Lincoln(US:LNC)2022-11-03 20:49Financial Data and Key Metrics Changes - The company reported a third quarter adjusted operating loss of $1.7 billion or $10.23 per share, which includes $11.62 per share from this year's assumption review [41] - Excluding the impact of the assumption review, adjusted operating earnings would have been $237 million or $1.39 per share for the quarter [41] - The risk-based capital (RBC) ratio is projected to decline from approximately 427% at the beginning of the year to about 360% by year-end [38][14] Business Line Data and Key Metrics Changes - Annuities operating income, excluding the annual assumption review, was $232 million compared to $343 million in the prior year quarter, reflecting a 32% decline [43] - Retirement Plan Services reported operating income of $52 million, down from $60 million in the prior year quarter, driven by a $10 million drop in alternative investment income [44] - Life insurance reported an operating loss of $2.2 billion, with an operating income of $37 million excluding the annual assumption review [45] Market Data and Key Metrics Changes - Total Life Insurance sales increased by 3% from the prior year quarter, primarily due to a rise in indexed Universal Life sales [12] - In Retirement Plan Services, total deposits of $2.8 billion were up 16% from the prior year quarter, reflecting a 33% increase in first-year sales [13] - Group Protection sales surged by 83% from the prior year quarter, with premiums of $1.2 billion up 8% compared to the prior year quarter [13] Company Strategy and Development Direction - The company aims to maximize distributable earnings and improve capital generation while reducing capital sensitivity to market volatility [15] - A strategic focus on diversifying earnings with durable cash-generative income streams is emphasized [15] - The company is evaluating strategic alternatives for its in-force business, including potential block reinsurance transactions [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the plan to rebuild the RBC ratio to the target of 400%, although it will take time [57] - The company is focused on improving the cash flow profile of the Life business and expects to see growth despite recent challenges [47] - Management acknowledged the impact of market volatility on capital positions but remains optimistic about future capital generation [80] Other Important Information - The company incurred a $634 million GAAP goodwill impairment charge in its life business due to variable universal life equity market impacts [11] - S&P revised the company's rating from AA- with a negative outlook to A+ with a stable outlook, while Moody's affirmed its A1 rating with a negative outlook [53] Q&A Session Summary Question: How long will it take to rebuild the RBC ratio back to the 400% target? - Management indicated that rebuilding the RBC ratio will take time but expressed confidence in the ongoing actions to support capital generation [57] Question: Can you quantify the ultimate lapse rate on GUL and the opportunity for third-party reinsurance? - Management provided insights into the lapse and surrender rates, indicating a significant reduction in expected lapsation and a potential for reinsurance opportunities if the right conditions are met [59][66] Question: How confident is the company in maintaining the common stock dividend? - Management expressed confidence in maintaining the dividend, citing strong capital generation and various levers available to optimize distributable earnings [71] Question: What are the strategic options for risk transfer? - Management stated that all options are on the table, with a focus on finding the right price and timing for potential transactions [92]