Q4 2021 Lincoln National Corp Earnings Call

Good morning, and thank you for joining Lincoln financial group's fourth quarter 2021 earnings Conference call. At this time all lines are in a listen only mode. Later, we will announce to all.

Opportunity for questions instructions will be given at that time, if you need assistance at any time during the call. Please press star followed by the zero and someone will assist you now.

Now I would like to turn the conference over to the Vice President of Investor Relations our copper.

Please go ahead Sir.

Thank you Catherine good morning, and welcome to Lincoln Financial's fourth quarter earnings call.

Before we begin I have an important reminder, any.

Comments made during the call regarding future expectations.

Expenses income from operations share repurchases and liquidity and capital resources.

Forward looking statements under the private Securities Litigation Reform Act of matching 95.

These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.

These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued yesterday.

As well as those detailed in our 2020 annual report on Form 10-K , most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward looking statements are made only as of today and we undertake no obligation to update or revise any of them.

Next events or circumstances that occur after this date.

We appreciate your participation today.

With Lincoln's website, Www Lincoln financial Dot Com, where you can find our press release and statistical supplement which include a full reconciliation of the non-GAAP measures used on this call.

<unk> adjusted return on equity and adjusted income from operations or adjusted operating income to their most comparable GAAP measures.

Presenting on today's call are Dennis glass, President and Chief Executive Officer, and Randy <unk>, Chief Financial Officer, and head of individual life.

After their prepared comments, 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 al good morning, everyone in.

In the fourth quarter and full year, we again experienced elevated claims related to U S COVID-19 deaths.

Since the pandemic onset, we had been providing important financial protection for our customers.

During the most serious global health crisis and over a century.

Despite the magnitude of claims our earnings have been strong enough to continue our share repurchase program.

But capital for new sales and maintain our overall financial strength.

Looking through the significant Covid claims experienced in 2021 and.

And adjusting out excess alternative income and notable items, we view underlying earnings power at about $10 50 per share.

Up 13% over 2000, twenty's comparable figure and representing a 14%.

Underlying Roe.

Book value excluding <unk>.

We saw broad based sales growth this year and most of our businesses good expense management significant share repurchases and an improved capital position.

Looking forward, we expect EPS growth to meet or exceed our long term expectations.

Also supported by our actions to increase sales significant expense savings related to the spark initiative and share buybacks.

Turning to our earnings growth drivers.

As interest rates dropped we started a new product strategy to reprice, our portfolio to achieve target returns shift.

Shift our emphasis to less capital intensive products.

And add new solutions.

And our consumer value propositions.

We have been executing against the strategy and achieving our objectives. During 2021, we introduced 13, new products with more planned in early 2022.

We continued our disciplined repricing across our portfolio.

Contributing to strong new business returns.

And by any of these actions with the power of our distribution. We achieved significant 2021 sales growth in most businesses and drove increased operating revenues across all our businesses.

We continue to successfully manage expenses, while improving operational effectiveness and the customer and producer experience.

Lincoln has a long history of successful cost savings initiatives. Most recent of which is our spark initiative.

As announced last quarter.

By improving efficiency, leveraging automation and Upskilling our workers, we expect spark.

Additive to our compound annual EPS growth rate from 2021 through 2024.

Finally share buybacks have been and are expected to remain an important element of our EPS growth.

Now turning to the business segments in annuities sales grew 20% compared to the prior year quarter and 4% for the full year.

We expanded consumer choice within our already broad product portfolio and added new producers to our industry leading distribution force.

Full year sales growth was driven by sales of variable annuities without guaranteed living benefits.

Our sales of VA with living benefits are generating strong returns helped by a favorable competitive environment rising rates and the return enhancing flow reinsurance deal we executed in the third quarter.

The ongoing shift in sales mix towards products without living benefits started several years ago.

Further to advance that effort by launching an indexed variable annuity in 2018.

We supported the launch with increased shelf space and have since continued to innovate, adding new investment options to both our indexed VA and our traditional VA without living benefits.

As a result, va's without living benefits.

To over 70% of VA sales.

More than twice the percentage in 2018.

The strategic sales shift is also diversified our comp value mix.

VA with living benefits now account for less than half.

Our in force annuity account value.

Based on our current sales mix will continue to decline.

We enter 2022 with solid footing in the annuities business with strong coordination among manufacturing risk management and distribution.

In retirement plan services, we are successfully capitalizing on the opportunities in the market. Thanks to our innovative product portfolio differentiated high Tech high touch service model and breadth and depth of distribution.

Fourth quarter total deposits were up double digits.

Sequentially and compared to the prior year quarter.

Full year total deposits rose 8%.

10 $8 billion.

Record with growth in both first year sales and recurring deposits.

Contributing to our seventh consecutive year of positive net flows.

Retirement plan services enters 2022 in terrific shape.

With a robust sales pipeline and an expanded product portfolio.

We are benefiting from the improved environment for our retirement businesses as wage growth contribution rates and increases in employer deposits are all serving as tailwind for deposit growth.

Finally.

We remain well positioned competitively in our target markets are small and mid case 401K health.

Healthcare.

Government and not for profit as evidenced by our consistent multiyear track record.

Positive net flows and strong returns.

Turning to life insurance, we entered 2021 with a well positioned portfolio of solutions.

Repriced to ensure strong returns in a low interest rate environment.

Throughout 2021, we launched new innovative risk sharing solutions to help grow the topline.

We introduced seven new products contributing to fourth quarter sales growth of 53% sequentially and 121% over the prior year quarter.

This sales strength was broad based with every major product category reporting double digit growth.

<unk> record term life sales and substantial growth in executive benefits.

Even more significantly nearly 30% of our sales. This quarter consisted of solutions and features that didn't exist before 2021 four.

For instance, <unk>.

Variable moneycard represented 42% of total <unk> sales.

In 2021, we also continued to build on our distribution force, adding over 12000, new producers, who had never sold a Lincoln life policy before.

An example of this growth was in our new partnership in the P&C channel.

New producers across channels are finding our repositioned and expanded product portfolio attractive demonstrating the synergies between our product innovation and distribution expansion.

Finally, we continued to build on our digital capabilities in 2021, our cost per life applications continued to decline.

As our automated underwriting and digital processing capabilities are driving efficiencies, while improving the customer experience.

In 2022, we will continue to innovate with product launches planned for the first half of the year expand our distribution franchise and enhance our operations with digital investments.

Now moving to group protection, let me focus first on profitability.

The group business is managing through a challenging environment as pandemic claims increased in the fourth quarter.

Group's full year underlying margin normalized for above target alternative income and then the claims and a notable item was.

Slightly below our targeted 5% to 7% range.

We expect to achieve ongoing margin improvement in group building to the high end of our target within improvement coming from a three part strategic effort.

First is continued pricing discipline.

We strengthened pricing in 2020 and continued to make additional changes where necessary.

Second is claims management.

<unk>, our ongoing investment in claims staffing combined with a more streamlined and effective approach to claims operations lastly, as cost efficiency aided by our recently announced spark initiative.

We expect these three efforts to drive approximately equal contributions to margin expansion.

Turning to the topline, we achieved 4% premium growth for the year and 6% for the quarter, which is a result of strong persistency up over two percentage points for the full year to 89, 2%.

And successful execution of ongoing rate increases.

Sales declined 17% for the full year and 14% in the fourth quarter as we maintained our pricing discipline.

Our focus on strategic market segments has resulted in an increase in employee paid products, which comprised 43% of total sales in 2021.

Up from 39% in 2020.

And we are starting to see a shift towards supplemental health solutions, including our new hospital indemnity product.

This shift is still in its early days, but we expect it will ultimately add to our earnings diversity and consumer value propositions.

Although the pandemic is a challenging time.

The group business remains a key contributor to Lincoln's diversified business portfolio.

And we are confident in its earnings potential.

A few words on one of our key competitive advantages are powerful distribution for us.

As the industry continuously evolves the strength of our distribution franchises remain a constant we're known in the marketplace for a consistent distribution presence with broad reach across distribution channels.

Over 90000 active producers sell our products and through strategic investments in technology and training, we are influencing where and how we engage with financial professionals, leading with a virtual first model for the long term.

As wholesalers and reps have begun to meet in person with their clients.

<unk> to leverage virtual tools, which improve the service, we deliver raise productivity and help lower costs.

And our efforts are being recognized.

We received two industry awards in 2021 for.

For innovation and virtual training and digital marketing.

