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    LNC
    Earnings call· Jun 2026(Q2 FY26)

    LINCOLN NATIONAL Q2 FY26 earnings call LNC

    Jul 30, 2026 Source

    Executive summary

    Lincoln National Corporation Q2 FY26 — Strategic Repositioning and Capital Flexibility

    Lincoln National reported its eighth consecutive quarter of adjusted operating income growth, driven by strategic execution across its businesses. The company announced a significant reinsurance deal for legacy life reserves and prefunded preferred stock redemption, marking an inflection point for capital flexibility. Management emphasized a shift towards profitable, durable growth and a more balanced earnings profile, positioning the company for increased shareholder value.

    Highlights

    5

    • Adjusted operating income increased 3% year-over-year, marking the eighth consecutive quarter of growth.

    • Agreement to reinsure approximately $6 billion of legacy life reserves, reducing exposure to long-term risks.

    • Prefunded repurchase/redemption of half of callable preferred stock, growing holding company cash net of prefunding to over $900 million.

    • Group Protection earnings were among the highest in segment's history, with supplemental health premium rising 28% year-over-year.

    • Life Insurance earnings increased $25 million year-over-year, driven by favorable mortality and captive consolidation tailwind.

    Concerns

    4

    • Alternative investments portfolio delivered an annualized return of approximately 5%, below the 10% annualized target, representing a $43 million after-tax impact.

    • Group Protection's disability loss ratio increased approximately 500 basis points from prior year quarter, reflecting modest normalization from strong 2025 results.

    • Annuities total net outflows were approximately $2.9 billion, driven by traditional variable annuities.

    • Retirement Plan Services experienced net outflows of approximately $2.4 billion due to planned transition of large, unprofitable cases.

    Guidance & targets

    5
    CategoryTargetConfidence
    Group Protection full-year margin
    8% to 9%
    medium materiality
    High
    Life Insurance earnings trajectory
    in line sequentially
    medium materiality
    Medium
    Alternative investment returns
    at or above our target
    medium materiality
    Medium
    Annual free cash flow increase from Talcott deal
    $30 million to $40 million
    high materiality
    High
    Subsidiary remittances
    $1.2 billion to $1.3 billion
    medium materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Group Protection
    Operating income was $147 million, down from a record $173 million a year ago, with a margin of 10.4%. Life loss ratio improved significantly due to favorable mortality. Disability loss ratio increased due to normalization from exceptionally strong 2025 results and modest pressure from STD/PFML, though PFML impact was less severe than Q1. Overall premium growth was 2.5%, driven by supplemental health and local markets.
    Operating income: $147 millionOperating income YoY comparison: down from $173 millionMargin: 10.4%Margin YoY comparison: down 210 bpsLife loss ratio: 62%Life loss ratio YoY comparison: improving roughly 500 bpsDisability loss ratio: 71.9%Disability loss ratio YoY comparison: up from 64.2%Supplemental health premium growth: 28% YoYSupplemental health as % of in-force premium: 7%Local market premium growth: >3%
    		—2.5%—$147 million
    Annuities
    Operating income was $287 million, improving $12 million sequentially but flat year-over-year due to reallocation of NII. Total sales were $3.5 billion, with 63% from spread-based products. RILA sales grew 10% YoY. Variable annuities without living benefits grew over 60% YoY. Average account balances grew 12% YoY to $179 billion. Net outflows were $2.9 billion, primarily from traditional variable annuities.
    Operating income: $287 millionOperating income QoQ comparison: improved $12 millionOperating income YoY comparison: flatTotal sales: $3.5 billionSpread-based products as % of sales: 63%RILA sales growth: 10% YoYVariable annuity sales without living benefits growth: >60% YoYAverage account balances net of reinsurance: $179 billionAverage account balances growth: 12% YoYSpread-based products as % of total account balances: 31%Total net outflows: $2.9 billionTraditional variable annuity net outflows: $2.7 billion
    		———$287 million
    Retirement Plan Services
    Operating income was $49 million, up 32% year-over-year, driven by higher equity markets and spread expansion. Base spreads increased 20 bps YoY to 119 bps. Average account balances grew 15% YoY to $128 billion. Net outflows of $2.4 billion were primarily due to planned terminations of large, unprofitable plan sponsors, supporting a higher quality earnings base.
    Operating income: $49 millionOperating income growth: 32% YoYBase spreads: 119 bpsBase spreads YoY comparison: up 20 bpsAverage account balances: $128 billionAverage account balances growth: 15% YoYNet outflows: $2.4 billion
    		———$49 million
    Life Insurance
    Operating income was $57 million, an improvement of $25 million year-over-year, driven by favorable mortality and a $10 million captive consolidation tailwind. This was partially offset by alternative investments returning 4.9% (vs. 10% target), creating a $39 million headwind. Total life sales increased nearly 80% YoY, with core life sales up 18% to $103 million.
    Operating income: $57 millionOperating income YoY comparison: improvement of $25 millionCaptive consolidation tailwind: ~$10 million YoYAlternative investment returns: 4.9% annualizedAlternative investment returns comparison: below 10% targetAlternative investment headwind: ~$39 millionTotal sales growth: nearly 80% YoYCore life sales: $103 millionCore life sales growth: 18% YoY
    		———$57 million

