Q4 2023 Lincoln National Corp Earnings Call

Operator: Good morning, and thank you for joining Lincoln Financial Group's fourth quarter 2023 earnings conference call. At this time, all lines are in listen-only mode.

Good morning, and thank you for joining Lincoln financial group's fourth quarter 2023 earnings Conference call. At this time all lines are in listen only mode. Later, we will announce the opportunity for questions and instructions will be given at that time.

Operator: 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 zero, and someone will assist you. Now, I would like to turn the conference over to the Senior Vice President, Head of Investor Relations, Tina Madden.

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 would like to turn the conference over to the senior Vice President head of Investor Relations. Tina Madden. Please go ahead.

Tina Madden: Please go ahead. Thank you. Good morning and welcome to Lincoln Financial's fourth quarter and full year 2023 Earnings Conference call. We appreciate your participation today and invite you to visit Lincoln's website, www.lincolnfinancial.com, where you can find our press release, statistical supplement, and supplemental investor outlook presentation. These documents include reconciliations of the non-GAAP measures used on our call, including adjusted income from operations or adjusted operating income, and adjusted income from operations available to common stockholders to their most comparable GAAP measures. Before we begin, I have an important reminder.

Tina Madden: Thank you.

Tina Madden: Good morning, and welcome to Lincoln Financial's fourth quarter and full year 2023 earnings Conference call. We appreciate your participation today and invite you to visit Lincoln's website Www Lincolnfinancial Com, where you can find our press release statistical supplement and supplemental investor.

Tina Madden: Outlook presentation.

Tina Madden: These documents include reconciliations of the non-GAAP measures used on our call, including adjusted income from operations or adjusted operating income and adjusted income from operations available to common stockholders to their most comparable GAAP measures.

Speaker Change: Before we begin I have an important reminder.

Tina Madden: Any comments made during the call regarding future expectations, actions, or trends in our businesses, prospective services or products, and future performance or financial results, including those regarding expenses, income from operations, share repurchases, and liquidity and capital resources, as well as any statements relating to our 2024, 2026, and longer-term outlook and the expected timing and impacts of our strategic initiatives 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 risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued this morning, as well as those detailed in our 2022 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.

Speaker Change: Any comments made during the call regarding future expectations actions or trends in our businesses perspective services or products in future performance or financial results, including those regarding expenses income from operations share repurchases and liquidity and capital resources as well as.

Speaker Change: Any statements relating to our 2020 for 2026 and longer term outlook and the expected timing and impact of our strategic initiatives are forward looking statements under the private Securities Litigation Reform Act of $19 95.

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

Speaker Change: These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued this morning as well as those detailed in our 2022 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings.

Speaker Change: As with the SEC. These.

Tina Madden: These forward-looking statements are made only as of today, and we undertake no obligation to correct, update, or revise any of them to reflect events or circumstances that could occur after this date. Presenting on today's call are Ellen Cooper, Chairman, President, and CEO, and Chris Mesipour, Chief Financial Officer. After their prepared remarks, we will move to the question and answer portion of the call. I will now turn the call over to Ellen. Thank you, Tina. And good morning, everyone.

Speaker Change: These forward looking statements are made only as of today and we undertake no obligation to correct update or revise any of them to reflect events or circumstances that could occur. After this date.

Speaker Change: Presenting on today's call are Ellen Cooper, Chairman, President and CEO, and Chris <unk> Chief Financial Officer.

Speaker Change: After their prepared remarks, we will move to the question and answer portion of the call. Let me now turn the call over to Alan.

Thank you Tina and good morning, everyone.

Ellen Cooper: I want to start my remarks today by looking back on 2023 and reflecting on the significant progress we've made in repositioning Lincoln for long-term value creation. We're entering 2024 in a much stronger position compared to 12 months ago, as we advanced on our key initiatives, which were to, one, repair and rebuild our balance sheet, two, deliver organic growth while shifting new business to more capital efficient and higher risk-adjusted return products, three, position our group business to become a larger part of our overall business mix, and four, continue to build our leadership team, putting the right people in the We have a powerful franchise, a trusted brand, distribution prowess, and a broad product portfolio that meets customer needs across our four businesses. These attributes will continue to serve as a solid foundation for our future growth.

Ellen Cooper: I want to start my remarks today by looking back on 2023, and reflecting on the significant progress we've made in repositioning Lincoln for long term value creation.