Briefly on investments the fourth quarter capped a year of outstanding results with <unk>.

Dan reported excellent credit performance with another quarter of positive net ratings migration and negligible losses in 2021, a portion of our fixed income assets rated investment grade or equivalent rose to 97%.

This quarter, we invested new money at two 9%.

<unk> basis point sequential increase as we continue to benefit from our multi manager platform.

During 2021, we invested 65% of new money in assets other than public corporates.

Building, approximately 100 basis points more than comparable rated public corporates of similar duration.

For full year 2021, our new money duration fell to about seven and a half years from 10 years with decline, reflecting Lincoln's disciplined approach to asset liability management, and our shift to a less interest rate sensitive product.

<unk>.

Finally.

We reported a quarterly return alter.

Alternative investments up 4%.

Impaired to our targeted return.

Two 5%.

For the year, we generated outstanding.

99% return versus our 10% annual targeted return.

In summary.

The claims environment has been challenging but full year 2021 underlying EPS grew substantially.

We expect our top line momentum to continue.

We expect the spark cost savings initiative, which will more than offset spread compression to add to our EPS growth over the next few years.

Enabled by our balance sheet and earnings strength, we continue to return capital to shareholders.

And some.

Our earnings power continues to grow and we remain confident in our ability to achieve underlying EPS growth at or above the high end of our 8% to 10% target range.

I will now turn the call over to Randy.

Thank you Dennis.

Last night.

We reported fourth quarter, adjusted operating income of $286 million or $1 56 per share.

There were no notable items in the current or prior year quarter.

However, this quarter's results were impacted by pandemic related claims, which reduced earnings by $197 million or $1 <unk> per share.

<unk> results benefited from alternative investment income.

Seen earnings by $29 million or <unk> 16 per share above target.

Additionally, we experienced some unfavorable non pandemic impacts to mortality and morbidity.

I will discuss further in the life and group protection commentary.

Our underlying earnings power continues to be strong as we exit the quarter.

Net income totaled $220 million or $1 20 per share.

Strong performance from our credit portfolio was offset by hedge breakage and non economic variable annuity nonperformance risk.

For the full year net income EPS came in at 91% of adjusted operating EPS.

With the difference primarily driven by non economic variable annuity nonperformance risk.

Moving to the performance of key financial metrics.

Average account values increased 10%.

A continued focus on expense management led to a 10 basis point improvement in our expense ratio.

And book value per share, excluding LCI grew 9%.

And stands at $78 five zones.

An all time high.

Before turning to the segments I want to provide an update on the spark initiative as we close out the year.

Last quarter, we provided details on spark.

Which we expect will result in $260 million to $300 million pretax in run rate savings by the end of 2024.

And this remains unchanged.

Looking at 2022, we expect a net impact in a negative 25 to.

$65 million range pre tax.

This year will be the peak investment year for the initiatives.

This compares to an immaterial impact in 2021 as.

As we were able to accelerate savings to offset the investments made.

As a reminder.

We will run the investment through the other operation segment, while the savings will be spread throughout the businesses.

Now turning to segment results starting with annuities.

Operating income for the quarter was $332 million.

Compared to $289 million in the prior year period.

The increase was primarily driven by higher account values.

Which were the result of growth in the equity markets.

And expense efficiency.

Average account values of $171 billion increased 13% year over year.

While revenue growth of 10% for the quarter resulted in a 110 basis point improvement in the expense ratio.

Return metrics remained excellent with return on assets coming in at 78 basis points.

And return on equity at 25%.

Risk metrics on our VA book once again demonstrate the quality of our in force.

With the net amount at risk at 53 basis points of account values for living benefits.

And at 34 basis points for death benefits.

2021 was another excellent year for the annuity business and we are well positioned for continued strong performance in 2022.

Retirement plan services reported operating income of $57 million compared to $49 million in the prior year quarter.

With the increase driven by higher fees on account values.

Positive full year net flows.

And continued expense efficiency.

Favorable equity markets and the positive flows drove fourth quarter average account values up 17%.

The $98 billion.

The expense ratio improved 40 basis points over the prior year quarter, and 170 basis points for the year.

Driven by continued diligent expense management.

Base spreads excluding variable investment income compressed two basis points versus the prior year quarter.

Seven basis points for the full year.

Better than our previously communicated 10 to 15 basis point range.

A result of continued management of crediting rates.

Going forward, we expect spread declined to be in the five to 10 basis point range.

Overall, another excellent year for the retirement business.

Off by a great quarter.

This new in the business for continued success in 2022.

Turning to life insurance.

Operating income for the quarter was $80 million.

Versus $144 million in the prior year quarter.

This quarter's results were impacted by pandemic claims and.

An unfavorable underlying mortality.

With some offset from alternative investment income.

Elevated mortality related to the pandemic was $66 million in the quarter comp.

Compared to $113 million in the prior year quarter.

This quarter's impact per 10000 U S Colby improved year over year and sequentially as expected.

In addition to the impacts of the pandemic underlying.

Mortality was negatively impacted by $24 million.

This was primarily driven by claims incurred during the third quarter.

Not reported until the fourth.

For full year 2021, excluding the impact of the pandemic.

Our actual to expected mortality ratio came in at 100%.

While alternative investment income was less favorable than the prior year quarter.

Current quarter did include $22 million of excess alternative investment income.

Our recent block reinsurance transaction reduced life's earnings by $10 million.

In line with our expectations.

And as a reminder.

The results from the prior year quarter included a $20 million favorable one time items.

Key metrics impacted by the transaction include average account values.

Which would have been up 7% excluding impacts from the deal and base spreads.

Which were favorably impacted and should move back towards our expectation of a five to 10 basis point decrease annually.

While strong sales drove an increase in the quarterly expense ratio we.

We did see improvement in the full year result, with the expense ratio declining 20 basis points.

So we continue to expect some impacts from the pandemic.

Growth in earnings drivers.

Underlying long term mortality results in line with expectations and continued expense discipline keep us optimistic about the future of the business.

Group Protection reported an operating loss of $115 million.

Compared to an operating loss of $42 million in the prior year quarter.

With the decrease primarily driven by $131 million of pandemic claims.

Additionally group.

<unk> earnings were negatively impacted by other items during the quarter, including.

$25 million to $30 million of seasonally higher fourth quarter disability claims and expenses.

And approximately $15 million of underlying disability results.

We attribute the underlying disability results through a combination of normal quarterly volatility.

Indirect influence from the pandemic.

Like prior quarters, the pandemic impact was primarily mortality related with $115 million of life claims and.

$16 million of disability claims.

The life claim impact per 10000 U S. Covid deaths declined from third quarter levels.

Through $9 2 million.

As the percentage of working age deaths declined somewhat.

While the pandemic impact on group earnings will vary quarter to quarter, we remain confident that the fundamentals of the business are solid.

And the actions we are taking will over time get us to the high end of our targeted margin range.

Turning to capital and capital management.

We ended the quarter with $10 $4 billion of statutory capital and.

And estimate our RBC ratio at 428%.

The Nics New C. One factors went into effect at year end, which lowered our RBC ratio by approximately 20 percentage points this quarter.

Cash at the holding company stands at $1 1 billion.

Above our $450 million target.

We have pre funded our $300 million 2022 debt maturity.

And retained $400 million of proceeds from the Lifelock sale for additional incremental share repurchases.

This will commence shortly.

An accelerated share repurchase program.

That should be completed by the end of the first quarter.

We deployed $650 million towards buybacks in the fourth quarter.

Included $150 million of ongoing quarterly share repurchases.

And $500 million and incremental share repurchases with proceeds from the block reinsurance deal.

As I mentioned last quarter, the timing of ongoing buybacks may be influenced by the accelerated share repurchase program.

To conclude.

2021 was certainly year that continued to be challenged by the pandemic.

But as we enter 2022, we feel confident in our ability to continue to tackle any challenges that lie ahead as.

As we are positioning Lincoln to continue its track record of delivering for customers.

<unk> and shareholders.

In summary.

We delivered on our promises to customers with nearly $615 million of pandemic related earnings impact.

While continuing to strengthen our balance sheet.

And in the year with estimated RBC ratio of 428%, while absorbing the impact from the <unk> changes.

We continued to achieve organic growth.

With a portfolio, including new and innovative products driving strong returns.

We delivered powerful earnings growth with reported operating EPS, excluding notable items.

20%.

We continued our strong track record of capital return with one 4 billion of buybacks and dividends.

