Lincoln Financial delivers nuggets of good news, along with $528M Q3 loss

Main takeaway: Lincoln Financial executives gave plenty of reasons Thursday for Wall Street analysts to feel good about its future: strong annuity sales, a new Bermuda reinsurer, and a new company branding effort.

Stll, the insurer’s bumpy financial road continues as it took another quarterly loss – this time, $528 million – attributed to one-time charges.

Christopher Neczypor, chief financial officer, blamed low interest rates for the two write-downs:

• $446 million of the pre-tax net loss “was primarily 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.”
• $381 million of the pre-tax net loss “was primarily due to changes in market risk benefits driven by the decrease in interest rates, a non-economic impact.”

Lincoln is in the midst of a multi-year effort to turn the company around after a series of setbacks culminating with the COVID-19 pandemic. CEO Ellen Cooper said the signs are strong going forward.

“We are pleased with our third quarter adjusted operating income, which was our highest quarterly earnings in over two years, reflecting continued progress in our strategic realignment,” she said. “These results were driven by strong underlying performance in all four businesses.”

Additional takeaways

Lincoln executives cited three reasons to get excited about Lincoln’s ongoing transformation:

1. Annuity sales. Annuities delivered $300 million in operating income, up 15% year over year, reflecting continued account balance growth, strong markets, and higher spread income, Lincoln reported. Total sales of $3.4 billion were up 24%, with spread-based products accounting for 66% of annuities sales in the quarter.

“Our annuity strategy is taking hold as we execute on growth, diversifying our earnings mix to more spread-based," Cooper explained. "We aim to achieve this with the continued expansion of our market and increasing our competitiveness by enhancing our capabilities, including an optimized investment strategy, capital efficient reinsurance solutions, and increased expense efficiencies."

2. New reinsurance entity. Lincoln is launching a Bermuda-based reinsurance subsidiary, Alpine, announced during the Q2 earnings call.

"We continue to work towards establishing an increased reinsurance capacity centered around affiliate flow reinsurance," Neczypor said. "We remain on track to achieve the initial phase of this new business flow support, starting in 2025."

3. New branding effort. Lincoln recently unveiled a new branding campaign with a new logo, and a more well-defined image of the company’s iconic namesake, Abraham Lincoln. An accompanying new tagline hails "Your tomorrow. Our priority."

The effort renews Lincoln's commitment to its 17 million customers, Cooper said.

"As we look forward, we seek to enable more people to confidently succeed their way, and we treat every customer's future with care," she added. The logo and tagline affirms "our focus on stewardship and our enduring commitment to being there for our customers today and tomorrow."

Management Commentary

"Our strong performance this quarter reinforces the momentum of our strategic execution. As we continue to reposition Lincoln for sustainable growth and value, we are leveraging our competitive advantages to grow profitably, advance operational efficiency and build the capital flexibility of our franchise. While our transformation is a multi-year journey, we are building a durable path to deliver lasting value for our shareholders, customers, partners and employees.”

CEO Ellen Cooper

“We're not going to give 2024-2025 guidance. But I would just re-emphasize that we feel really good about where we are. We feel good about the year, and we remain well on target to hit the 2026 numbers.”

CFO Christopher Neczypor

Financial Overview

Revenues: $4.1 billion ($4.2 billion in Q3 2023)

Net Income: -$562 million ($819 million in Q3 2023)

Adjusted operating income: $358 million ($50 million in Q3 2023)

Earnings Per Share: -$3.29 ($4.79 in Q3 2023)

Stock price movement: Up about 5% Thursday morning to $35.33

Segment Performance

Life Insurance:

- Total Sales: $122 million ($144 million in Q3 2023)

- Net Income: $22 million (-$173 million in Q3 2023)

Annuities:

- Total Sales: $3.4 billion ($2.7 billion in Q3 2023)

- Net Income: $301 million ($248 million in Q3 2023)

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.