Alan: We're entering 2024 and a much stronger position compared to 12 months ago as we advanced on our key initiatives.

Alan: Which were two one repair and rebuild our balance sheet to deliver organic growth, while shifting new business to more capital efficient and higher risk adjusted return products three position our group business to become a larger part of our overall business mix and four continue to build our leadership team.

Alan: Putting the right people in the right roles to produce results driven outcomes and lead the organization forward.

Alan: We have a powerful franchise, a trusted brand distribution prowess and our broad product portfolio that meets customer needs across our four businesses.

Alan: These attributes will continue to serve as a solid foundation for our future growth.

Ellen Cooper: Our primary focus last year was to strengthen our balance sheet, and, as you'll hear from Chris in more detail, this will remain a top priority. We closed a major reinsurance transaction with Fortitude Re, which marked a big step forward in our efforts to de-risk our balance sheet and improve our capital position and ongoing free cash flow. We also announced an agreement to sell our wealth management business to OSAC.

Alan: Our primary focus last year was to strengthen our balance sheet and as you'll hear from Chris in more detail.

Alan: This will remain a top priority.

Alan: We closed a major reinsurance transaction with fortitude re which marked a big step forward in our efforts to derisk, our balance sheet and improve our capital position and ongoing free cash flow.

Alan: We also announced an agreement to sell our wealth management business to Ozark. This.

Ellen Cooper: This transaction is expected to provide a capital benefit of at least $700 million upon closing, which we anticipate in the first half of this year, with no expected material impact on ongoing free cash flow or earnings. We ended 2023 with an estimated RBC ratio above our target of 400%, which includes the impact of the Fortitude retransaction and represents a substantial increase from the 375 to 385 range at the end of the third quarter. And when the sale of our wealth management business is finalized, we expect this will further improve our RBC ratio and provide us with additional financial flexibility. We also made good progress last year in shifting our new business to a more capital-efficient mix with higher risk-adjusted returns, and we are doing this across all four of our businesses. While a shift like this takes time, both our product and distribution teams are executing on this transformation.

Alan: This transaction is expected to provide a capital benefit of at least $700 million upon closing, which we anticipate in the first half of this year with no expected material impact on ongoing free cash flow or earnings.

Alan: We ended 2023 with an estimated RBC ratio above our target of 400%, which includes the impact of the fortitude re transaction and represents a substantial increase from the $3 75 to 385 range at the end of the third quarter.

Alan: And when the sale of our wealth management business is finalized we expect this will further improve our RBC ratio and provide us with additional financial flexibility.

Alan: We also made good progress last year and shifting our new business to a more capital efficient mix with higher risk adjusted returns and when Youre doing this across all four of our businesses, while a shift like this takes time, both our product and distribution teams are executing on this transformation.

Ellen Cooper: Our group protection business delivered substantial year-over-year margin expansion while also generating solid premium growth. A larger and more profitable group business is a core tenet of our long-term strategy to achieve a balanced mix of earnings from businesses and products with higher stable cash flows. Lastly, I'd like to acknowledge our leadership team.

Alan: Our group protection business delivered substantial year over year margin expansion, while also generating solid premium growth.

Alan: Larger and more profitable group business is a core tenet of our long term strategy to achieve a balanced mix of earnings from businesses and products with higher stable cash flows.

Speaker Change: Lastly, I'd like to acknowledge our leadership team.

Ellen Cooper: Not only did the team execute at a high level to achieve our 2023 results, but they are also refining our strategy and processes, creating the framework for further transformation. We are continuing to invest in our technology and infrastructure to support future profitable growth, including digital platforms to enhance the customer experience and innovative tools to drive more production for our distribution force.

Speaker Change: Not only did the team execute at a high level to achieve our 2023 results. They are also refining our strategy and processes, creating the framework for further transformation.

Speaker Change: We are continuing to invest in our technology and infrastructure to support future profitable growth, including digital platforms to enhance the customer experience and innovative tools to drive more production for our distribution force.

Speaker Change: Next I'll briefly touch on our results for the fourth quarter and full year.

Ellen Cooper: I'll briefly touch on our results for the fourth quarter and full year. I am pleased with our overall performance and the progress we are making to transform our company. In the quarter, we delivered improved operating performance led by our group protection business, record sales in annuities, and more stable life earnings. In retirement plan services, we delivered our ninth consecutive year of positive flows.

Speaker Change: I am pleased with our overall performance and the progress we are making to transform our company in.

