Lincoln(US:LNC)2023-02-09 20:42Financial Data and Key Metrics Changes - Adjusted operating EPS will exclude market risk benefit fair value changes and include an estimated $800 million of VA hedge costs [1] - The impact of LDTI is expected to increase year-end total book value by about $300 million and reduce year-end book value excluding AOCI by $900 million [1][2] - The company expects to end the year with an RBC ratio of approximately 383%, an improvement towards the target of 400% [47][110] Business Line Data and Key Metrics Changes - Operating income for the Life Insurance segment was $46 million, down from $80 million in the prior-year quarter, primarily due to alternative investment results [43] - Annuities reported operating income of $238 million compared to $332 million in the prior-year quarter, reflecting the decline in capital markets [67] - Group Protection reported operating income of $47 million, an increase from an operating loss of $115 million in the prior-year quarter, aided by lower pandemic-related claims [69] Market Data and Key Metrics Changes - Annuity sales increased 7% from the prior year quarter, with positive flows reflecting continued strength in index variables and fixed index products [54] - Retirement Plan Services reported a 7% decline in fourth quarter total deposits from a strong prior year period, but full-year total deposits rose 10% [56] - The loss ratio adjusted for the impact of the pandemic was 77.1%, a 420 basis point decrease from the prior-year quarter [60] Company Strategy and Development Direction - The company is focused on maximizing distributable earnings and improving capital generation, with a target of $260 million to $300 million in run rate savings from the Spark initiative by late 2024 [35][81] - The strategy includes reducing capital sensitivity to market volatility and further diversifying the earnings mix [35] - The company is evaluating both internal and external opportunities to maximize the value of its in-force business, including potential block reinsurance transactions [53][108] Management's Comments on Operating Environment and Future Outlook - Management expects ongoing headwinds in 2023, including pressures from capital markets, pandemic claims, and inflation-driven expenses [14][15] - Despite these challenges, the company remains confident in its ability to improve the business over time and expects distributable earnings to align with prior expectations [16][80] - Management highlighted that the company has made substantial progress in rebuilding capital and improving ongoing capital generation [91] Other Important Information - The company raised $1 billion of preferred capital to strengthen its balance sheet [47] - The investment portfolio is well positioned for a potential credit cycle, with a credit quality of 97% investment grade, the highest in the last decade [72] - The company is committed to returning capital to shareholders through dividends, with the Board approving the dividend for the first quarter of 2023 [77] Q&A Session Summary Question: Focus on block reinsurance deals - Management is currently focusing on maximizing the value of in-force business and evaluating both internal and external solutions [8][11] Question: Strategic transactions consideration - The company is primarily focused on financial transactions that optimize the value of in-force business but remains open to evaluating strategic opportunities if they make sense [11][10] Question: Impact of higher reinsurance costs - The company expects higher reinsurance costs in 2023 compared to 2022, which will impact the Life business [15][130] Question: Future cash flow expectations - The company guided to a range of $600 million to $800 million of distributable earnings for 2023, with expectations of $300 million to $500 million in free cash flow [80][76] Question: Commitment to common dividend - Management reiterated its commitment to returning capital to shareholders through dividends, while also focusing on rebuilding capital [77][99]