And with the addition of the Spark initiative.

Position Lincoln to continue to grow EPS over the next three years at or above our long term aspirations of 8% to 10%.

With that.

Let me turn the call back over to al.

Thank you Dennis and Randy.

We will now begin the question and answer portion of the call. As a reminder, we ask that you. Please limit yourself to one question and one follow up and then re queue. If you have additional questions.

With that let me turn the call over to Catherine to begin Q&A.

Yes.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

For all of your question press the pound key for optimal sound quality. Please do not use a speaker phone. Please speak directly into you receive or you say wired headset with a microphone.

Our first question comes from Tom Gallagher with EV or your line is open.

Thank you.

First question can you can you talk about the strength in individual life insurance sales for the quarter.

Roughly doubled.

Did you did you announce pricing changes with those sales in anticipation of that or just a little more color about what drove the strength.

Individual life sales.

Tom It's Randy and a number of factors.

Drove that outcome, which was in line.

With our expectations, we went back to the fourth quarter of last year first we talked about.

That was the point when all of our products.

Had been repriced over shortly to be replayed after price and so we expected sales to be at a low point at that moment in time.

So we're comparing to the low point from a life sales standpoint.

Then in addition to all of those reprice products. This year, we added as Dennis mentioned seven new products.

We used one example, moneycard moneycard product variable moneycard product, which did not exist in the fourth quarter of last year, but represented 42% of the sales.

That particular product area. Dennis also mentioned some new distribution partners in the P&C channel and that really drove some great results, especially in the term business. So it's a combination time of all of those new products. The fact that last year was as we communicated and expected low point.

And then the.

The third factor I just mentioned the fourth quarter is typically in a normal year the biggest quarter for life sales, it's been that way as long as I've been in the industry. So that's what I would say Tom.

Okay. Thanks, and then my follow up is if I look at the performance of your group business. The deterioration in overall loss ratio has been worse than peers.

Curious.

When you sort of step back and look at that business do you think there needs to be any repositioning of the block from our risk selection standpoint.

Or do you think it's kind.

Kind of just volatility that's occurring from the pandemic, some random aspects to it and getting enough rate.

Getting right is all you need in terms of what you see lying ahead.

Tom Dennis.

At the top.

We think we have a very strong book of business.

We're very confident.

That is two to three strategies that I've mentioned are going to get us to the top end of our 5% to 7% margin over the next few years.

Very optimistic.

About.

The group business.

Significantly.

There are significant opportunities to increase earnings over the next couple of years, So we feel pretty good about it.

Randy do you want to add any details.

On the quarter.

Yes.

Tom Thanks for the question I think.

From a starting point you have got the pandemic, which over the back half of 2021 started to hit group businesses not just at Lincoln.

Across the industry in a more material way that was.

We believe as I've heard others talk about had to do with a shift in who was dying from COVID-19 .

An approximate doubling of.

Of the working age population percentage.

Covid related deaths that came down a little bit in the fourth quarter and went from 40% in the third quarter to 35% in the fourth quarter and I think that was the driver of why our mortality impact came down a little bit but.

Once again group business, our group business across the industry when I look at it.

Similar way and that impact grew over the course of 2021. It culminated in the fourth quarter, an impact of $131 million $115 million of that foot mortality.

So that's that aspect.

Now there are two other aspects about our quarter and let me talk about those.

First as I talked about in.

In my prepared remarks, Tom <unk>.

$15 million of underlying negative results in our disability business.

You can really see that.

And the loss ratio if you exclude the pandemic in our disability business, we had about an 87% loss ratio.

In the fourth quarter that was a little over 83.

Last year in the fourth quarter show up about four points to match that $15 million of underlying.

Negative results I talked about we think there's two factors in there.

First we saw a blip in severity severity is run in a pretty tight channel for an extended period of time and we saw it jump up this quarter do you think that sort of normal volatility and I mentioned that in my script.

The other factor that.

We see when we look at our results as incidents, which ticked up a little bit.

We think thats more influenced by the pandemic you.

If you think about.

Air across the <unk>.

States health care system throughout the pandemic I think theres been some deferred care. There are some other things that a car that caused the.

A slight tick up in incidence and I think that's going to take a little longer to work out I think we're going to be working on that over the course of 2022.

So that's the underlying component. Additionally, I talked about the seasonality, which we here at Lincoln.

We have seen for some time in the fourth quarter, 25% to $30 million, that's made up of expenses, which typically.

Go up a little bit in the fourth quarter and then.

And the discipline on the disability results. When we think about why do we have seasonality in the fourth quarter and our disability results Theres really three things that we typically.

See.

The first is on the incident side.

It really has to do our biggest quarter from an efficacy standpoint, as the second quarter and so that we can and those roll in the fourth quarter. After a six month waiting period. The second factor, we typically see as resolutions seasonally lowest in the fourth quarter. We think that has a lot to do with.

Holidays et cetera, doctors' offices, it's just harder to get information. So we typically see we still have a good result, but seasonally we typically see it at its lowest level in the fourth quarter and we saw that again.

And then last side as we typically also see seasonally or social security offset drop in the fourth quarter and once again, we saw that so that's what we attribute the seasonal aspect, we would expect that to go back to what we've seen in.

In the first quarter, so I hope that helps Tom that answers your question.

That does thanks guys.

Yes.

Thank you and our next question comes from SUNY come off with Jefferies. Your line is open.

Great. Thanks, just first on the alternatives.

Can you give us a sense of how much of this year's.

VII was marks as opposed to realized gains and maybe how that compares to prior years.

So.

Yeah.

The.

The portfolio is turning over.

So.

At a big picture level.

We're converting.

Some of the gains to cash.

We will have to get back on the details, but it is not just an increase in the marks were converting into cash and reinvesting the proceeds.

And new business.

New investments.

Got it Okay, Alright, and then I guess on the annuities I mean, your sales were strong for the year, but the flows were still pretty negative there too.

$2 6 billion.

I guess what is your outlook as we think about 2022 and beyond at what point does this business start to return into inflows.

Yes.

So those are made up of.

Both.

Okay.

But more.

Fixed annuity side, which is a result of our repricing of that business.

Okay.

For fixed annuities is a good business.

Properly priced draws a lot of capital. So you have to make sure that the return is.

Great.

On the VA side.

I think what we're seeing I think what we're saying is.

Our.

Our ratio.

Ongoing.

Surrenders and so forth are staying pretty consistent.

But at the same time account values are going up.

A little bit more account value.

On the outflow rate.

So we're confident of the annuity business to be growing over time.

Howard.

Net flows work.

It was a function of a couple of different things, but good business.

Okay.

Okay excellent returns on capital that we're putting behind.

<unk>.

The business.

Guaranteed living benefits as well as.

The business without guaranteed benefits.

Living benefits.

I'll just come back to what we've been saying about this business for a long time.

By staying in the market consistently.

In good times and bad times.

<unk>.

Best quality.

Enforced books of business and the industry.

Expect that to continue and to help drive earnings.

Over the next couple of years.

Okay. Thanks.

Thank you. Our next question comes from Tracy Bengie with Barclays. Your line is open.

Thank you good morning.

I noticed that you grew your VA Ritchie LP by healthy 65% year over year.

I guess some of the thinking.

And thinking that this is really an investment Olivier considering your reinsurance deal. The Calpine does that basically allows you to grow but not take incremental rent.

Tracy.

Tracy This is Randy yeah that was a component.

Growing sales right. If you remember on the telco deal.

At a maximum sales of 1 billion and a half.

And it ran through next June so yeah that was definitely a component now in and of itself.

The growth I think it's once again, it's similar to the life story.

First quarter of last year.

Was the lowest quarter, we've ever had it was it was a very low fourth quarter of 2020. So I think some of that growth. If you look at more recent quarters sequential quarters were much more.

Fluids pattern of growth, there's no specific strategy to hey, we're going to grow VA with living benefits or we're going to grow that it's once again.

Our strategy is to price our products appropriately have a very diversified portfolio.

<unk>.

Consumers choose from among those products as their preferences shift what we believe that's going to lead to over time.

Is something similar to what you saw this year about a quarter of our sales over the course of 2021 are we able to with guarantees about 75% were fixed or VA is without guarantees I think thats, a reasonable expectation and that mix over time should pull.

Our overall account value mix.

Towards that over time, just as a reminder, Dennis said in his script, we've reached a point now where less than 50% of our account values, our VA with guarantees and the current sales mix is about 25%. So it will take a long time, but that's where you would eventually expect to move over time.

