Q3 2020 Lincoln National Corp Earnings Call
Good morning, and thank you for joining Lincoln financial group's third quarter 2020 earnings conference call at this.
As time all lines are in a listen only mode. Later, we will announce the opportunity for questions and instructions will be given at that time, if you need assistance at any time during the call. Please press the star key followed by the zero and someone will assist you.
Now I'd like to turn the conference over to the corporate Treasurer.
Chris Giovanni Please go ahead Sir.
Thank you Catherine good morning, and welcome to Lincoln Financial's third quarter earnings call.
Before we begin I have an important reminder, any comments made during the call regarding future expectations trends and market conditions, including comments about sales and deposits expenses income from operations share repurchases and liquidity in capital resources are forward looking statements under the private Securities Litigation Reform Act of 1995.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. These restaurant uncertainties include those described in the cautionary statement disclosures in our earnings release issued yesterday as well as those detailed in our 2019 annual report on form.
And 10-K, most recent quarterly reports on form 10-Q and from time to time in our other filings with the FCC piece.
These forward looking statements are made only as of today and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur. After this date. We appreciate your participation today and invite you to visit Lincoln's website, Www Dot Lincoln financial Dot Com, where you can find our press release and statistical supplement.
Which include full reconciliations to the non-GAAP measures used on the call, including adjusted return on equity and adjusted income from operations for adjusted operating income to their most comparable GAAP measures.
Presenting on today's call are Dennis glass, President and Chief Executive Officer, and Randy Free Tagg, Chief Financial Officer, and head of individual lifes. After their prepared remarks, we will move to the question and answer portion of the call I would now like to turn the call over to Dennis.
Thank you Chris good morning, everyone.
Lincoln is responding well to the health economic and capital market challenges, ensuring we maintain our competitive advantages and capitalizing on opportunities to become stronger.
Third quarter adjusted operating results after normalizing for our annual review recovered significantly from the second quarter consistent with our expectations.
Returns on the alternative investment portfolio were strong in the quarter at nearly 7%.
Line rope.
As we expand our portfolio of customer solutions, we are focused on designing more capital efficient products, which will ultimately help improve our free cash flow.
In addition to these topline initiatives, we're taking actions that are enabling us to achieve expense savings and increased productivity, while improving the customer experience by leveraging and accelerating digital capabilities.
Notably receive further and meaningful expense savings opportunities given the increased digital adoption by both advisors and customers.
Lastly.
We continue to focus on maintaining a strong balance sheet to maximize our financial flexibility.
We have increased our our B C ratio added to our sources of capital and liquidity and reduced risk and the investment portfolio.
We are executing well uhm these initiatives as illustrated by several third quarter highlights including.
Operating revenue increase across all our businesses.
G&A expense decreased mid single digits across all our businesses.
Over 90% of all life insurance policies, and our top annuity partners have adopted electronic applications and delivery.
And are strong balance sheet.
Mm investment engines, we see an opportunity to provide consumers with more upside and some of our core products such as money guard, where we will be introducing a new product and the first half of next year.
While we expect sales be meaningful lower in the fourth quarter and.
In part due to record sales in the prior year quarter, we will be entering 20th 21 with solutions that provide greater market reach as.
As we've done in the past, we will utilize our abroad and expanding product portfolio and the strongest distribution platform, India industry to position us for growth in 2021.
And retirement plan services.
Or digitally focus model.
Hi Tech enables high touch is excelling in the current virtual environment or.
Our sales and retention teams that seamlessly shifted to more virtual platforms driving strong new sales growth and outstanding retention results.
First your sales were up 20% in total deposits increased 6% over the prior year quarter and client retention was excellent at 98%.
While we continue to see some headwinds related to the economic environment, and the pandemic, including employers, reducing or eliminating matching contributions and workforce reductions.
That's resulted in 56% of year to date sales being generated from employee paid up 11 percentage points.
While the pandemic has put near term pressure on earnings. It has increased employee awareness of the importance of our protection products. We are taking actions to enhance their margins to the upper M of our targeted range and we expect this to emerge as the pandemic subsides. So bye.
Item line.
As expected we saw decreased sales and most segments as a result of our aggressive and disciplined repricing strategy that insurers, we achieved appropriate returns on capital and best positions Lincoln for longterm profitable growth.
