Lincoln National Earnings Call Signals Durable Turnaround
Lincoln National ((LNC)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Lincoln National’s latest earnings call struck an upbeat tone, with management emphasizing that operational momentum and capital rehabilitation are firmly on track. Strong earnings growth, record annuity balances, robust alternative investment returns, and better free cash flow conversion framed the story, while acknowledged headwinds in certain segments were presented as manageable and largely strategic in nature.
Adjusted Operating Income Rebounds Sharply
Lincoln reported a powerful recovery in profitability, with fourth quarter adjusted operating income rising 31% year over year to $434 million, or $2.21 per diluted share. For 2025, adjusted income from operations available to common shareholders topped $1.5 billion, a 23% increase versus 2024 and the company’s highest full year adjusted operating result in four years.
Net Income Boosted by Market Risk Benefit Gains
Reported fourth quarter net income available to common stockholders came in at $745 million, or $3.80 per diluted share, comfortably above adjusted operating income. Management said the hedge program performed as designed and that favorable movements in market risk benefits helped lift GAAP net income, underscoring the effectiveness of its risk management framework.
Annuity Sales Surge and Account Balances Hit Records
Annuity momentum remained a central highlight, with 2025 annuity sales volumes climbing 25% year over year across key product lines. RILA sales increased 35%, fixed annuity sales were up 11%, and variable annuity sales rose 27%, driving ending annuity account balances net of reinsurance to a record $175 billion, up 7% year over year with fixed annuity balances alone growing 20%.
Mix Shifts Toward More Stable Spread-Based Products
The business mix continued to pivot toward spread-based annuities, which are less sensitive to equity markets and support more predictable earnings. Spread-based products now represent 30% of total annuity account balances net of reinsurance, up from 27% a year ago, and net flows into these offerings exceeded $1 billion in the quarter, improving capital efficiency even as return on assets trends lower.
Group Protection Delivers Record Performance
Group Protection posted a record year, underscoring its role as a key profit engine for Lincoln. Full year operating earnings, excluding the annual assumption review, reached $493 million, up 16% year over year, as premiums grew nearly 7% and fourth quarter operating income of $109 million translated to a healthy 7.9% margin, with supplemental health sales jumping more than 40%.
Life Business Swings from Loss to Solid Profit
The Life segment showed a notable turnaround, shifting from loss-making to profitable territory as operational fixes and assumption work gained traction. Fourth quarter operating earnings were $77 million versus a $15 million loss a year ago, while full year Life operating earnings excluding the assumption review rose to $146 million from a $71 million loss, aided by executive benefits sales that climbed to $265 million from $59 million in 2024.
Investment Portfolio and Alternatives Support Earnings
Investment performance added another pillar to the earnings story, with alternative investments delivering nearly 12% annualized returns in the quarter, or $124 million, and about 10% for the full year, matching targets. New money yields of roughly 5.3% in the quarter and 5.7% for the year ran 65 to 110 basis points above the existing portfolio yield, while credit quality stayed strong with 97% of assets rated investment grade.
Capital and Liquidity Metrics Move Back to Targets
Lincoln emphasized that its balance sheet has been rebuilt, with regulatory capital restored above the 400% RBC target and an added buffer of roughly 20%. The leverage ratio has improved by about 500 basis points since 2023, returning to the long term target range, and holding company liquidity ended the year around $1.1 billion, or roughly $655 million net of prefunding 2026 senior notes, aided by a $75 million dividend from the Bermuda affiliate Alpine.
Free Cash Flow Conversion Accelerates
The company’s ability to turn earnings into cash has improved markedly, enhancing financial flexibility and potential returns to shareholders over time. Adjusted operating income climbed from $908 million in 2023 to more than $1.5 billion in 2025, while free cash flow conversion increased to 45% from 35%, with management signaling medium term subsidiary remittances could rise toward roughly $1.2 billion.
Operational and Structural Actions Simplify and De-Risk
Management highlighted a series of structural moves designed to cut financing costs and simplify the organization, including a completed captive consolidation that lowered reserve financing expense and yielded about a $10 million GAAP benefit in the quarter. They expect an incremental $25 million to $30 million GAAP improvement in the Life business in 2026, plus additional free cash flow gains, supported by ongoing expense control, technology upgrades, and roughly expanding use of the Bermuda platform.
Variable Annuity Outflows Reflect Deliberate De-Risking
Variable annuity net outflows persisted in the fourth quarter, extending a recent pattern that management says aligns with a strategy to reduce market sensitivity in the annuity book. Executives signaled that variable annuity volumes will be intentionally lower in 2026 as the company leans into spread-based offerings that carry lower return on assets but produce steadier earnings and more capital-efficient growth.
Retirement Plan Services Faces Outflows and Margin Pressure
The Retirement Plan Services unit remained under pressure from participant behavior, with participant-driven net outflows of roughly $1 billion in the quarter and full year operating earnings flat at $163 million. Management expects net flows to stay negative in 2026 as they prioritize profitability and address revenue headwinds through expense discipline and targeted investment to improve competitiveness.
Seasonal and Technical Headwinds for Annuities and Life
Management cautioned that the first quarter of 2026 will see sequential pressure in annuities earnings due to two fewer fee days, a resetting of unusually favorable mortality experience, and an allocation change that moves about $50 million of net interest income from annuities operating to nonoperating income. The Life segment also tends to experience seasonal weakness in the first quarter, and normalization of mortality could trim volatility-driven upside that benefited recent results.
Higher G&A and Compensation Reflect Growth Investments
Fourth quarter general and administrative expenses rose both sequentially and year over year, driven largely by higher variable compensation tied to strong sales and by investment initiatives. These included retaining 100% of fixed annuity flows and funding technology enhancements in Group Protection, and while management reiterated that expense discipline remains a priority, investors should expect some near term cost pressure.
RILA Competition Tempers Growth Ambitions
In registered index-linked annuities, a key growth product in recent years, Lincoln signaled a more measured outlook as the competitive landscape has intensified. Management now expects RILA sales in 2026 to be broadly in line with the past two to three years rather than expanding rapidly, framing this as a deliberate choice to defend profitability and pricing rather than chase volume.
Net Interest Income Reclassification to Clarify Metrics
Beginning in 2026, the company will reclassify net interest income on collateral supporting index credit hedging from annuities operating income to nonoperating income, which would have shifted around $50 million of 2025 annuities operating earnings under the new definition. Executives argued that the change should provide cleaner operating metrics and better alignment with economic reality, even though reported segment earnings will look lower.
Guidance Focuses on Capital Strength and Cash Returns
Looking ahead to 2026 and beyond, Lincoln plans to keep capital strength, disciplined profitable growth, and higher cash remittances to the holding company at the center of its strategy, with subsidiary remittances expected to rise toward roughly $1.2 billion to $1.3 billion. Management pointed to strong capital ratios, improving free cash flow, and ample holding company liquidity as supports for potential shareholder capital returns in the $400 million to $600 million range over the next two years, even as they navigate near term annuity and retirement headwinds.
Lincoln National’s call painted the picture of a company that has moved past its most acute challenges and is now focused on steady, capital-efficient growth and more predictable cash generation. While variable annuity and retirement services outflows, seasonal earnings noise, and higher G&A present short term friction, investors heard a consistent message that strengthened capital, growing operating income, and improving free cash flow conversion are reshaping the risk-reward profile of the stock.