    Operational metrics

    11
    Adjusted operating income available to common stockholders
    $439 million3% growth YoY
    Q2 FY26

    Eighth consecutive quarter of year-over-year growth.

    Diluted EPS
    $2.24slightly lower than 2Q '25
    Q2 FY26

    Slightly lower due to incremental share count from last year's Bain transaction.

    Net income available to common stockholders
    $1.3 billion
    Q2 FY26

    Difference from adjusted operating income driven primarily by favorable change in market risk benefits.

    Alternative investments annualized return
    5%below 10% target
    Q2 FY26

    Representing $43 million after-tax of below target income.

    Holding company cash net of prefunding
    $900 millionincrease of ~$100 million from Q1
    Q2 FY26

    Well above historical operating range, positioning for capital flexibility.

    Subsidiary remittances
    $310 million
    Q2 FY26

    Year-to-date subsidiary remittances are $580 million, tracking in line with full-year expectations.

    Hybrid securities issuance
    $500 million
    Q2 FY26

    Issued to prefund preferred stock redemption.

    G&A expenses, net of capitalized amounts
    $604 millionup ~5% YoY
    Q2 FY26

    Reflects investments in businesses, claims platform, fixed annuity servicing, and RPS operations.

    Investment portfolio investment grade rating
    97%
    Q2 FY26

    Below investment-grade holdings near historic lows.

    Excess capital at holding company
    $400 million
    Q2 FY26

    Calculated as $1.8 billion total capital minus $400 million for senior note prefunding, $500 million for preferred stock, and $500 million liquidity buffer.

    PFML impact on disability loss ratio
    <20 bpsdown from ~100 bps in Q1
    Q2 FY26

    The headwind from Paid Family Medical Leave (PFML) was significantly less in Q2 compared to Q1.

    Industry KPIs

    3
    MetricValueDetails
    Capital returns$1.5 billionUSD
    Net investment income—
    Statutory regulatory capital400%%

    Deals & partnerships

    1
    Talcott Financial GroupReinsurance agreement for legacy guaranteed universal life (GUL) business and funding agreements.$5.8 billion of GUL statutory reserves, $500 million of funding agreement business

    Reinsures approximately 37% of remaining GUL block. Structured partly as coinsurance with funds withheld and partly as modified coinsurance with robust counterparty protections. Lincoln retains administration, recordkeeping, and claims management. Subject to regulatory approval.

    Risks & headwinds

    5
    Alternative investment underperformanceQ2 FY26

    4.9% annualized return vs. 10% target, $43 million after-tax impact

    Mitigation: Expect returns to improve meaningfully to or above target in Q3 FY26 due to market recovery and portfolio diversification.

    Normalization of disability resultsQ2 FY26 and periods ahead

    Disability loss ratio increased ~500 bps YoY

    Mitigation: Results remain favorable relative to historical levels; expect to deliver full year Group Protection margin within 8%-9% target.

    Traditional variable annuity net outflowsQ2 FY26

    $2.7 billion

    Mitigation: Pace consistent with recent quarters and expectations; focus on shift towards spread-based products and growth in variable annuities without living benefits.

    Retirement Plan Services net outflowsQ2 FY26

    $2.4 billion

    Mitigation: Driven by planned transition of large cases that did not meet profitability objectives; supports a higher quality, more profitable earnings base over time.

    PFML (Paid Family Medical Leave) pressure on STDNear-term, primarily Q1 for new states

    Less than 20 bps impact on disability loss ratio in Q2, down from ~100 bps in Q1

    Mitigation: Learned from prior experience, repricing is part of standard process, do not sell PFML as stand-alone.