That said.
I would emphasize several important points.
First.
Because we lead the industry in repricing.
And are starting to see competitors file of course, we expect sales to bottom out in the fourth quarter, particularly for our duty and like businesses with growth re emerging in 2021 M. B based on our strategic actions set.
Second as.
As we entered the fourth quarter, we are now achieving at least a 12% return a new business based on the forward curve across all our businesses.
Third market demand and pricing changes.
Has resulted in the sales of non guaranteed products to exceed 80% of total sales a trend we expect to continue.
And finally distribution has been and will continue to be an advantage that distinguishes Lincoln are.
Distribution model is growing and operating effectively in the current environment for.
For example, with added over 8000, new producers year to date and hosted over 1400 virtual group meetings, which were attended by more than 50000 advisors.
Regarding other strategic carries a focus as you know expense management remains a key focus with all near term targets, including Liberty synergies digital savings and hour additional 100 million dollar program for this year on track.
Since our second quarter earnings call, we have identified opportunities preserve this your savings program in 2021 predominantly through virtual sales effectiveness and capabilities, along with acceleration and digital adoption.
Looking forward, we expect even further run rates savings opportunities, but these could require some incremental investment.
Since the onset of pandemic, we have successfully focused on protecting in further improving the balance sheet.
For example, RBC ratio and cash at the holding company have both increased we.
We have also enhanced our financial flexibility with our next that maturity not due until September 2023, and then the third quarter, we completed a contingent capital facility.
Within the investment portfolio Derisking actions and benefits various governments pork programs have led to the nine RBC impacts from credit losses and downgrades.
Experienced today is more favorable than our expectations at the onset of the pandemic and we expect that to continue as our credit outlook has improved.
In closing.
We recognize potential industry headwinds, but are responding.
We are well on our way towards restoring sales growth in 2021 after actively repricing products to achieve appropriate returns and preserve capital.
We have targeted programs to reduce expenses and are committed further improving efficiencies and lowering costs, while enhancing the customer experience.
We ask you this prices well prepared and have continued to strengthen our balance sheet and reduced risk and our investment portfolio.
While our variable annuity hedge program has performed exceptionally well.
And we've acted to accelerate capital deployment recall, we're one of the first companies to reinsure annuity blocks, both fixed and variable and have improved our free cash flow over time by reducing new business drink.
As a result of confidence in our balance sheet and capital position solid underlying earnings and are more positive business outlook as we move into 2021, we're pleased that the board of directors approved a 5% increase in our quarterly common stock dividend and that we will be returning to the <unk>.
<unk> with an opportunity to buy her shares at a price that we believe presents an exceptional value.
I couldn't be more confident about the actions, we're taking the execute our plans and deliver longterm value for our shareholders.
I will now turn the call over to Randy.
Thank you Dennis.
Last night.
We reported a third quarter adjusted operating loss of $133 million or 72 cents per share.
As we noted in the earliest release results included net unfavorable notable items of $552 million or $2.84 per share <unk>.
Predominantly from this year's annual review of deck and reserved assumptions.
This year's annual review resulted in a net charge of $489 million.
With negative $547 million included within adjusted operating income and positive $58 million in non-operating.
Included and adjusted operating income was negative $524 million related to interest rates.
With approximately one third of the impact coming from a 50 basis point reduction in our longterm ultimate interest rate assumption two 3%.
And two thirds from a nearly 170 basis point decline in new money rates.
It is important to note that this is a non-cash charge.
Does not impact or RBC ratio and does not change your view on the potential impact of statutory capital from reserve strengthening if rates stay low.
Where we expect no impact at the end of this year.
Outside of interest rates, there was a 23 million dollar <unk> unfavorable impact with an adjusted operating income with policyholder behavior in the life business coming in negative partially offset by favorable policyholder behavior and the annuity business.
Beyond these factors all other components of the annual review had an immaterial impact.
As part of this year's review, we did not unlocked reversion to the mean corridor, which still provides an approximate $155 million pretax cushion against declines in the equity markets.
In addition to the significant impacts from the annual it sounds to review this quarter was also impacted by a few items.
First.
