Lincoln Financial Group Reports 2023 Fourth Quarter and Full Year Results

RADNOR, Pa.–(BUSINESS WIRE)–Lincoln Financial Group (NYSE: LNC) today reported financial results for the fourth quarter and full year ended December 31, 2023.


  • Net loss available to common stockholders was $(1.2) billion, or $(7.35) per diluted share.
  • Adjusted operating income available to common stockholders was $246 million, or $1.45 per diluted share.
  • The primary differences between net income and adjusted operating income resulted from the following non-economic factors:

    • $(0.8) billion of the net loss, or $(4.71) per diluted share, primarily due to changes in market risk benefits driven by lower interest rates, which more than offset the benefit of higher equity markets.
    • $(0.6) billion of the net loss, or $(3.67) per diluted share, was driven by a change in the fair value of an embedded derivative related to the Fortitude Re reinsurance transaction, with a direct offset in other comprehensive income.
    • Expected year-end risk-based-capital (RBC) ratio was in the range of 400-410%, an estimated increase of more than 20 percentage points from the 375-385% range at the end of the 2023 third quarter.

The 2023 fourth quarter marked a significant step forward in rebuilding capital, and we expect our year-end risk-based capital ratio to be above our target of 400%,” said Ellen Cooper, Chairman, President and CEO of Lincoln Financial Group. “We delivered improved operating performance led by our Group Protection business, record sales in Annuities, and more stable Life earnings. In Retirement Plan Services, we achieved our ninth consecutive year of positive flows. We are making meaningful progress in resetting our businesses for profitable organic growth as we reposition our product sales to a more capital-efficient and higher risk-adjusted return mix supported by our leading distribution.

Additionally, we closed a major reinsurance transaction with Fortitude Re and announced the agreement to sell our wealth management business to Osaic, Inc. As we look ahead, we will build on our solid foundation and strong momentum to further strengthen our balance sheet, improve free cash flow, and grow profitably as we position our company to deliver increasing shareholder value.”

Business Highlights

Our 2023 fourth-quarter and full-year results were driven by substantial progress in each of our businesses and reflect our focused execution as we advance on our multi-year journey to transform our business.

  • Group Protection delivered record full-year earnings and strong top-line growth. Group’s margin grew over 400 basis points year over year to 5.5%, excluding the benefit from the annual assumption review. This result was attributable to disciplined pricing and improved risk results.
  • Annuities delivered a record sales quarter, driven by strength in fixed annuities which surpassed the $2 billion mark in the quarter for the first time. This strong growth was driven by our strategic positioning across fixed product categories and with select distribution partners.
  • Life Insurance sales declined for the fourth quarter and full year, driven by our intentional strategic realignment to more accumulation products, which are expected to deliver more stable cash flows and higher risk-adjusted margins.
  • Retirement Plan Services 2023 fourth-quarter and full-year results were below expectations, and we are taking actions to regain momentum and drive long-term sustainable growth. Retirement achieved its ninth consecutive year of positive flows, surpassing $100 billion in assets under management for the first time.
  • Our reinsurance transaction with Fortitude Re closed during the quarter, de-risking and strengthening our balance sheet while driving increased free cash flow.
  • We announced the sale of our wealth management business to Osaic, Inc., which is expected to close in the first half of 2024 and to provide at least $700 million of capital benefit.
  • We continued to invest in our technology and infrastructure to support future growth, including digital platforms to enhance the customer experience and innovative tools to drive more production for our distribution force.

Earnings Summary

 

For the Three Months Ended

December 31

For the Twelve Months Ended

December 31

(in millions, except per share data)

12/31/2022(2)

12/31/2023

12/31/2022(2)

12/31/2023

Net Income (Loss)

$812

$(1,235)

$1,358

$(752)

Net Income (Loss) Available to Common Stockholders

807

(1,246)

1,345

(835)

Net Income (Loss) per Diluted Share Available to Common Stockholders(1)

4.73

(7.35)

7.78

(4.92)

Adjusted Income (Loss) from Operations

134

258

(1,167)

973

Adjusted Income (Loss) from Operations Available to Common Stockholders

129

246

(1,180)

890

Adjusted Income (Loss) from Operations per Diluted Share Available to Common Stockholders(1)

$0.76

$1.45

$(6.90)

$5.22

(1)

In periods where a net loss or adjusted loss from operations is presented, basic shares are used in the diluted EPS and adjusted diluted EPS calculations, as the use of diluted shares would result in a lower loss per share.