So I don't care.

Yeah that helps thank you.

And then also ask.

Corridor, you talked about spread compression running between 3% and that could trend down to minus 2%. Just wanted to know your latest outlook just given some of the asset allocation update you made in 2021 on new money and also considering rising interest rate, albeit there's a flattening yield curve.

Tracy.

Spread compression has come down.

Come down as we move into 2022 as rates have moved up a little bit we're definitively at the low end of that range and we expect it to continue to decline I think when you look forward there will be a point.

In the not too distant future, where we formally communicated more than the 1% to 2% range.

The 2% to 3%, which is our current public.

<unk>.

Okay got it thank you.

Thank you. Our next question comes from Alex Scott with Goldman Sachs. Your line is open.

Hi, first question I had was a little bit of a housekeeping item I guess I just wanted to confirm on the <unk>.

Higher end of the 8% to 10% EPS growth that you've kind of talked about or even exceeding it should I think about that.

Completely separate from the 5% accretion.

Sort of communicated around the life, a close block transaction.

I think you should think about those altogether right. So part of the reason.

We are.

Very confident.

Our ability to grow above at or above that.

8% to 10% guidance is the impact of the spark initiative.

But also it's the fact that we will have a slightly elevated.

The share count reduction embedded in that analysis associated with the $900 million of buybacks that we're doing as part of the life flagship.

Understood Okay.

And then second question unrelated.

Getting more inquiries about the department of Labor and just sort of the process that they seem to be beginning to ramp up potentially to take another look at the fiduciary rule.

I guess I'd just.

I'd be interested in your perspective on that and what's going on.

So what might be different this time around versus I think the experience investors, probably remember from 2016 time period.

Yes, Alex I don't know that we have any.

More insight.

Anyone else does because it's.

Evolving.

Because we speak but.

The general observation I think because of the changes is the last time around.

The way the industry has reacted to them and Lincoln in particular that there is no overriding concern.

The effect of expansion of the fiduciary rule on the way we do business, we think we can accommodate.

Most of the range of outcomes that we expect.

Thanks.

Thank you. Our next question comes from Josh Shanker with Bank of America. Your line is open.

Yes, I just wanted to get a little color on the FIA sales.

I don't know where interest rates are whether it's attractive are there.

During the pandemic a lot of less rated companies. Besides Lincoln that were successful in selling FIA.

Multi year guarantees and whatnot and Lincoln wasn't going to chase price and now the growth is pretty good is that a behavior that's changing among your distributors.

It has the price come into a point, where lincoln's products more attractive.

How is that working with directly.

Josh.

We're very comfortable with the business that we're selling and getting the appropriate returns on it.

The.

Sort of the competitive environment can change very quickly I think we change it right. So every two weeks based on what's happening in the marketplace.

But.

I want to come back to that.

We're very careful about getting the right return on the capital we're deploying behind new sales.

We have very strict.

Rules governance around that.

And.

Candidly the overall risk profile with products over time so.

We feel good about the fixed income annuity pricing.

Product risk characteristics from a shareholder point of view.

And the return that we're getting on new capital.

And why do you think they didn't sell so well.

<unk> months ago.

They werent being sold in the market at all.

For Lincoln or for the industry.

Compare to the industry Lincoln Lincoln seem too.

I mean, you might have been pulling back to some extent, but obviously I don't know if the rates have changed that much or maybe they have maybe the economics are very different from what they were a year ago.

Richard.

As we all know that effects.

The proposition for the customer we've also added some new indexes.

<unk> made.

The breadth of customers interest wider which helps increase our sales. So it's just a consistent product development, adding new features I actually mentioned this.

My comments.

Maintaining a.

Good risk profile.

As well as return capital behind the products.

Josh I would just.

Point out that way.

As Dennis said, we're very happy with the returns, we're getting and very happy with the sales. We're seeing if you look over a longer term like this year compared to last year.

<unk> sales are actually down.

Compared to last year.

So.

Over the longer term.

We continue to.

Price to get our targeted returns and the sales will come as they do.

Yes.

Thanks.

Thank you. Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Hi, Thanks, Good morning, My first question.

I was hoping to get some more color on how much of that elevated mortality away from COVID-19 within the life business in the quarter.

And any expectations you can get back to when we think about modeling.

In Q1, 'twenty two and beyond.

Elyse Thanks for the question.

I think as I mentioned in my script, when we pull out the pandemic impacts for the full year, our actual to expected was.

Exactly at 100% right in line with our expectations.

Spectation now inside of the Carter's.

That consisted of a first half of the year that was a little better than our expectations in the back half of the year that looks a little worse than our expectations the quarter itself the $24 million of underlying mortality.

I think I mentioned this in the script it was driven actually by claims that occurred in the third quarter.

But didn't get reported into the fourth quarter.

Essentially the <unk> was a little.

<unk>.

Stated at the end of the third quarter now.

Think about <unk>.

I've looked at it over the last few years, if you sum up all the pluses and minuses.

<unk> adds up to exactly zero, but inside of a us some quarters, where it's.

A little low in some quarters, where it's where it is a little high in the third quarter happened to be one where we were just a little under accrued from <unk> standpoint, and that hit us and that really drove the $24 million.

Okay.

Then.

In terms of the Spark initiative I think you mentioned some more savings than expected came through in the quarter is there any sense you can give us the geography by segment and then is the right way to think about getting to the top end of that 5% to 7% target with them meaning.

Why is that we need to go through the whole spark program and realized all of the expense savings or can you just help us think about how.

Think about the timeframe there.

So let me speak to the second half of your question with respect to group margins.

Very.

Confident in getting to the 5% to 7%.

And as I mentioned, there's three components of that that have about equal weight.

The first one.

Is the continuation of strengthening our pricing.

We're getting good.

Single digit increases.

Pricing at the moment.

Spec.

To help and again provide about a third.

The.

Improvement to the 5% to 7% over time.

The second piece is.

We're actually investing money.

Claims management process.

Systems and other types of.

New ways of running claims.

To get our claims.

It has been process slightly better shaped than it is today.

And then the third one is the spark initiative.

And so.

<unk> develop over the next three years so.

Once again.

In force book of business is fine we need to do some repricing in these three initiatives.

We will get us to the <unk>.

5% to 7% range over the next several years.

And then just in terms of the spark savings on how they are trending to the segments can you just give us a sense in the fourth quarter.

Yeah, Tracy I don't have any specific information segment by segment in the quarter.

Our expectation is that the 200.

60% to $300 million of run rate savings would be spread across the businesses really in line with their level of expenses compared to the total expenses. So we expect it to be uniform.

When we.

And how that will manifest in.

The numbers you can see is that we expect our expense ratios to continue to decline as they have done for a long long time across Lincoln.

Thank you.

Yes.

Okay.

Thank you. Our next question comes from Erik Bass with Autonomous Research. Your line is open.

Hi, Thank you in the buffered annuity market it looks like you've ceded some market share in recent quarters is this a reflection of more competition coming into the product and are you seeing any signs of aggressive features or pricing in the market.

Certainly a lot more there are a lot more people offering the product.

Some unique.

Yeah.

Future developments I think are good for the space in general.

We just continue to use the strength of our distribution our pricing.

Requirements.

Sometimes it together a little more market share, sometimes less but over time, it's a good product it's not guaranteed.

Yeah.

To what we've done so well in the annuity business actually in all of our businesses consistently in the market with good quality products delivering good consumer values improving them and.

And paying a lot of attention to getting the right return on capital behind those products.

Got it. Thank you and then as we think about ordinary dividend capacity for 2022, how much impact will there be from the high Covid losses in 2021 and will this have any material impact on cash flow to the holding company.

Eric now if you think about even the last two years.

Indiana has a greater upstate so our dividend capacity has been driven by the significant amount of capital.

Inside of <unk>.

<unk>.

That was the case this year, we had no problem.

Getting dividends out no expectation that we'll have any limitations in 2022 relative to our needs.

Got it thank you.

Mhm.

Thank you and Thats all the time, we have for questions today I'd like to turn the call back to al <unk> for closing remarks.

Well. Thank you all for joining us. This morning as always we are happy to take any follow up questions that you have you can email us at Investor relations at LFG Dot com.

Thank you all and have a great day.

Okay.

This concludes today's conference call. Thank you.

Participating you may now disconnect speakers please standby.