COVID-19 related claims reduced earnings by approximately $101 million or 52 cents per share switching.
Which included a 95 million dollar mortality impact and $6 million from disability claims.
Mortality component for the company was above the $10 million for every 10000 deaths we have discussed.
So we may see volatility quarter to quarter. We believe this represents a good proxy for the expected impact.
Second in addition to the direct COVID-19 impact our group life results also included $28 million or 14 cents per share from elevated mortality, which we believe is related to broader trends in U S population mortality arising from the pay.
<unk>.
Third.
Results benefited from strong performance and the alternatives investment portfolio, which boosted earnings by $56 million or 29 cents per share relative to our targeted annual return of 10%.
Net income totaled $398 million or $2.01 per share with the largest driver theme an update to our nonperformance risk calculation tomorrow line with peer practices.
As a reminder, why.
All we think of moments and N. P. R is largely non economic this change did have a positive impact and increased net income by $475 million.
Other positives included in that income with a 58 million dollar favorable non-operating result from the annual review and $50 million from a reduction nrc's oil reserves.
Lastly, the.
The variable annuity heads program performed exceptionally well with 100% effectiveness in the corner.
Moving to the performance of key financial metrics.
Consolidated adjusted operating revenue increased over the prior year period.
Average account value's increased to 7%.
Total G and a expenses <unk>, Vermont capitalized decreased 3% year over year, and when combined with revenue growth expense ratio improved 50 basis points.
And book value per share, excluding a O C I stands at $71.10 up 3%.
Now turning to segment results starting with annuities.
Reported operating income for the quarter was $196 million, which included a 101 million dollar unfavourable impact from our annual review primarily related to interest rates.
I'll just need for notable items in both periods operating income increased 13% from the prior year Carter driven by higher average account values and favorable alternative investment income.
Average account values of $144 billion increased 8% on both a year over year and a sequential basis.
Return matrix. Excluding notable items remained strong but they are a way of 82 basis points and they are oh eight of 22%.
Riskmetrics an R V. A book continue to demonstrate the quality of our business is the increase in account values reduced net amount at risk to 1.5% of account values for living benefits and approximately 50 basis points for death benefits.
Consistently strong returns.
Favorable riskmetrics and solid hedging results are evidence, what a well run annuity business can deliver.
Something we believe is not rewarded by the marketplace.
Base spreads excluding variable investment income decrease compared to the prior year, but increased on a sequential basis.
As we continue to actively manage crediting rates.
G and a expenses net of amounts capitalized decreased 6% year over here with expense management remaining a focus across the organization.
Looking ahead to the fourth quarter, we expect continued strong performance from the annuities business with alternative investment results returning to more normal levels.
Retirement plan services reported operating income of $50 million compared to $44 million and the prior year.
With the increase driven by alternative investment performance and expense management.
Our annual review had a net unfavourable impact operating income of $3 million in the current quarter.
And no impact in the prior year period.
Net flows totaled $362 million in the corridor, which when combined with favorable equity markets stroke average account values to $80 billion up 7%.
A 5% decrease in G and a expenses combined with 4% revenue growth resulted in a 230 basis point year over your improvement any expense ratio.
Based spreads excluding variable investment income compressed twenty-two basis points versus the prior year, which was above normal.
Primarily due to your lower yields on floating rate securities with a credit and right on the matched liability adjust less quickly.
However are away was strong and a quarter at 25 basis points.
The retirement business had a strong corner with good expense discipline and organic growth remaining key drivers going forward.
Turning to life insurance.
We reported an operating loss for the quarter of $311 million, which included a 440 million dollar net unfavourable impact from our annual review largely related to interest rates.
Just need for notable items in both periods operating income increased over the prior year Carter, primarily driven by favorable alternative investment performance compared to unfavorable results in the prior year.
Which more than offset elevated mortality related to COVID-19 of approximately $70 million.
Underlying earn his drivers continue to show growth with average account values up 5%.
An average life insurance enforced up 10%.
G&A expenses decreased 4% year over year, which led to a 40 basis point improvement and the expense ratio.
Base breads declined 14 basis points compared to the prior year.
Above or five to 10 basis point expectation.
