and results of operations [208]. - Changes in laws or regulations may impose additional disclosure requirements and affect the distribution model and sales of products, potentially increasing costs [209]. - Compliance with new fiduciary standards may increase regulatory burdens and litigation risks, adversely impacting financial results [210]. - Changes in tax laws could increase corporate taxes, negatively affecting results of operations and financial condition [212]. - Legal and regulatory actions could result in financial losses and harm the company's reputation, impacting business prospects [214]. Operational Risks and Challenges - The company faces potential adverse effects on its business and financial condition due to deficiencies in AI systems, including risks of cybersecurity incidents that may involve personal information [204]. - Cybersecurity threats have increased, with a proliferation of ransomware attacks and other cyber incidents, although the company has not experienced a material breach to date [259]. - The reliance on third-party vendors for critical services increases operational risks, including cybersecurity threats and supply-chain dependencies [265]. - The company’s flexible hybrid work model may increase operational risks, particularly in cybersecurity [258]. - The company may encounter significant costs related to litigation for intellectual property protection, which could impact its competitive position [255]. - The company faces intense competition for qualified employees, which may adversely affect its ability to support business operations [254]. - The company may face operational difficulties and unforeseen liabilities from acquisitions, which could adversely affect financial results [269]. Financial Strength and Ratings - A downgrade in the financial strength ratings of the company's insurance subsidiaries could negatively impact its ability to market products and lead to increased withdrawals by current customers [274]. - The company may not be able to maintain its current financial strength ratings, which could affect its cost of capital and ability to raise additional debt [275]. - An inability to access credit facilities could lead to reduced liquidity and potential downgrades in credit and financial strength ratings [231]. - The company ceded $1.2 trillion of life insurance in force to reinsurers for reinsurance protection as of December 31, 2025 [251]. - In November 2023, S&P implemented changes to its insurer RBC capital adequacy model, affecting the statutory capital required to maintain current ratings [229]. - A decrease in the capital and surplus of the insurance subsidiaries may lead to a downgrade in credit and insurer financial strength ratings [226]. - The company recorded a goodwill impairment of $634 million related to its Life Insurance segment during the third quarter of 2022 [239]. Risk Management Strategies - The company uses various hedging strategies to mitigate risks associated with guarantees on its variable products, but these strategies may not fully offset changes in carrying value [188]. - The company may need to strengthen recorded policy liabilities during periods of sustained lower interest rates, which could reduce net income in affected reporting periods [180]. - Significant adverse mortality experience could increase reinsurance costs or limit future coverage availability, impacting profitability [244]. - The company faces risks related to the collectability of reinsurance, which is dependent on the solvency of individual reinsurers [252]. - Future pandemics or catastrophic events could materially adversely affect the company's results of operations and financial condition [245]. - Restrictions on dividends from insurance subsidiaries could harm the company's ability to meet obligations and corporate expenses [223].