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Good morning, and thank you for joining Lincoln financial group's fourth quarter 2021 earnings Conference call. At this 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 star key followed by.

Zero and someone will assist you.

Now I would like to turn the conference over to the Vice President of Investor Relations All copper Simo. Please go ahead Sir.

Thank you Catherine good morning, and welcome to Lincoln Financial's fourth quarter earnings call.

Before we begin I have an important reminder, any.

Any comments made during the call regarding future expectations.

<unk> expenses income from operations share repurchases and liquidity and capital resources are forward looking statements under the private Securities Litigation Reform Act of bunch of 95.

These forward looking statements involve risks and uncertainties.

Could cause actual results to differ materially from current expectations.

These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued yesterday.

As well as those detailed in our 2020 annual report on Form 10-K , most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward looking statements are made only as of today and we undertake no obligation to update or revise any of them.

Events or circumstances that occur after this date.

We appreciate your participation today and invite you to think that Lincoln's website, www Lincolnfinancial Dot com, where you can find our press release and statistical supplement which include full reconciliations of the non-GAAP measures used on this call.

Adjusted return on equity and adjusted income from operations or adjusted operating income to their most comparable GAAP measures.

Presenting on today's call are Dennis glass, President and Chief Executive Officer, and Randy <unk>, Chief Financial Officer, and head of individual life.

After their prepared comments, 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 al good morning, everyone in.

In the fourth quarter and full year, we again experienced elevated claims related to U S COVID-19 deaths.

Since the pandemic onset, we had been providing important financial protection for our customers during the most serious global health crisis and over a century.

Despite the magnitude of claims our earnings have been strong enough to continue our share repurchase program.

But capital for new sales and maintain our overall financial strength.

Looking through the significant Covid claims experienced in 2021 and adjusting out excess alternative income and notable items, we view underlying earnings power at about $10 50 per share.

Up 13% over 2000, twenty's comparable figure representing a 14%.

Underlying Roe.

On book value excluding OCI.

We saw broad based sales growth this year and most of our businesses good expense management significant share repurchases and an improved capital position.

Looking forward, we expect EPS growth to meet or exceed our long term expectations.

Also supported by our actions to increase sales significant expense savings related to the spark initiative and share buybacks.

Turning to our earnings growth drivers.

As interest rates dropped we started a new product strategy to reprice, our portfolio to achieve target returns.

Shift our emphasis to less capital intensive products and.

And add new solutions that expand our consumer value propositions.

We have been executing against the strategy and achieving our objectives. During 2021, we introduced 13, new products with more planned in early 2022.

We continued our disciplined repricing across our portfolio.

Contributing to strong new business returns.

By combining these actions with the power of our distribution, we achieved significant 2021 sales growth in most businesses and drove increased operating revenues across all our businesses.

We continue to successfully manage expenses, while improving operational effectiveness and the customer and producer experience.

Lincoln has a long history of successful cost savings initiatives.

Most recent of which is our spark initiative.

As announced last quarter.

By improving efficiency, leveraging automation and Upskilling our workers, we expect spark to be very additive to our compound annual EPS growth rate from 2021 through 2024.

Finally share buybacks have been and are expected to remain an important element of our EPS growth.

Now turning to the business segments in annuities sales grew 20% compared to the prior year quarter and 4% for the full year.

We expanded consumer choice within our already broad product portfolio and added new producers to our industry leading distribution force.

Full year sales growth was driven by sales of variable annuities without guaranteed living benefits.

Our sales of Bas with living benefits are generating strong returns helped by a favorable competitive environment rising rates and the return enhancing flow reinsurance deal.

We executed in the third quarter.

The ongoing shift in sales mix towards products without living benefits started several years ago.

We further advanced that effort by launching an indexed variable annuity in 2018.

We supported the launch with increased shelf space and have since continued to innovate at a new investment options to both our indexed VA and our traditional VA without living benefits.

As a result.

Without living benefits have risen to over 70% of VA sales.

More than twice the percentage in 2018.

The strategic sales shift is also diversified our comp value mix.

We as with living benefits now account for less than half.

Our in force annuity account value.

And based on our current sales mix will continue to decline.

We entered 2022 with solid footing in the annuities business with strong coordination among manufacturing risk management and distribution.

In retirement plan services, we are successfully capitalizing on the opportunities in the market. Thanks to our innovative product portfolio differentiated high Tech high touch service model and breadth and depth of distribution.

Fourth quarter total deposits were up double digits.

Sequentially and compared to the prior year quarter.

Full year total deposits rose, 8% to 10.

10, $8 billion, a record with growth in both first year sales and recurring deposits.

Contributing to our seventh consecutive year of positive net flows.

Retirement plan services enters 2022 in terrific shape.

With a robust sales pipeline and an expanded product portfolio.

We are benefiting from the improved environment for our retirement businesses as wage growth contribution rates and increases in employer deposits are all serving as tailwind for deposit growth.

Finally.

We remain well positioned competitively in our target markets are small and mid case 401K health.

Healthcare.

Government and not for profit as evidenced by our consistent multiyear track record of <unk>.

Positive net flows and strong returns.

Turning to life insurance, we entered 2021 with a well positioned portfolio of solutions.

Repriced to ensure strong returns in a low interest rate environment.

Throughout 2021, we launched new innovative risk sharing solutions to help grow the topline.

We introduced seven new products contributing to fourth quarter sales growth of 53% sequentially and 121% over the prior year quarter.

This sales strength was broad based with every major product category reporting double digit growth.

<unk> record term life sales and substantial growth in executive benefits.

Even more significantly nearly 30% of our sales this quarter consisted of solutions and features.

Didn't exist before 2021.

For instance, <unk>.

Variable moneycard represented 42% of total <unk> sales.

In 2021, we also continued to build on our distribution force, adding over 12000, new producers, who had never sold a Lincoln life policy before.

An example of this growth was our new partnership in the P&C channel.

New producers across channels are finding our repositioned and expanded product portfolio attractive demonstrating the synergies between our product innovation and distribution expansion.

Finally, we continued to build on our digital capabilities in 2021, our cost per life applications continued to decline.

As our automated underwriting and digital processing capabilities are driving efficiencies, while improving the customer experience.

In 2022, we will continue to innovate.

With product launches planned for the first half of the year expand our distribution franchise and enhance our operations with digital investments.

Now moving to group protection.

My focus first on profitability.

Group business is managing through a challenging environment as pandemic claims increased in the fourth quarter.

Group's full year underlying margin normalized for above target alternative income.

<unk> claims and a notable item.

Was slightly below our targeted 5% to 7% range.

We expect to achieve ongoing margin improvement in group.

Building to the high end of our target within prudent coming from a three part strategic effort.

First is continued pricing discipline.

We strengthened pricing in 2020 and continued to make additional changes where necessary.

Second is claims management <unk>.

Including our ongoing investment in claims staffing combined with a more streamlined and effective approach to claims operations.

Lastly, as cost efficiency aided by our recently announced spark initiative.

We expect these three efforts to drive approximately equal contributions to margin expansion.

Turning to the topline, we achieved 4% premium growth for the year.

6% for the quarter, which is a result of strong persistency up over two percentage points for the full year to 89, 2%.

And successful execution of ongoing rate increases.

Sales declined 17% for the full year and 14% in the fourth quarter as we maintained our pricing discipline.

Our focus on strategic market segments has resulted in an increase in employee paid products, which comprised 43% of total sales in 2021.

From 39% in 2020.

And we are starting to see a shift towards supplemental health solutions, including our new hospital indemnity product.

This shift is still in its early days, but we expect it will ultimately add to our earnings diversity and consumer value propositions.

Although the pandemic is a challenging time.

The group business remains a key contributor to Lincoln's diversified business portfolio.

And we are confident in its earnings potential.

A few words on one of our key competitive advantages are powerful distribution for us.

As the industry continuously evolves the strength of our distribution franchises remain constant we are known in the marketplace for a consistent distribution presence with broad reach across distribution channels.

Over 90000 active producers sell our products and through strategic investments in technology and training, we are influencing where and how we engage with financial professionals, leading with a virtual first model for the long term.

As wholesalers and reps have begun to meet in person with their clients.

<unk> to leverage virtual tools, which improve the service, we deliver raise productivity and help lower costs.

And our efforts are being recognized.

We received two industry awards in 2021 for.

For innovation and virtual training and digital marketing.

Briefly on investments the fourth quarter capped a year of outstanding results. We again reported excellent credit performance with another quarter of positive net ratings migration and negligible losses in 2021, a portion of our fixed income assets rated.