Looking forward, we continue to expect headwinds from COVID-19 related mortality. However, the pandemic will eventually be behind us and key growth drivers remained solid.
<unk> protection reported operating income of $6 million compared to $61 million and the prior year with.
With the decrease driven by unfavorable pandemic related mortality.
Our annual reserve of Socks, and review had a net unfavourable impact operating income of $3 million in the current quarter.
Compared to a net favorable impact of $10 million and the prior year period.
The total loss ratio was 83.2% and a quarter up nine percentage points compared to the prior year period.
With the increased predominantly driven by group life loss experience.
This quarter's direct impact from COVID-19 mortality claims was $25 million.
And as I noted upfront total mortality for the group like business was elevated as we have also seen excess mortality emerge over the course of the pandemic.
Ah disability performance was good and a quarter is the loss ratio was consistent with recent periods incidents rates were flat compared to the prior year.
And the depth of business utilization and the loss ratio returned them are normal levels consistent with our expectations following very favorable dental experienced in the second quarter.
G and a expenses decreased 4%.
Even with increased staffing in our claims organization to maintain high levels of customer service.
During this period of help of elevated claim activity.
While the pandemic pressured this quarter's earnings and will continue to have an impact.
Encouraged by our premium growth.
Expense management and good performance from a disability book, despite the obvious pressures in the economy.
Turning to capital and capital management.
Continuing with this year's trend statutory capital and the R. V C ratio increased to $9.8 billion and 445% respectively.
Well cast at the holding company stands at $756 million.
In August we executed a 500 million dollar contingent capital facility, which provides us another tool within our capital and liquidity framework, while enhancing our financial flexibility and all market environments.
Is Denis mentioned, we plan to resume buybacks in the fourth quarter unexpected employ approximately $50 million towards buybacks over the remainder of the year.
We will update you on her outlook for 2021 capital return Ah next quarter's earnings call consistent with our historical practice.
To conclude.
Third quarter earnings included a large impact from our annual assumption view due to the significant decrease in interest rates and.
And we continue to experience headwinds from pandemic related mortality.
Looking through those items, we continue to see strong underlying earnings and this quarter's results had several positive include.
Including revenue growth and all for businesses.
Excellent expense management G&A was down across the company.
Capital continue to grow and we are increasing a return to shareholders within announced five per cent increase in our quarterly dividend and the resumption of buybacks.
With that.
Let me turn the call back over to Chris.
Thank you Dennis and Randy we will now begin the question and answer pushing on the call. As a reminder, we ask that you. Please limit yourself to one question and only one follow up and then re queue. If you have additional questions with that let me turn the call over to Catherine can begin Q&A.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please press the pound key please stand by while we compiled the Q&A roster for optimal sound quality. Please do not use a speaker phone. Please speak directly into your receiver or use a wired headset what time.
Microsoft.
Our first question comes from Ryan Cougar with K P. W. Your line is open.
Hey, Good morning first question was on the group like mortality.
I haven't really seen uhm I guess non covid related elevated it's elevated levels of non covid mortality records by other companies. So hoping you can provide a little bit more detail on what your screen and and if you think it will will continue as as Covid continues though if you think it's more of a a one quarter anomaly.
<unk> thanks for the questions.
Yeah, we spent a fair amount of time analyzing this Friday, we've looked at a number of industry.
Industry studies like B S O a dozen good work of a aggregating.
Information from across the industry, we participate a number of our peer companies like there's roughly 20 companies that participate in as we've analyze that data that date is coming over the course of their you've really seen this emergence.
Of of.
Of what we've described as pandemic related mortality. So I I think as you think about expectations for the near term.
Think it's reasonable to think of that.
That will consider Ah continuing to nurture, but I think it's also a reasonable to think that it will go away once.
With.
Developed a virus and figured out a way to manage the pandemic.
By the way.
Broader terms Ryan if you think about the overall.
Impacts of.
Of COVID-19 on the company.
You know inside the.
The individualized business we continue.
Iran in line with our original rule of thumb.
Think as as you think about that.
I think it's probably and once again.
I'm, just having to hypothesize because you're not going to get exact information on this but if you go back to when we established or 8 million per 10000 rule of thumb at the beginning at the beginning of the pandemic <unk>.