(2)

Prior-year numbers have been adjusted to reflect LDTI accounting.

Condensed Reconciliation of Net Income to Adjusted Income from Operations(1)

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022(2)

12/31/2023

12/31/2022(2)

12/31/2023

Net income (loss) available to common stockholders – diluted

$807

$(1,246)

$1,345

$(835)

Less:

 

 

 

 

Preferred stock dividends declared

(11)

(82)

Adjustment for deferred units of LNC stock in deferred compensation plans

(5)

(13)

(1)

Net income (loss)

812

(1,235)

1,358

(752)

Less:

 

 

 

 

Non-economic market risk benefit impacts, related to net annuity product, after-tax

674

(797)

3,266

52

Net life insurance product features, after-tax

6

(178)

21

(310)

Changes in fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans, after-tax

(5)

(613)

(41)

(633)

Investment gains (losses), after-tax

11

136

16

(744)

Other

(8)

(41)

(737)

(90)

Adjusted income (loss) from operations

$134

$258

$(1,167)

$973

Adjusted income (loss) from operations available to common stockholders

$129

$246

$(1,180)

$890

(1)

Refer to the full reconciliation of Net Income to Adjusted Income from Operations at the back of this press release.

(2)

Prior-year numbers have been adjusted to reflect LDTI accounting.

  • The 2023 fourth quarter included a $(0.8) billion net loss primarily due to changes in market risk benefits driven by lower interest rates, which more than offset the benefit of higher equity markets.
  • The 2023 fourth quarter and full year included a $(0.6) billion net loss driven by the change in fair value of an embedded derivative related to the Fortitude Re reinsurance transaction, with a direct offset in other comprehensive income.
  • The 2023 full year investment gains (losses), after-tax, of $(0.7) billion included a $(0.6) billion loss on the sale of fixed maturity AFS securities as part of the Fortitude Re reinsurance transaction.

Variable Investment Income

Alternative Investment Income, after-tax(1)

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

12/31/2022

12/31/2023

Annuities

$1

$2

$5

$3

$3

$6

$13

Life Insurance

7

37

53

34

39

38

163

Group Protection

1

2

2

2

2

4

7

Retirement Plan Services

1

1

3

2

2

3

8

Other Operations

1

1

Consolidated

$10

$42

$63

$41

$46

$52

$192

(1)

 

Excludes alternative investment income on investments supporting our modified coinsurance and coinsurance with funds withheld agreements as we have limited economic interest in those investments.

Prepayment Income, after-tax

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

12/31/2022

12/31/2023

Annuities

$1

$1

$—

$1

$1

$24

$2

Life Insurance

5

2

1

2

30

4

Group Protection

5

1

Retirement Plan Services

1

1

18

1

Other Operations

5

Consolidated

$7

$3

$2

$1

$3

$82

$8

 

Items Impacting Segment Results

 

For the Three Months Ended December 31, 2023

(in millions)

Annuities

Life Insurance

Group Protection

Retirement Plan Services

Other Operations

After-tax segment impacts:

 

 

 

 

 

Alternative investment income compared to long-term target(1)

$(1)

$(17)

$(1)

$(1)

Prepayment income(2)

1

2

Annual assumption review

Legal accruals

Total impact

$

$(15)

$(1)

$(1)

(1)

Alternative investment income comparison to long-term target assumes a 10% annual return on the alternative investment portfolio.

(2)

Prepayment income is based on actual income reported in the quarter.

  • The Annuities business recorded a one-time favorable item of $14 million, or $0.08 per diluted share, associated with a model refinement.

Capital and Liquidity

 

For the Three Months Ended

(in millions, except per share data)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

Holding company available liquidity(1)

$460

$454

$457

$455

$458

RBC Ratio(2)

377%

~380%

~380%

375 – 385%

400 – 410%

Book value per share (BVPS), Including AOCI

$24.32

$33.89

$28.49

$13.04

$34.81

Book value per share (BVPS), Excluding AOCI

$61.86

$56.04

$58.58

$63.03

$55.30

Adjusted book value per share

$65.72

$66.05

$64.37

$63.53

$61.21

(1)

Holding company available liquidity presented for the quarters ended 12/31/2022, 3/31/2023 and 6/30/2023 is net of the $500 million prefunding used to repay $500 million of debt that matured in the third quarter of 2023.

(2)

The RBC ratio is calculated as of December 31 annually, but is reported in the March statutory reporting, and as such, the quarterly ratios presented for 2023 are considered estimates until the statutory statements are filed.