Speaker Change: In the quarter, we delivered improved operating performance led by our group protection business.

Speaker Change: <unk> sales and annuities and more stable life earnings.

Speaker Change: In retirement plan services, we delivered our ninth consecutive year of positive flows.

Ellen Cooper: Elevated expenses remained a company-wide headwind, and as I mentioned last quarter, we are actively addressing this along with exploring a range of additional strategic initiatives to continue growing the franchise, which you'll hear more about later on. Turning to our retail solutions businesses, annuities, and life insurance. In annuities, we had a record sales quarter driven by strength and fixed annuities, which surpassed the $2 billion mark in the quarter for the first time. While variable sales, including our RYLA product, were flat sequentially, we have several product enhancements launching in 2024 focused on increasing our addressable market and expected to grow sales. Total annuity sales for the year increased by 8% with a well-balanced mix across product categories and strong growth driven by our strategic positioning across fixed product categories and with select distribution partners.

Speaker Change: Elevated expenses remained a companywide headwind and as I mentioned last quarter. We are actively addressing this along with exploring a range of additional strategic initiatives to continue growing the franchise, which you'll hear more about later on.

Speaker Change: Turning to our retail solutions businesses annuities and life insurance and annuities, we had a record sales quarter driven by strength in fixed annuities, which surpassed the 2 billion mark in the quarter for the first time.

Speaker Change: While variable sales, including our <unk> product were flat sequentially, we have several product enhancements launching in 2024 focused on increasing our addressable market and expect it to grow sales.

Speaker Change: Total annuity sales for the year increased by 8% with a well balanced mix across product categories and strong growth driven by our strategic positioning across fixed product categories and with select distribution partners.

Ellen Cooper: We also continue to achieve our objectives for capital efficiency and product returns while providing customers with a broad range of product solutions to meet their evolving needs. We expect further momentum in our annuity business as we head into 2024. In life insurance, sales declined in the fourth quarter and full year, driven by our intentional strategic realignment to products with more stable cash flow profiles and risk-adjusted returns, such as accumulation life products.

Speaker Change: We also continue to achieve our objectives for capital efficiency and product returns, while providing customers with a broad range of product solutions to meet their evolving needs. We expect further momentum in our annuity business as we head into 2024.

Speaker Change: In life insurance sales declined in the fourth quarter and full year, driven by our intentional strategic realignment to products with more stable cash flow profile and risk adjusted returns such as the accumulation life products.

Ellen Cooper: We anticipate that this sales shift will continue to take time and entail optimizing the product portfolio by de-emphasizing long-term guarantees such as Guaranteed Variable Universal Life, or GVUL, and commoditized lower margin products such as, We expect to further support this shift with go-to-market strategies, including product actions, and expanded distribution channels. Next, turning to workplace solutions, which comprises our group protection and retirement plan services business. In group, we had a compelling 2023 as we delivered record full-year earnings and strong top-line growth. This reflects our progress executing on our new segment strategies and our actions to drive margin expansion. Premiums grew more than 5% for the full year and 3% versus the prior year quarter.

Speaker Change: We anticipate that this sales shift will continue to take time and entails optimizing the product portfolio by deemphasizing long term guarantees such as guaranteed variable universal life, or <unk> and Commoditized lower margin products such as term.

Speaker Change: We expect to further support this shift with go to market strategies, including product actions and expanded distribution channels.

Speaker Change: Next turning to workplace solutions, which comprises our group protection and retirement plan services businesses.

Speaker Change: In group, we had a compelling 2023 as we delivered record full year earnings and strong top line growth this year.

Speaker Change: Reflects our progress executing on our new segment strategies and our actions to drive margin expansion pre.

Speaker Change: Premiums grew more than 5% for the full year and 3% versus the prior year quarter.

Ellen Cooper: Our deep relationships and positive customer experience enabled us to achieve strong persistency while executing on the pricing actions that are core to our margin expansion. In what is typically our highest sales volume quarter of the year, sales were up 12% versus the prior year quarter and up 3% for the full year, as we achieved significant momentum across all market segments and products. We saw continued strength in supplemental health, where sales more than doubled in 2023, helping to build a more balanced and diversified book of business.

Speaker Change: Our deep relationships and positive customer experience enabled us to achieve strong persistency, while executing on the pricing actions that are core to our margin expansion.

Speaker Change: In what is typically our highest sales volume quarter of the year sales were up 12% versus the prior year quarter and up 3% for the full year as we achieved significant momentum across all market segments and products. We saw continued strength in supplemental health where sales more than doubled in 2002.