All the evidence was this was something that was gonna impact older age individuals defrates for relatively high.
Established a rule of thumb it worked for the second quarter at work for the third quarter I think underneath that once again, you'll never good enough for sure, but probably has some trend because we've done a better job, we brought death rates down with treatments.
You've seen us do a better job I think of protecting nowhere older people. So inside of the 8 million that we continue to experience there probably have been some shift.
From Pier Covid.
To service other pandemic related but it's still is working in total and that's a little different than the group business. If you think about when we established our original rule of thumb.
It really was not much evidence that COVID-19 was gonna become Ah.
A significant issue for the working age population.
But.
As this has gone on in America, and it has spread into other aspects of the population. Besides older age you started to see that and then in addition to that you started to see.
The emergence of this what we're calling pandemic related when we look at that study we see it across all causes of death, we see heart disease up 35% year over year cancer up roughly 12% year over year other respiratory about 42% So I would expect.
Right and that was a long answer to your original question that yeah, I would expect to continue for the near term.
Thanks, I appreciate that and then just one quick one do you did just given it's relatively large uhm assumption review impact would you expect much of an ongoing impact too her name's power within the life insurance business from this.
Yeah, I think it similar Ryan too previous years in answering these questions. I think every time, we've made any sort of assumption changes around interest rates. It has had a bit of an ongoing negative impact that's been something that we've worked to overcome so and.
You think about over the years, we've done this what four or five times and it hasn't really been something that is made a material impact going forward. So similar.
Similar to last time, Brian yet does have a bit of a negative impact, but not something we're gonna specifically strikeout will work hard to overcome.
Impact.
Okay, great. Thank you.
Mhm.
Thank you our next.
Question comes from Humphrey Lee with Alan and Parks. Your line is open.
Good morning, and thank you for taking my questions just looking at the the R. A especially can normalize our April annuities and R. P. S. Both were pretty strong in the third quarter clearly they did the market had an impact but do you see kind of <unk>, what kind of sustainable going forward, assuming the market continues to cough right.
Yeah Humphrey. Thanks for the question I think in the annuity business.
We've been reporting an R O a N around 80 basis points for about as long as I can remember maybe as long as I've been sitting in the seat and we were at 82 and a quarter. So yeah. I think all evidence would indicate that C. O N. R. O E in around that range is right in line with our expectations and I think I mentioned in the return visits it was.
A strong Porter.
They did have some benefit from the strong alternatives is roughly $4 million and a quarter. So you know I think 25 is sort of at the upper end.
Of what you'd expect to see them in a normal quarter, so probably a little above their ongoing R. O N.
<unk>.
Got it and then in terms, that's kind of the <unk> group protection I think the industrywide is definitely seeing some headwinds for premium <unk> top mine Grove, given D D colony and the appointment condition I guess can you elaborate cause you're you're you're you're thinking about how the the the top one.
We're trained especially when will as we enter into the enrollment period.
Yeah Hunter is Dennis just just the statistics were up 5% [laughter] third quarter year to date verses last year's third quarter here today.
Some of that has been the premium increases we've discussed is driven by [laughter] good retention.
Some of it's driven by new sales.
<unk> and we'll have to see how those trends develop as we move into 2021, but we're pretty comfortable.
That will see premium growth.
Got it thank you.
Thank you. Our next question comes from Tom Gallagher with Evercore. Your line is open.
Morning up <unk> first question can you comment at all about what type of level of buyback you're planning on would it be <unk> lower than prior levels given the environment or do you think you might get all the way back to where you were running previously.
Hey, Tom <unk>, you know I think it's always we really take this one quarter at a time right and so in our prepared remarks as I mentioned, we're planning on 50 million in the fourth quarter and then.
Well, we'll we'll talk to you about 2021 is we get into the next quarter's and beyond so, but when you think about the fourth quarter you know.
Buybacks, returning capital shareholders the buyback it starts with a balance sheet and as I mentioned our script work.
We're we're a comfortable with the strength of our our balance sheet, the 444% RMC ratio the 756 million of cash at the holding company. The fact that we've pre funded you know that maturity through 2023, and the fact that we added to our toolkit a contingent.
Capital facility, a $500 million in the third quarter, so the strength of the balance sheet.