Annuities

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023(1)

Change

12/31/2022

12/31/2023(1)

Change

Total operating revenues

$1,125

$1,141

$1,190

$1,197

$(525)

NM

$4,482

$3,002

-33.0%

Total operating expenses

806

841

880

915

(846)

NM

3,136

1,789

-43.0%

Income (loss) from operations before taxes

319

300

310

282

321

0.6%

1,346

1,213

-9.9%

Federal income tax expense (benefit)

44

26

39

34

42

-4.5%

185

140

-24.3%

Income (loss) from operations

$275

$274

$271

$248

$279

1.5%

$1,161

$1,073

-7.6%

Income (loss) from operations, excluding impact of annual assumption review

$275

$274

$271

$260

$279

18.2%

$1,160

$1,085

-6.5%

Total sales

$3,210

$3,164

$2,582

$2,728

$4,365

36.0%

$11,879

$12,840

8.1%

Net flows

$152

$(331)

$(1,108)

$(874)

$278

82.9%

$(337)

$(2,034)

NM

Average account balances, net of reinsurance

$142,099

$146,331

$148,260

$151,312

$147,419

3.7%

$149,591

$148,206

-0.9%

Return on average account balances

77

75

73

66

76

 

78

72

 

(1)

Day one impacts related to the reinsurance transaction with Fortitude Re caused line-item volatility in the fourth quarter and full-year 2023.

  • Income from operations was $279 million for the 2023 fourth quarter, essentially unchanged compared to the prior-year quarter.
  • Total annuity sales were $4.4 billion for the quarter, up 36% from the prior-year quarter. For the 2023 full year, total annuity sales were $12.8 billion, up 8% from the prior year.
  • Net inflows were $278 million in the quarter, compared to net inflows of $152 million in the prior-year quarter. Full-year net outflows were $2.0 billion, compared to net outflows of $337 million in the prior year.
  • Average account balances, net of reinsurance, for the quarter were $147 billion, up 4%, compared to $142 billion in the prior-year quarter, primarily driven by growth in RILA. RILA represented 18% of total annuity end-of-year account balances, net of reinsurance, an increase of 4 percentage points compared to the

    prior-year quarter.

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

Change

12/31/2022

12/31/2023

Change

Total operating revenues

$1,688

$1,757

$1,760

$1,723

$1,667

-1.2%

$6,747

$6,907

2.4%

Total operating expenses

1,706

1,780

1,725

1,952

1,681

-1.5%

9,428

7,138

-24.3%

Income (loss) from operations before taxes

(18)

(23)

35

(229)

(14)

22.2%

(2,681)

(231)

91.4%

Federal income tax expense (benefit)

(9)

(10)

2

(56)

(8)

11.1%

(587)

(72)

87.7%

Income (loss) from operations

$(9)

$(13)

$33

$(173)

$(6)

33.3%

$(2,094)

$(159)

92.4%

Income (loss) from operations, excluding impact of annual assumption review

$(9)

$(13)

$33

$(17)

$(6)

33.3%

$13

$(3)

NM

 

 

 

 

 

 

 

 

 

 

Average account balances, net of reinsurance

$47,963

$49,100

$50,049

$50,130

$45,608

-4.9%

$49,036

$48,722

-0.6%

Total sales

$186

$130

$123

$144

$144

-22.6%

$705

$542

-23.1%

  • Loss from operations of $(6) million for the quarter, marginal improvement compared to a loss from operations of $(9) million in the prior-year quarter.
  • Total sales were approximately 23% lower quarter over quarter and year over year, driven by our purposeful shift to a capital-efficient new business mix.
  • Average account balances, net of reinsurance, were $46 billion, down 5% compared to the prior-year quarter.

Group Protection

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

Change

12/31/2022

12/31/2023

Change

Total operating revenues

$1,346

$1,388

$1,400

$1,388

$1,387

3.0%

$5,304

$5,563

4.9%

Total operating expenses

1,313

1,299

1,262

1,302

1,322

0.7%

5,252

5,184

-1.3%

Income (loss) from operations before taxes

33

89

138

86

65

97.0%

52

379

NM

Federal income tax expense (benefit)

7

18

29

18

13

85.7%

11

80

NM

Income (loss) from operations

$26

$71

$109

$68

$52

100.0%

$41

$299

NM

Income (loss) from operations, excluding impact of annual assumption review

$26

$71

$109

$44

$52

18%

$53

$275

NM

 

 

 