<unk> grade or equivalent rose to 97%.

This quarter.

<unk> new money at two 9%.

20 basis point sequential increase as we continue to benefit from our multi manager platform.

During 2021, we invested 65% of new money and assets other than public corporates.

Yielding approximately 100 basis points more than comparably rated public corporates of similar duration.

For full year 2021, our new money duration fell to about seven and a half years from 10 years with decline, reflecting Lincoln's disciplined approach to asset liability management, and our shift to a less interest rate sensitive product.

<unk>.

Finally.

We reported a quarterly return alter.

Alternative investments up 4%.

Impaired to our targeted return.

Two 5%.

For the year, we generated outstanding.

99% return versus our 10% annual targeted return.

In summary.

The claims environment has been challenging but full year 2021 underlying EPS grew substantially.

We expect our top line momentum to continue.

We expect the spark cost savings initiative, which will more than offset spread compression to add to our EPS growth over the next few years.

Enabled by our balance sheet and earnings strength, we continue to return capital to shareholders.

And some.

Our earnings power continues to grow and we remain confident in our ability to achieve underlying EPS growth at or above the high end of our 8% 10% target range.

I will now turn the call over to Randy.

Thank you Dennis.

Last night.

We reported fourth quarter, adjusted operating income of $286 million or $1 56 per share.

There were no notable items in the current or prior year quarter.

However, this quarter's results were impacted by pandemic related claims, which reduced earnings by $197 million or $1 <unk> per share.

<unk> results benefited from alternative investment income.

In the earnings by $29 million or <unk> 16 per share above target.

Additionally, we experienced some unfavorable non pandemic impacts to mortality and morbidity.

I will discuss further in the life and group protection commentary.

Our underlying earnings power continues to be strong as we exit the quarter.

Net income totaled $220 million or $1 20 per share.

Strong performance from our credit portfolio was offset by hedge breakage and non economic variable annuity nonperformance risk.

For the full year net income EPS came in at 91% of adjusted operating EPS.

With the difference primarily driven by non economic variable annuity nonperformance risk.

Moving to the performance of key financial metrics.

Average account values increased 10%.

A continued focus on expense management led to a 10 basis point improvement in our expense ratio.

And book value per share, excluding a OCI grew 9%.

And stands at $78 five zones.

An all time high.

Before turning to the segments I want to provide an update on the spark initiative as we close out the year.

Last quarter, we provided details on spark.

Which we expect will result in $260 million to $300 million pretax in run rate savings by the end of 2024.

And this remains unchanged.

Looking at 2022, we expect a net impact in a negative 25 to.

$65 million range pre tax.

This year will be the peak investment year for the initiatives.

This compares to an immaterial impact in 2021.

We were able to accelerate savings.

Offset the investments made.

As a reminder, we will run the investment through the other operation segment, while the savings will be spread throughout the businesses.

Now turning to segment results starting with annuities.

Operating income for the quarter was $332 million.

Compared to $289 million in the prior year period.

The increase was primarily driven by higher account values.

Which were the result of growth in the equity markets.

And expense efficiency.

Average account values of $171 billion increased 13% year over year.

While revenue growth of 10% for the quarter resulted in a 110 basis point improvement in the expense ratio.

Return metrics remained excellent with return on assets coming in at 78 basis points.

And return on equity at 25%.

Risk metrics on our VA book once again demonstrate the quality of our in force.

With the net amount at risk at 53 basis points of account values for living benefits.

And at 34 basis points for death benefits.

2021 was another excellent year for the annuity business.

And we are well positioned for continued strong performance.

In 2022.

Retirement plan services reported operating income of $57 million compared to $49 million in the prior year quarter.

With the increase driven by higher fees on account values.

Positive full year net flows.

And continued expense efficiencies.

Favorable equity markets and the positive flows drove fourth quarter average account values up.

17%.

The $98 billion.

The expense ratio improved 40 basis points over the prior year quarter, and 170 basis points for the year.

Driven by continued diligent expense management.

Base spreads excluding variable investment income compressed two basis points versus the prior year quarter.

Seven basis points for the full year.

Better than our previously communicated 10 to 15 basis point range.

A result of continued management of crediting rates.

Going forward, we expect spread declined to be in the five to 10 basis point range.

Overall, another excellent year for the retirement business.

Capped off by a great quarter.

Positioning the business for continued success in 2022.

Turning to life insurance.

Operating income for the quarter was $80 million.

Versus $144 million in the prior year quarter.

This quarter's results were impacted by pandemic claims and unfavorable underlying mortality.

With some offset from alternative investment income.

Elevated mortality related to the pandemic was $66 million in the quarter.

Compared to $113 million in the prior year quarter.

This quarter's impact per 10000 U S COVID-19 improved year over year and sequentially.

As expected.

In addition to the impacts of the pandemic.

Underlying mortality was negatively impacted by $24 million.

This was primarily driven by claims incurred during the third quarter.

But not reported until the fourth.

For full year 2021, excluding the impact of the pandemic, our actual to expected mortality ratio came in at 100%.

While alternative investment income was less favorable than the prior year quarter.

The current quarter did include $22 million of excess alternative investment income.

Our.

<unk> block reinsurance transaction reduced life earnings by $10 million.

In line with our expectations.

And as a reminder, the <unk>.

<unk> from the prior year quarter included a $20 million favorable one time items.

Key metrics impacted by the transaction include average account values.

Which would have been up 7% excluding impacts from the deal and base spread.

Which were favorably impacted and should move back towards our expectation of a five to 10 basis point decrease annually.

Our strong sales drove an increase in the quarterly expense ratio we.

We did see improvement in the full year results with the expense ratio declining 20 basis points.

So we continue to expect some impacts from the pandemic.

Growth in earnings drivers.

Underlying long term mortality results in line with expectations and continued expense discipline keep us optimistic about the future of the business.

Group Protection reported an operating loss of $115 million.

Compared to an operating loss of $42 million in the prior year quarter.

With the decrease primarily driven by $131 million of pandemic claims.

Additionally.

<unk> earnings were negatively impacted by other items during the quarter, including.

$25 million to $30 million of seasonally higher fourth quarter disability claims and expenses.

And approximately $15 million of underlying disability results.

We attribute the underlying disability results through a combination of normal quarterly volatility.

And indirect influence from the pandemic.

Like prior quarters, the pandemic impact was primarily mortality related with $115 million of life claims.

$16 million of disability claims.

The life claim impact per 10000 newest COVID-19 deaths declined from third quarter levels to.

Through $9 2 million.

The percentage of working age deaths declined somewhat.

While the pandemic impact on group earnings will vary quarter to quarter.

We remain confident that the fundamentals of the business are solid.

And the actions we are taking will over time get us to the high end of our targeted margin range.

Turning to capital and capital management.

We ended the quarter with $10 $4 billion of statutory capital and.

And estimate our RBC ratio at 428%.

<unk> New C. One factors went into effect at year end, which lowered our RBC ratio by approximately 20 percentage points this quarter.

Cash at the holding company stands at $1 1 billion.

Above our $450 million target.

As we have pre funded.

Our $300 million 2022 debt maturity.

And retained $400 million of proceeds from the Lifelock sale for additional incremental share repurchases.

This will commence shortly.

An accelerated share repurchase program.

That should be completed by the end of the first quarter.

We deployed $650 million towards buybacks in the fourth quarter.

Included $150 million of ongoing quarterly share repurchases.

And $500 million and incremental share repurchases with proceeds from the block reinsurance deal.

As I mentioned last quarter, the timing of ongoing buybacks may be influenced by the accelerated share repurchase program.

To conclude.

2021 was certainly year that continued to be challenged by the pandemic.

But as we enter 2022, we feel confident in our ability to continue to tackle any challenges that lie ahead as.

As we have position Lincoln to continue its track record of delivering for customers.

<unk> and shareholders.

In summary.

We delivered on our promises to customers with nearly $650 million of pandemic related earnings impact.

While continuing to strengthen our balance sheet.

And in the year with estimated RBC ratio of 428%, while absorbing the impact from the <unk> changes.

We continued to achieve organic growth.

With a portfolio, including new and innovative products driving strong returns.

We delivered powerful earnings growth with reported operating EPS, excluding notable items up 20%.

We continued our strong track record of capital return with one 4 billion of buybacks and dividends.