Is definitely there.
So then you might ask why aren't you going back at your historic level, which is more in range with $150 million, a cord, which is what we've done historically on average so anything about that I would just went out a couple of things.
First.
The credit expectations have come down substantially from where they were you know back in March but if you look at that expectation I think it's fair to say that the confidence interval around that is still relatively wider wider than it is in a normal so I think we're reflecting.
The fact that credit has improved significantly, but they're still has some uncertainty or in the environment and the other thing I would find out Tom is that just from capital generation, we still are being impacted.
You know in the corner as I mentioned $101 million Bye Bye Covid and then another 28 million, so roughly $130 million from mortality.
Related claims across our business. So you'll eventually that will be behind us, but in the near term can we still are being negatively impacted by by this time dammit.
Okay. Thanks, Thanks for Andy and then just my follow up on.
You know you, obviously had a competitor announcing a variable annuity rish transferred deal.
I'm curious what your thoughts are there if that's something you'd be willing to consider particularly given that it was kind of a deep into money block that effectively freed up and capitalize that block. It about an eight P. E. You know well about four Lincoln and the rest of it.
Sectors trading does that.
Does that give you you know a new data point to consider and would you would you move down that path or how are you thinking about that.
Congress is Dennis I may take that let me answers to specific questions and add a couple more comments when we say a deal like that capital in the market, <unk> and where that and that transaction that's positive.
Overall as we've said we remain in the poll for opportunities.
To so either <unk> any of our box with any of our business is if it makes economic sense. So just on the point <unk>. Good for the marketplace. We're staying in a pillow and if we can do something that.
That makes sense economically <unk>, we will do that.
I also like to remind you that when done blocked transactions in the past.
V a N.
<unk> fixed annuities, you recall that way reinsured, the living bedroom, but there are terrorists.
50% of a 13 billion dollar block a V. A <unk> and that remains in place. We also did a pure fix.
Fixed annuity block your insurance deal.
<unk> and we've had faux deals.
So we've demonstrated a lot of hmm creativity in the marketplace over the years and will continue to [noise] participate where it makes economic sense.
Okay. Thanks, Thanks, Dennis would you what would you say more broadly you'd be open to doing something more transformational or or you know I guess those other deals were kind of more at the margin.
I'm not exactly sure Tom what you mean by transformational.
Let's look at our strategy and the and a V a market.
First of all start with most of the folks on phone no that we have the least risk most in forest blocks in business across the industry.
And so and Randy's already pointed out that with a making 18% to 20% return on equity with no blow ups in that business for years.
So we think it's a very good business for Lincoln at the moment, we're saying.
Strong returns across our block.
We.
We had a part of the reason that would be a <unk>.
Guarantee business are so strong from a risk perspective is that we remained in the market consistently we've.
We've hedged every rider from day one.
So we're very comfortable with the risk profile earnings capability of particular living benefit block.
<unk>.
Again, as I said looking for for pricing all of our products to get the appropriate return.
And so even though [laughter].
Lowering the benefits on a guaranteed.
Living benefit business has reduced demand yeah. That's fine we continue to sell it it would continue to get great grades.
A return on the capital deployed at the moment the returns on our Index me a block are also very strong and we're happy to see that block throw the way it's been growing so I think historically, we've demonstrated that was managed to be a business with a fixed annuity business well and.
It's showing up in a <unk> oh.
Learning some returns.
I appreciate the comments Dennis thanks.
Thank you. Our next question comes from Eric Bass with autonomous restart your line is open.
Hi, Thank you it's given your forecast of recovery and sales next year do you anticipate your free cash for a generation returning to more normal levels for did the product changes that you've talked about reduce the expected strain and kind of it I guess the strain on yourself.
Eric It's Randy.
No I don't think we see a.
A significant change in the overall.
<unk> free cashflow profile I think definitively.
The new product designs.
Have a lower capital needs, but as we mentioned we expect to grow sales.
Uhm beyond where we are here in 2020, and so you'll have sort of capital usage per dollar sales coming down while sales go up you know maybe holding relatively level. So you know no.
Big change your expectations four levels of of.
Of cash flow, even though the amount of capital to use per dollar sales will be coming down.
