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Introduction & Market Context
Lincoln Financial Group (NYSE:LNC) presented its first quarter 2025 earnings results on May 8, 2025, showcasing continued momentum in its multi-year strategic repositioning. The company reported a 14% year-over-year increase in adjusted operating income, reaching $280 million or $1.60 per share, as its shift toward businesses with more stable cash flows continues to yield positive results.
The strong quarterly performance builds on Lincoln’s strategic execution timeline that began in 2023 with business unit repositioning and the Fortitude Re transaction, followed by the sale of Lincoln Financial Network to Osaic and company-wide expense actions in 2024. The first quarter of 2025 saw several strategic milestones, including the launch of a Bermuda affiliate, initial FABN issuance, execution of an affiliated Bermuda flow reinsurance agreement, and a strategic partnership with Bain Capital.
Quarterly Performance Highlights
Lincoln Financial’s Q1 2025 scorecard demonstrated broad-based improvement across key financial metrics. The company maintained a strong capital position with an estimated RBC ratio exceeding 420%, well above its 400% target. This capital strength provides a foundation for continued investment in growth initiatives.
As shown in the following scorecard, the company achieved double-digit earnings growth while reducing leverage and growing account balances:
Adjusted operating income of $280 million ($1.60 per share) included $18 million ($0.10 per share) from alternative investment income compared to the company’s 10% long-term return target. Excluding this normalizing item, adjusted operating income was $298 million ($1.70 per share).
The company’s leverage ratio improved by 260 basis points year-over-year to 27.5%, primarily driven by organic equity growth. Average account balances, net of reinsurance, increased by 7% compared to the prior year, contributing to higher fee income across several business segments.
Segment Performance Analysis
The Annuities segment maintained stable operating income of $290 million year-over-year, as market appreciation and spread expansion offset the impact of traditional variable annuity outflows. Sales increased by 33% compared to Q1 2024, with spread-based products comprising approximately 60% of total sales, reflecting the company’s strategic shift toward products with more stable cash flows.
As illustrated in the following breakdown of the Annuities segment performance:
Group Protection continued its strong performance trajectory with operating income increasing 26% year-over-year to $101 million. The segment’s operating margin expanded by 120 basis points to 7.4%, primarily driven by favorable long-term disability results and continued growth in supplemental health products. Premiums increased by 7% compared to the prior year, reflecting strong persistency and the impact of prior-year sales.
The detailed Group Protection results show consistent improvement in profitability:
Retirement Plan Services saw a slight decline in operating income, decreasing 6% year-over-year to $34 million, primarily due to the impact of a plan termination. However, total deposits increased by 8%, driven by higher recurring deposits, while ending account balances remained relatively flat as favorable market conditions were partially offset by elevated outflows.
The Life Insurance (NSE:LIFI) segment showed meaningful improvement, with operating loss narrowing from $(34) million in Q1 2024 to $(16) million in Q1 2025. This improvement was driven by better mortality experience and lower expenses, partially offset by lower alternative investment returns. Total (EPA:TTEF) sales increased by 7% year-over-year, reflecting continued momentum in products with more risk-sharing features.
Strategic Initiatives and Capital Position
Lincoln Financial’s strategic repositioning is built upon three core pillars: foundational capital, an optimized operating model, and a strategy for profitable growth. The company is focused on maintaining capital required to ensure enterprise stability across market cycles while supporting investment for profitable growth and reducing sensitivity to equity markets.
The strategic execution timeline illustrates the company’s methodical approach to transformation:
On April 9, 2025, Lincoln announced a partnership with Bain Capital, including a strategic minority investment expected to create growth capital to support acceleration of the company’s strategic priorities. This partnership represents another step in Lincoln’s strategic evolution toward businesses and products with more stable cash flows.
Investment Portfolio Performance
Lincoln Financial maintains a well-diversified investment portfolio with 97% investment grade rated assets. In Q1 2025, the company achieved a 6.0% new money yield, approximately 140 basis points above the portfolio yield, driven by the favorable rate environment and optimization of its investment strategy.
The investment portfolio breakdown shows the company’s disciplined approach to asset allocation:
The diversified alternatives portfolio delivered a 1.9% quarterly return (7.6% annualized), which was below the company’s long-term expectation of 10%. The company continues to focus on optimizing its new money strategy while maintaining diversification and high quality, with particular emphasis on capitalizing on less liquid assets and structured asset class premiums.
Forward-Looking Statements
Looking ahead, Lincoln Financial remains focused on executing its strategic priorities across all business segments. In Annuities, the company aims to grow its addressable market by extending reach to spread-based products and increasing market competitiveness through new product features. For Group Protection, priorities include diversifying across market segments with emphasis on growing local markets and expanding the product portfolio with focus on supplemental health.
The Retirement Plan Services segment will continue to target growth in core recordkeeping and institutional market segments through its differentiated service model, while the Life Insurance segment will optimize its product portfolio to support the pivot toward products with more stable cash flows and higher risk-adjusted returns.
From a capital perspective, Lincoln Financial remains committed to reducing its leverage ratio through continued growth in capital and opportunistic deleveraging. The company’s strong capital position, with an RBC ratio exceeding 420%, provides flexibility to invest in growth initiatives while maintaining a buffer above its 400% target.
The strategic partnership with Bain Capital is expected to accelerate Lincoln’s strategic priorities, providing additional growth capital as the company continues its transformation toward a more diversified business mix with reduced sensitivity to equity markets.
Full presentation:
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