    What to watch in Q3 FY26

    5

    Group Protection full-year margin

    FY26
    Current10.4% (Q2 FY26)
    Target8% to 9%

    Why it matters

    Verifying the segment's ability to maintain profitability within its targeted range despite normalization in disability results.

    Overall, group continues to perform well, and we expect to deliver a full year margin within our targeted range of 8% to 9%, supported by the underlying strength of the business.

    Q&A highlights

    7

    Seeking more insight on the timing for resumption of share repurchases given increased capital flexibility.

    Management confirmed significant progress on capital priorities, including rebuilding RBC, reducing leverage, retaining fixed annuity sales, and dealing with legacy life blocks. With preferred stock prefunding complete, the company has $400 million of excess capital above its liquidity buffer. While not announcing specific timing, the Board recently reconfirmed the existing $1.5 billion share repurchase authorization, with over $700 million remaining.

    “But what I can tell you is that we do have an outstanding repurchase authorization. It's obviously been dormant the past few years, and our Board has recently reconfirmed that program which is a good sign.”

    asked by Wesley Carmichael · answered by Christopher Neczypor

    3 min read7 chapters

    Detailed Narrative

    01

    Strategic Repositioning and Inflection Point

    Lincoln National has reached a significant inflection point, having successfully executed a multi-year strategy to strengthen its balance sheet, optimize operations, and drive profitable growth. The company has grown earnings, improved quality, increased free cash flow, and built a more resilient foundation. This progress expands opportunities and flexibility, positioning Lincoln to create greater shareholder value in the coming years.

    02

    Legacy Life Reserve Reinsurance Transaction

    The company announced an agreement with Talcott Financial Group to reinsure approximately $5.8 billion of legacy guaranteed universal life (GUL) statutory reserves, representing roughly 37% of the remaining GUL block, plus $500 million of funding agreement business. This transaction, combined with a prior deal, means approximately 60% of total in-force GUL will be reinsured. It is expected to reduce statutory capital by $200 million (10 RBC percentage points) and increase ongoing annual free cash flow by $30 million to $40 million. The deal is subject to regulatory approval and expected to close in Q4.

    03

    Capital Priorities and Flexibility

    Lincoln has prefunded the repurchase and/or redemption of half of the preferred stock callable next year, growing holding company cash net of prefunding to over $900 million. This positions the company with greater flexibility to deploy capital, including potential share repurchases. The estimated RBC ratio remains well above the 400% target and 20-point buffer, with a leverage ratio of approximately 25%.

    04

    Annuities Business Strategy

    The Annuities segment focuses on growing where it can differentiate beyond price, achieve target returns, and expand spread-based earnings. Total annuity sales were $3.5 billion, with spread-based products (RILA, fixed annuities) representing 63% of sales. RILA sales rose 10% year-over-year, while variable annuities without living benefits grew over 60% year-over-year, exceeding those with guarantees for the first time. The company remains confident in the long-term growth potential of fixed annuities, especially FIAs, leveraging investments in its platform and distribution.

    05

    Life Insurance Performance and Trends

    Life Insurance earnings increased year-over-year, driven by favorable mortality across both frequency and severity, partially offset by lower alternative investment returns. Total life sales increased nearly 80% year-over-year, with core life sales up 18% to $103 million, led by MoneyGuard and VUL with limited guarantees. Management noted favorable mortality trends have been observed for 5 out of the last 6 quarters, providing a supportive backdrop for the business, despite quarterly variability.

    06

    Group Protection and Retirement Plan Services Transformation

    Group Protection delivered strong operating income with premium growth of 2.5% year-over-year, concentrated in prioritized areas like supplemental health (up 28%) and local markets (up over 3%). The segment expects a full-year margin within 8% to 9%. Retirement Plan Services saw earnings grow 32% year-over-year, driven by higher equity markets and spread expansion. Net outflows in RPS were due to planned terminations of unprofitable large cases, aligning with the strategy to improve the business's economic profile.

    07

    Investment Portfolio and Alternative Returns

    The investment portfolio is high-quality and diversified, with 97% rated investment grade. Alternative investments delivered a 4.9% annualized return in Q2, below the 10% target, but are expected to rebound to or above target in Q3 due to market recovery. The portfolio's long duration profile is a natural fit for the life business, providing a meaningful source of risk-adjusted return over time⏳.

    AI-generated summary of the company’s earnings call. Not investment advice.