Got it and maybe following up on that I mean, you've mentioned, how the buffered annuity product is less capital intensive than guaranteed V. As how much difference is there in the amount of capital you have to hold as a percentage of liabilities and so what does that mean in terms of the capital strain from sales.
Yeah without getting into the particulars if in in.
If you rank ordered the annuities in terms of their their day, one capital strain.
It would be fixed annuities.
At the upper end and that's primarily because fixed annuities get hit with a significant see for.
Charge and the first year.
And the middle would be V. A with with guarantees and then on the on the lower end would be I V. A and then you can blow that would be just appear non guaranteed.
Be a product so without getting into the specifics Ivy as our.
Roughly half the strain of a typical fixed indexed annuity.
Got it thank you.
Mhm.
Thank you. Our next question comes from John Carnage with Piper Sandler Your line is open.
Thank you does it elevated non covid mortality, that's emerging in a broader population make you think about utilizing more reinsurance because I can see that as a product that maybe grow secular really out of this.
John I think that when we think about using reinsurance. It's you know every year, we're looking at.
What is the cost for insurance what are our expectations for mortality looking forward. So no. That's a discreet decision. We're making every single year I think the reality is is that we don't use a whole lot of reinsurance intergroup business remember that the average group claim.
<unk> is you know in the 50 to 60000.
Range, so you're not talking about an expectation of using a significant amount of reinsurance and a group type business. Obviously, we do use it more individualized business, where we sell you know a number of of larger.
Faith policy. So you know I don't think the pandemic itself chain.
Changes our view at this red Hot moment of of how we utilize reinsurance as part of our business model.
Okay, and then my follow up assuming we get a renewal of the hardship waiver.
Would you anticipate possible increase increase withdrawals in 2021 for retirement. Thank you for your answers.
<unk>.
As I mentioned, John in my remarks, <unk>, the the consequences of the government programs on our block in business have not been great. This year.
And that's in part related to.
Our concentration in the health care segment.
So to <unk>, not knowing what those new programs might be.
Whatever effective has industry clothes, we think will be at the lower end of that because of the <unk>.
Or <unk>.
Where we sell our business.
So again, we don't think that'll be a significant.
Perfect.
Thank you for your answers.
Thank you and our next question comes from <unk>, So neat come off with city. Your line is open.
Thanks, Good morning Uhm.
Tennis I think you said in your prepared remarks that you're planning on launching I think it was eight new products next year I'm, assuming that there's gonna be a ramp up period of time required as you educate your distribution force on these products shall we think about sort of thing.
Or I should we think about a pattern of a sales grudgingly crossed here.
Sorry.
<unk>.
Cross our business is mostly but like put in doing business in terms of new sales in the fourth quarter.
<unk> and then.
In 2021.
Slow build to your point through the course of the year.
Got it and then I think you'd also said in your prepared remarks are you're talking about maybe some incremental cost savings uhm. So I'm just curious if if you could maybe size that for us kind of how it compares to some of the cost savings programs are curious cheap in recent years.
Yeah. So if you go to the digital program, which is still underway.
We had.
Sort of a 120 million dollar target, which were Netapp investment I think we're running.
Plus $40 million and.
And growing toward the 120 by the end of 2021, so that's what I'm doing the important program.
Mmm I mentioned and Randy mentioned that we have on top of that 100 million dollar savings that that is occurring in 2020, some of which <unk> sort of reflects things like people aren't traveling as much in those could spring back put in 20.
21, [noise] and total we can keep that $100 million.
On top of that $100 million, what we're talking about well, let me say two things one preserving that $100 million and increasing it <unk> has been go forward that will take incremental investment.
We're in the process right now so neat of <unk> size.
Sizing that.
And when we get comfortable with the magnitude of that increase will share it with.
With you and others.
Okay. Thanks status.
Thank you and our next question comes from the least Greenspan with Wells Fargo. Your line is open.
Hi, Thanks, Good morning, Uhm I want it.
Oh, it looks like at least hung up.
Okay are there any further questions in queue. There are no other questions in the queue.
Okay. So with that thank you all for joining US. This morning is always we're happy take any follow up questions that you have you can email us at Investor Relations at L. F. G. Dot com. Thank you all and have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day speakers. Please standby.
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