 

 

 

 

 

 

 

Insurance premiums

$1,213

$1,251

$1,263

$1,251

$1,250

3.1%

$4,768

$5,014

5.2%

Total sales

$356

$128

$96

$71

$398

11.8%

$676

$693

2.5%

Total loss ratio

81.1%

75.0%

71.3%

75.2%

76.6%

 

82.5%

74.5%

 

Operating margin

2.1%

5.6%

8.6%

5.4%

4.1%

 

0.9%

6.0%

 

Operating margin, excluding impact of annual reserve assumption review

2.1%

5.6%

8.6%

3.5%

4.1%

 

1.1%

5.5%

 

  • Income from operations of $52 million in the quarter doubled compared to $26 million in the prior-year quarter, and the total loss ratio was 76.6% in the quarter compared to 81.1% in the prior-year quarter. These results were primarily driven by favorable experience in Life mortality and disability.
  • Full-year margin grew over 400 basis points to 5.5%, excluding the benefit from the annual reserve assumption review, driven by disciplined pricing, premium growth, and improved risk results in life and disability.
  • Insurance premiums were $1.3 billion in the quarter, up 3% compared to the prior-year quarter.
  • Group Protection sales for the quarter were $398 million in the quarter, up 12% compared to the prior-year quarter, driven by growth across all products and market segments.

Retirement Plan Services

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023

Change

12/31/2022

12/31/2023

Change

Total operating revenues

$325

$328

$334

$327

$322

-0.9%

$1,274

$1,310

2.8%

Total operating expenses

264

277

279

277

278

5.3%

1,027

1,109

8.0%

Income (loss) from operations before taxes

61

51

55

50

44

-27.9%

247

201

-18.6%

Federal income tax expense (benefit)

9

8

8

7

6

-33.3%

36

30

-16.7%

Income (loss) from operations

$52

$43

$47

$43

$38

-26.9%

$211

$171

-19.0%

 

 

 

 

 

 

 

 

 

 

Deposits

$2,973

$3,209

$2,897

$2,700

$2,972

0.0%

$12,902

$11,778

-8.7%

Net flows

$51

$535

$201

$(272)

$(332)

NM

$2,696

$132

-95.1%

Average account balances

$87,987

$91,457

$94,099

$96,473

$96,045

9.2%

$90,960

$94,520

3.9%

Return on average account balances

24

19

20

18

16

 

23

18

 

  • Income from operations was $38 million in the quarter, a 27% decline compared to the prior-year quarter, primarily driven by higher operating expenses and lower spread income.
  • Total deposits for the quarter were $3 billion, in line with the prior-year quarter. 2023 full-year deposits were $11.8 billion, down 9% compared to full-year 2022.
  • Net outflows totaled $332 million for the quarter while the full-year net inflows were $132 million. RPS recorded its ninth consecutive year of positive net flows in 2023.
  • Average account balances for the quarter were $96 billion, increasing 9% from the prior-year quarter. Ending account balances for full-year 2023 were over $100 billion.

Other Operations

 

For the Three Months Ended

For the Twelve Months Ended

(in millions)

12/31/2022

3/31/2023

6/30/2023

9/30/2023

12/31/2023(1)

Change

12/31/2022

12/31/2023(1)

Change

Total operating revenues

$47

$43

$46

$38

$(884)

NM

$156

$(755)

NM

Total operating expenses

315

150

181

180

(744)

NM

758

(229)

NM

Income (loss) from operations before taxes

(268)

(107)

(135)

(142)

(140)

47.8%

(602)

(526)

12.6%

Federal income tax expense (benefit)

(58)

(20)

(29)

(29)

(35)

39.7%

(116)

(115)

0.9%

Income (loss) from operations(2)

$(210)

$(87)

$(106)

$(113)

$(105)

50.0%

$(486)

$(411)

15.4%

(1)

Day one impacts related to the reinsurance transaction with Fortitude Re caused line-item volatility in the fourth quarter and full-year 2023.

(2)

Income (loss) from operations does not include preferred dividends.

  • Fourth quarter 2022 loss from operations included the net impact of an unfavorable notable item of $116 million, primarily related to legal expenses.

Unrealized Gains and Losses

The Company reported a net unrealized loss of $8.7 billion (pre-tax) on its available-for-sale securities as of December 31, 2023. This compared to a net unrealized loss of $11.9 billion (pre-tax) as of December 31, 2022, with the year-over-year decrease primarily due to the Fortitude Re reinsurance transaction and tighter spread.