And with the addition of the spark initiative at position Lincoln to continue to grow EPS over the next three years at or above our long term aspirations of 8% to 10%.

With that.

Let me turn the call back over to al.

Thank you Dennis and Randy.

We will now begin the question and answer portion of the call. As a reminder, we ask that you. Please limit yourself to one question and one follow up and then re queue. If you have additional questions.

With that let me turn the call over to Catherine to begin Q&A.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key for optimal sound quality. Please do not use a speaker phone. Please speak directly into your receiver or you say wired headset with a mic.

Phone.

Our first question comes from Tom Gallagher with EV or your line is open.

Thank you.

First question can you can you talk about the strength in individual life insurance sales for the quarter.

A roughly doubled.

Did you did you announce pricing changes with those sales in anticipation of that or just a little more color about what drove the strength of individual lifestyles.

Tom It's Randy a number of factors.

Drove that outcome, which was in line with.

Our expectations, we went back to the fourth quarter of last year first we talked about.

That was the point when all of our products.

Had been repriced over shortly to be replayed upward price and so we expected sales to be at a low point at that moment in time.

So we're comparing to the low point from a lifestyle standpoint.

Then in addition to all of those reprice products. This year, we added as Dennis mentioned seven new products.

He used one example, moneycard moneycard product variable moneycard product, which did not exist in the fourth quarter of last year, but represented 42% of the sales.

That particular product area. Dennis also mentioned some new distribution partners in the P&C channel and that really drove some great results, especially in the term business. So it's a combination Tom of all of those new products. The fact that last year was as we communicated and expected low point.

And then the third factor I would just mention the fourth quarter is typically in a normal year the biggest quarter for life sales, it's been that way as long as I've been in the industry. So that's what I would say Tom.

Okay. Thanks, and then my follow up is if I look at the performance of your group business. The deterioration in overall loss ratio has been worse than peers.

Curious.

When you sort of step back and look at that business do you think there needs to be any repositioning of the block from our risk selection standpoint.

Or do you think it's kind.

Kind of just volatility that's occurring from the pandemic, some random aspects to it and getting enough rate.

Getting right is all you need in terms of what you see lying ahead.

Tom Dennis.

At the top.

We think we have a very strong book of business.

We're very confident.

That is two to three strategies that I've mentioned are going to get us to the top end of our 5% to 7% margin over the next few years I'm very optimistic.

About.

The group business.

Significantly.

There are significant opportunities to increase earnings over the next couple of years, So we feel pretty good about it.

Randy do you want to add any details.

On the quarter.

Yes.

Tom Thanks for the question I think.

From a starting point you have got the pandemic, which over the back half of 2021 started to hit group businesses not just at Lincoln.

Across the industry in a more material way that was.

We believe as I've heard others talk about had to do with a shift in who was dying from COVID-19 .

An approximate doubling of.

Of the working age population percentage.

Covid related deaths that came down a little bit in the fourth quarter and went from 40% in the third quarter to 35% in the fourth quarter and I think that was the driver of why our mortality impact came down a little bit but.

Once again group business, our group business across the industry when I look at it.

Similar way and that impact grew over the course of 2021. It culminated in the fourth quarter, an impact of $131 million $150 million of that foot mortality.

So that's that aspect.

Now there are two other aspects about our quarter and let me talk about those.

First as I talked about.

Prepared remarks, Tom <unk>.

$15 million of underlying negative results in our disability.

<unk> business.

You can really see that.

And the loss ratio if you exclude the pandemic in our disability business, we had about an 87% loss ratio.

In the fourth quarter that was a little over 83.

Last year in the fourth quarter show up about four points to match that $15 million of underlying.

Negative results had talked about I think there's two factors in there.

First we saw a blip in severity severity is run in a pretty tight channel for an extended period of time and we saw it jump up this quarter do you think that sort of normal volatility and I mentioned that in my script.

The other factor that.

We see when we look at our results as incidents, which ticked up a little bit.

We think thats more influenced by the pandemic if you think about.

Care across the United States Health care system throughout the pandemic I think theres been some deferred care. There are some other things that a car that caused a.

A slight tick up in incidence and I think that's going to take a little longer to work out I think we're going to be working on that over the course of 2022.

So that's the underlying component. Additionally, I talked about the seasonality, which we here at Lincoln.

We have seen for some time in the fourth quarter, 25% to $30 million, that's made up of expenses, which typically.

Go up a little bit in the fourth quarter and then.

And the discipline on the disability results. When we think about why do we have seasonality in the fourth quarter and our disability results, there's really three things that we typically.

See.

The first is on the incident side.

It really has to do our biggest and curl quarter from an FTE standpoint, as the second quarter and so that we can and those roll in the fourth quarter. After a six month waiting period. The second factor, we typically see as resolutions seasonally lowest in the fourth quarter. We think that has a lot to do with.

Holidays et cetera, doctors' offices, it's just harder to get information. So we typically see we still have a good result, but seasonally we typically see it at its lowest level in the fourth quarter and we saw that again.

And then last side as we typically also see seasonally or social security offset drop in the fourth quarter and once again, we saw that so that's what we attribute the seasonal aspect, we would expect that to go back to what we've seen in.

In the first quarter, so I hope that helps Tom that answers your question.

That does thanks guys.

Yep.

Thank you and our next question comes from SUNY come off with Jefferies. Your line is open.

Great. Thanks, just first on the alternatives.

Can you give us a sense of how much of this year's.

VII was marks as opposed to realized gains and maybe how that compares to prior years.

Oh, sorry.

Yeah.

The.

The portfolio is turning over.

So.

At a big picture level.

We're converting.

Some of the gains to cash.

We'll have to get back on the details, but it's not just an increase in the remarks, we're converting into cash and reinvesting the proceeds.

And new business.

New investments.

Got it Okay, Alright, and then I guess on the annuities I mean, your sales were strong for the year, but the flows were still pretty negative there too.

$2 $6 billion I.

I guess what is your outlook as we think about 2022 and beyond at what point does this business start to return into inflows.

The outflows are made up of.

Both.

Okay.

But more.

Fixed annuity side, which is a result of our repricing of that business.

The fixed notice is a good business.

Comparably priced draws a lot of capital. So you have to make sure. The return is.

Great.

On the VA side.

I think what we're seeing I think what we're saying is.

Our.

Our ratio.

Ongoing.

Surrenders and so forth are staying pretty consistent.

But at the same time account values are going up.

Little bit more.

Value impact.

So we're confident of the annuity business to be growing over time.

<unk>.

Net flows work.

It was a function of a couple of different things, but good business.

I'd say.

Okay excellent returns on the capital that we're putting behind.

The business.

Guaranteed living benefits.

As.

The business without guaranteed benefits.

Living benefits.

I'll just come back to what we've been saying about this business for a long time.

By staying in the market consistently.

In good times and bad times.

<unk>.

Best quality.

Enforce books of business and the industry.

Expect that to continue.

Drive earnings.

Over the next couple of years.

Okay. Thanks.

Thank you. Our next question comes from Tracy Bengie with Barclays. Your line is open.

Thank you good morning, I noticed that you grew your VA with <unk> by a healthy 65% year over year I guess is some of the thinking that this is really an investment only VA considering your reinsurance tower deal. The Calpine does that basically allows you to grow but not take incremental rack.

Tracy.

Tracy This is Randy yes that was a component of growing sales right.

Remember on the telco deal.

Maximum.

<unk> 1 billion and a half.

And it ran through next June .

Lastly component now in and of itself.

Growth I think it's once again, it's similar to the life story, the fourth quarter of last year.

Was the lowest quarter, we've ever had it was it was a very low fourth quarter of 2020. So I think some of that growth. If you look at more recent quarters sequential quarters were much more smooth.

Smooth pattern of growth, there's no specific strategy to hey, we're going to grow VA with living benefits or we're going to grow with us once again.

Our strategy is to price our products appropriately have a very diversified portfolio and let.

Consumers choose from among those products as their preferences shift what we believe that's going to lead to over time.

Is something similar to what you saw this year about a quarter of our sales over the course of 2021 are we able to with guarantees about 75% or <unk>.

Fixed or va's without guarantees I think thats, a reasonable expectation and that mix over time should pull our overall account value mix.

Towards that over time, just as a reminder, Dennis said in his script, we've reached a point now where less than 50% of our account values, our VA with guarantees and the current sales mix is about 25%. So it will take a long time, but that's where you would eventually expect to move over time.

So that whole curious okay.

Yeah that helps thank you.