Speaker Change: Three helping to build a more balanced and diversified book of business.

Ellen Cooper: Strong claims to execution and a favorable external environment helped improve risk results in 2023 and, when combined with pricing actions, were drivers of the substantial progress we made toward our goal of sustainable 7% margins. We are also taking the necessary strategic actions to position this business for future growth with investments to build out our infrastructure, including technology and digital platforms, enhancements to our customer experience delivery, and segment-specific offerings that we believe will provide differentiation. We're confident that our strategy will deliver further profitable growth and margin expansion. Lastly, Retirement Plan Services. While our 2023 results were below our expectations, we are taking actions to regain momentum and drive long-term sustainable growth. First-year sales were down for the quarter and full year, driven in part by a lower volume of stable value sales as higher interest rates drove lower demand for this product category and also contributed to participant-driven stable value outflows.

Speaker Change: Strong claims to execution and a favorable external environment helped improved risk results in 2023, and when combined with pricing actions were drivers of the substantial progress we made toward our goal of sustainable 7% margins.

Speaker Change: We are also taking the necessary strategic actions to position this business for future growth with investments to build out our infrastructure, including technology and digital platforms enhancements to our customer experience delivery and segment specific offerings that we believe will provide differentiation.

Speaker Change: We're confident.

Speaker Change: But our strategy will deliver further profitable growth and margin expansion.

Speaker Change: Lastly retirement plan services.

Speaker Change: 2023 results were below our expectations, we are taking actions to regain momentum and drive long term sustainable growth.

Speaker Change: First year sales were down for the quarter and full year driven in part by a lower volume of stable value sales as higher interest rates drove lower demand for this product category and also contributed to participant driven stable value outflows.

Ellen Cooper: Our employer retention remained excellent, which we attribute to our differentiated service model. Total deposits in the quarter were in line with the prior year quarter, and recurring deposits were up year over year, driven in part by higher participant contribution rates. We are focused on the actions and initiatives necessary to move this business forward. We are already seeing some positive results as we have a larger pipeline of known sales wins than we had a year ago, although this growth will take time to manifest in our financial results. Looking ahead, we're optimistic about our strategy to grow and improve the profitability of the retirement business. Before I turn the call over to Chris, I want to set the stage for our Outlook discussion.

Speaker Change: Our employer retention remained excellent, which we attribute to our differentiated service model.

Speaker Change: Total deposits in the quarter were in line with the prior year quarter and recurring deposits were up year over year, driven in part by higher participant contribution rates.

Speaker Change: We are focused on the actions and initiatives necessary to move this business forward. We are already seeing some positive results as we have a larger pipeline of known sales wins than we had a year ago. Although this growth will take time to emerge in our financial results. Looking ahead, we are optimistic about our.

Speaker Change: <unk> to grow and improve the profitability of the retirement business.

Speaker Change: Before I turn the call over to Chris I want to set the stage for our outlook discussion.

Ellen Cooper: As we progress on our multi-year journey to reposition Lincoln and restore value, we remain focused on three strategic priorities. One is to further strengthen our balance sheet. Two, to improve free cash flow, and three, to grow our franchise profitably, which includes advancing the optimization of our business. As a market leader in our at-scale businesses, we have the opportunity to expand our footprint by utilizing three key foundational competitive advantages, which include leveraging our distribution strength to grow our addressable market, target specific segments, and deepen existing partnerships; Emphasizing products in our core markets that have higher risk-adjusted returns and more stable cash flows while expanding into adjacent product categories and offering a differentiated customer-centric service model with enhanced digital delivery.

Chris: As we progress on our multiyear journey to reposition Lincoln and restore value we remain focused on three strategic priorities.

Chris: One to further strengthen our balance sheet too to improve free cash flow and three to grow our franchise profitably, which includes advancing the optimization of our business model.

Chris: As a market leader in our at scale businesses, we have the opportunity to expand our footprint by utilizing three key foundational competitive advantages, which include leveraging our distribution strength to grow our addressable market target specific segments and deepen existing partnerships.

Chris: Emphasizing products in our core markets that have higher risk adjusted returns and more stable cash flows while expanding into adjacent product categories and offering a differentiated customer centric service model with enhanced digital delivery.