The tables attached to this release define and reconcile the non-GAAP measures adjusted income (loss) from operations, adjusted income (loss) from operations available to common stockholders, book value per share, excluding AOCI, and adjusted book value per share to net income (loss), net income (loss) available to common stockholders, and book value per share, including AOCI, calculated in accordance with GAAP.

This press release contains statements that are forward-looking, and actual results may differ materially. Please see the Forward-looking Statements – Cautionary Language at the end of this release for factors that may cause actual results to differ materially from the company’s current expectations.

For other financial information, please refer to the company’s fourth quarter 2023 statistical supplement, which is available in the investor relations section of its website http://www.lincolnfinancial.com/investor.

Conference Call Information

Lincoln Financial Group will discuss the company’s fourth-quarter and full-year 2023 results with the investment and analyst community in a conference call beginning at 8:30 a.m. Eastern Time on Thursday, February 8, 2024.

The conference call will be broadcast live through the company’s website at www.lincolnfinancial.com/webcast. Please log on to the webcast at least 15 minutes prior to the start of the conference call to download and install any necessary streaming media software. A replay of the call will be available by 10:30 a.m. Eastern Time on February 8, 2024, at www.lincolnfinancial.com/webcast.

About Lincoln Financial Group

Lincoln Financial Group helps people to plan, protect and retire with confidence. As of December 31, 2023, approximately 17 million customers trust our guidance and solutions across four core businesses – annuities, life insurance, group protection, and retirement plan services. As of December 31, 2023, the company had $295 billion in end-of-period account balances, net of reinsurance. Headquartered in Radnor, Pa., Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE: LNC) and its affiliates. Learn more at LincolnFinancial.com.

Explanatory Notes on Use of Non-GAAP Measures

Management believes that adjusted income (loss) from operations (or adjusted operating income), adjusted income (loss) from operations available to common stockholders, and adjusted income (loss) from operations per diluted share available to common stockholders better explain the results of the company’s ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company’s current business as the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. Management also believes that using book value, excluding accumulated other comprehensive income (“AOCI”), and adjusted book value per share enables investors to analyze the amount of our net worth that is primarily attributable to our business operations. Book value per share, excluding AOCI is useful to investors because it eliminates the effect of items that are unpredictable and can fluctuate significantly from period to period, primarily based on changes in interest rates. Adjusted book value per share is useful to investors because it eliminates the effect of items that are unpredictable and can fluctuate significantly from period to period, primarily based on changes in equity markets and interest rates.

For the historical periods, reconciliations of non-GAAP measures used in this press release to the most directly comparable GAAP measure may be included in this Appendix to the press release and/or are included in the Statistical Supplements for the corresponding periods contained in the Earnings section of the Investor Relations page on our website: http://www.lincolnfinancial.com/investor.

Definitions of Non-GAAP Measures Used in this Press Release

Adjusted income (loss) from operations, adjusted income (loss) from operations available to common stockholders, book value per share, excluding AOCI, and adjusted book value per share are financial measures we use to evaluate and assess our results. Adjusted income (loss) from operations, adjusted income (loss) from operations available to common stockholders, book value per share, excluding AOCI, and adjusted book value per share, as used in the press release, are non-GAAP financial measures and do not replace GAAP net income (loss), net income (loss) available to common stockholders, and book value per share, including AOCI, the most directly comparable GAAP measures.

Adjusted Income (Loss) from Operations

Adjusted income (loss) from operations is GAAP net income (loss) excluding the after-tax effects of the following items, as applicable:

  • Items related to annuity product features, which include changes in MRBs, including gains and losses and benefit payments (“MRB-related impacts”), changes in the fair value of the derivative instruments we hold to hedge GLB and GDB riders, net of fee income allocated to support the cost of hedging them, and changes in the fair value of the embedded derivative liabilities of our indexed annuity contracts and the associated index options we hold to hedge them, including collateral expense associated with the hedge program (collectively, “net annuity product features”);
  • Items related to life insurance product features, which include changes in the fair value of derivatives we hold as part of VUL hedging, changes in reserves resulting from benefit ratio unlocking associated with the impact of capital markets, and changes in the fair value of the embedded derivative liabilities of our IUL contracts and the associated index options we hold to hedge them (collectively, “net life insurance product features”);
  • Credit loss-rel

Contacts

Tina Madon

800-237-2920

Investor Relations

[email protected]

Sarah Boxler

215-495-8439

Media Relations

[email protected]

Read full story here