And then also last laugh.

Last quarter, you talked about spread compression running between 3% and that could trend down from minus 2%. Just wanted to know your latest outlook just given some of the asset allocation update you made in 2021 on new money and also considering rising interest rate, albeit with a flattening yield curve.

Tracy.

Spread compression has come down.

Come down as we move into 2022 as rates have moved up a little bit we're definitively at the low end of that range and we expect it to continue to decline I think when you look forward there will be a point in the not too distant future, where we formally communicated more than the 1% to 2% range.

The 2% to 3%, which is our current public.

<unk>.

Okay got it thank you.

Thank you. Our next question comes from Alex Scott with Goldman Sachs. Your line is open.

Hi, first question I had was a little bit of a housekeeping item I guess I just wanted to confirm on the <unk>.

Higher end of the 8% to 10% EPS growth that you've kind of talked about or even exceeding it should I think about that.

Completely separate from the 5% accretion.

Sort of communicated around the life close block transaction.

I think you should think about those altogether right. So part of the reason.

We are.

Very confident.

Our ability to grow above at or above that.

That 8% to 10% guidance is the impact of the spark initiative.

But also the fact that we will have a slightly elevated.

Our share count reduction embedded in that analysis associated with the $900 million of buybacks that we're doing as part of the Lifelock sale.

Understood Okay.

And then second question unrelated.

Getting more inquiries about the department of Labor and just sort of the process that they seem to be beginning to ramp up potentially to take another look at the fiduciary rule.

I guess I'd just.

I'd be interested in your perspective on that and what's going on and on.

So what might be different this time around versus I think the experience investors, probably remember from 2016 time period.

Yeah, Alex I don't know that we have any.

More insight.

Anyone else does because it's.

Evolving.

Because we speak but.

The general observation I think because of the changes is the last time around.

Where the industry has reacted to them and Lincoln in particular that there is no overriding concern about the effect of expansion of the fiduciary rule on the way we do business. We think we can accommodate.

Most of the range of outcomes that we expect.

Thanks.

Thank you. Our next question comes from Josh Shanker with Bank of America. Your line is open.

Yes, I just wanted to get a little color on the FIA sales.

I don't know where interest rates are whether it's attractive are there were during the pandemic a lot of less rated companies. Besides Lincoln that were successful in selling FIA.

And multi year guarantees and whatnot on Lincoln wasn't going to chase price and now the growth is pretty good is that a behavior that's changing among your distributors.

Has the price come into a point, where lincoln's products more attractive.

How is that working with directly.

Josh.

Very comfortable with the business that we're selling and getting the appropriate returns on it.

<unk>.

Sort of the competitive environment can change very quickly.

Quickly I think we change it right. So every two weeks based on what's happening in the marketplace.

But.

I want to come back to that.

We're very careful about getting the right return on the capital we're deploying behind new sales.

We have very strict.

Rules governance around that.

And.

Candidly the overall risk profile of the products over time, so we feel good fixed income annuity pricing.

The product risk characteristics from the shareholder point of view.

Return that we're getting on new capital.

And why do you think they didn't sell so well 12 months ago. It sounds like there weren't being sold in the market at all.

For Lincoln or for the industry or is it for me.

Compared to the industry Lincoln Lincoln seem too.

I mean, you might've been pulling back to some extent, but obviously I don't know if the rates have changed that much or maybe they have maybe the economics are very different from what they were a year ago.

Richard improving as we all know.

<unk>.

Value proposition for the customer we've also added some new indexes.

Hey.

Brent.

Customers interest wider which helps increase of our sales. So it's consistent product development, adding new features I actually mentioned this.

Uh huh.

Comments.

And maintaining a.

Good risk profile of the product as well as return capital behind the products.

Josh I would just.

Point out that where we are.

As Dennis said, we're very happy with the returns, we're getting and very happy with the sales. We're seeing if you look over a longer term like this year compared to last year.

Fixed sales are actually down.

Compared to last year.

So.

Over the longer term.

We continue to.

Price to get our targeted returns and the sales will come as they do.

Yes.

Thanks.

Thank you. Our next question comes from Elyse Greenspan with Wells Fargo. Your line is open.

Hi, Thanks, Good morning, My first question.

I was hoping to get some more color on how much of that elevated mortality away from Colgate within the life business in the quarter.

And any expectations you can give us when we think about modeling in Q1, 'twenty two and beyond.

Elyse Thanks for the question.

I think as I mentioned in my script, when we pull out the pandemic impacts for the full year, our actual to expected was.

<unk> had 100% right in line with our expectations now inside of the garters.

That consisted of a first half of the year that was a little better than our expectations in the back half of the year that looks a little worse than our expectations the quarter itself the $24 million of underlying mortality.

Yes.

I think I mentioned this in the script it was driven actually by claims that occurred in the third quarter.

But didn't get reported into the fourth quarter.

Essentially the ABR was little.

<unk>.

Stated at the end of the third quarter now.

Think about Wi Fi DNR.

<unk> looked at it over the last few years, if you sum up all the pluses and minuses.

<unk> adds up to exactly zero, but inside of a us some quarters, where it's.

A little low in some quarters, where it's where it's a little high in the third quarter happened to be one where we were just a little under accrued from <unk> standpoint, and that hit us.

What really drove the $24 million.

Yes.

Okay.

And then.

In terms of the Spark initiative I think you mentioned some more savings than expected came through in the quarter is there any sense you can give us the geography by segment and then is the right way to think about getting to the top end of that 5% to 7%.

Target with them.

<unk>.

It implies that we need to go through the whole spark program and realized all of the expense savings or can you just help us think about how that think about the timeframe there.

So let me speak to the second half of your question with respect to group margins.

Very.

Confident in getting to the $5 to 7%.

And as I mentioned, there's three components of that that have about equal weight.

The first one is the continuation of strengthening our pricing.

We're getting good.

Single digit increases.

Pricing at the moment.

Spec.

To help and again provide about a third.

The.

Improvement to the 5% to 7% over time.

The second piece is.

We're actually investing money.

Claims management process.

Sure.

Systems.

Other types of.

New ways running claims.

To get.

Our claims.

Been process slightly better shaped than it is today.

And then the third one is the spark initiative.

And so.

<unk> developed over the next three years so.

Once again the.

In force book of business is fine we need to do some repricing in these three initiatives.

We will get us to the <unk>.

5% to 7% range over the next several years.

And then just in terms of the spark savings on how they are trending to the segments can you just give us a sense in the fourth quarter.

Okay.

Yeah, Tracy I don't have any specific information segment by segment in the quarter.

Our expectation is that the 200.

60% to $300 million of run rate savings would be spread across the businesses really in line with their level of expenses compared to the total expenses. So we expect it to be uniform.

When we.

And how that will manifest in.

The numbers you can see is that we expect our expense ratios to continue to decline as they have done for a long long time across Lincoln.

Thank you.

Yes.

Okay.

Thank you. Our next question comes from Erik Bass with Autonomous Research. Your line is open.

Hi, Thank you and the buffered annuity market it looks like you've ceded some market share in recent quarters is this a reflection of more competition coming into the product and are you seeing any signs of aggressive features or pricing in the market.

There are certainly a lot more there are a lot more people offering the product.

Some unique.

Yeah.

Future developments I think are good for the space in general.

We just continue to use the strength of our distribution our pricing.

Requirements.

Sometimes together a little more market share, sometimes less but over time, it's a good product it's not guaranteed.

Yeah.

To what we've done so well in the annuity business actually in all of our businesses.

<unk> in the market with good quality product delivering good consumer values improving them.

And paying a lot of attention to.

The right return on capital behind those products.

Got it. Thank you and then as we think about ordinary dividend capacity for 2022, how much impact will there be from the high Covid losses in 2021 and will this have any material impact on cash flow to the holding company.

Eric now if you think about even the last two years and.

Indiana has a greater upstate so our dividend capacity has been driven by the significant amount of capital.

Inside of <unk>.

<unk>.

That was the case this year, we had no problem.

Getting dividends out no expectation that we'll have any limitations in 2022 relative to our needs.

Got it thank you.

Thank you and Thats all the time, we have for questions today I'd like to turn the call back to our casino for closing remarks.

Well. Thank you all for joining us. This morning as always we are happy to take any follow up questions that you have.

You can email us at Investor Relations at LFG Dot com.

You all and have a great day.

Yeah.

This concludes today's conference call. Thank you.

Participating you may now disconnect.