Ellen Cooper: Over time, we expect to grow and diversify our group business across products and side segments, our annuity business to evolve with a well-balanced product mix that includes an expansion of spread-based product lines, our life business to emphasize more accumulation products and de-emphasize products away from long-term guarantees, and our retirement business to grow its core record-keeping segment. This longer-term mix is expected to provide more balanced, stable cash flows and higher risk-adjusted returns that, over time, will support our financial objectives, which Chris will cover during his remarks. Our businesses are in different stages of their strategic realignments, and as I mentioned previously, it will take some time for these changes to manifest in our financial results. While we are taking the necessary steps within each business, we are also continuing to actively evaluate a series of strategic initiatives expected to further contribute to building a stronger capital foundation and optimizing our operating model. Chris will provide further details on these initiatives in his remarks.

Chris: Overtime, we expect to grow and diversify our group business across products and Si segment, our annuity business to evolve with a well balanced product mix that includes expansion of spread based product lines.

Chris: Our life business to emphasize more accumulation products and deemphasize products away from long term guarantees and our retirement business to grow its core recordkeeping segment.

Chris: This longer term mix is expected to provide more balanced stable cash flows and higher risk adjusted returns that over time will support our financial objectives that Chris will cover during his remarks.

Chris: Our businesses are in different stages of their strategic realignments and as I mentioned previously it will take some time for these changes to manifest in our financial results.

Chris: We are taking the necessary steps within each business. We are also continuing to actively evaluate a series of strategic initiatives expected to further contribute to building a stronger capital Foundation and optimizing our operating model Chris will provide further details on these initiatives in his remarks.

Ellen Cooper: To sum up, I believe we're at an important inflection point for our company. Today's outlook provides the first glimpse into our future as we proceed on our journey to create increasing shareholder value. I am confident in the path ahead and look forward to updating you on our progress. With that, I'll turn it over to you. Thank you, Ellen, and good morning, everyone.

Speaker Change: To sum up I.

Speaker Change: I believe we're at an important inflection point for our company.

Speaker Change: Today's outlook provides the first lens into our future as we proceed on our journey to create increasing shareholder value I am confident in the path ahead and look forward to updating you on our progress with that I'll turn it over to Chris.

Chris: Thank you Ellen and good morning, everyone.

Chris Mesipour: Overall, we reported solid results for the fourth quarter, capping a year of consistent progress across our business. We are executing well against our strategic priorities, strengthening our balance sheet, improving free cash flow, and focusing on profitable growth. I'm going to focus on three areas.

Chris: Overall, we reported solid results for the fourth quarter capping a year of consistent progress across our business.

Chris: We are executing well against our strategic priorities strengthening our balance sheet, improving free cash flow and focusing on profitable growth.

Chris: I'm going to focus on three areas. This morning.

Chris Mesipour: First, I'll recap our full year and fourth quarter results, including a review of our segment-level financials. Second, I'll briefly touch on our investment portfolio. And then, third, I'll discuss our financial outlook, touching on capital, pre-cash flow conversion, and expected growth. We've also posted an Investor Outlook presentation on our website that provides you with these. So, let's start with a recap of the quarter and the full year. This morning, we reported fourth quarter adjusted operating income available to common stockholders of $246 million, or $1.45 per share. There are two items to call out as it relates to our results. First, while alternative investments delivered a 7% annualized return in the quarter, or $58 million, after tax, this was $20 million below our target, or $0.12 per share.

Chris: First I'll recap, our full year and fourth quarter results, including a review of our segment level financials.

Chris: Second I'll briefly touch on our investment portfolio.

Chris: And then third I will discuss our financial outlook touching on capital free cash flow conversion unexpected growth.

Chris: We've also posted an investor outlook presentation on our website that provides you with these details.

Chris: So, let's start with a recap of the quarter and the full year.

Chris: Yeah.

Chris: This morning, we reported fourth quarter adjusted operating income available to common stockholders of $246 million or $1 45 per share.

Speaker Change: There are two items to call out as it relates to our results first while alternative investment delivered a 7% annualized return in the quarter were $58 million.

Speaker Change: After tax this was $20 million below our target were <unk> 12 per share.

Chris Mesipour: Second, our annuities business had a one-time favorable item of $14 million, or $0.08 per share, associated with a model refinement. Including the impacts of our annual assumption review in each year, full year 2023 adjusted income from operations was $1.1 billion, a slight improvement compared to 2022, as growth in our group business more than offset expense pressures faced across the enterprise. Now turning to net income for the quarter, we reported a net loss available to common stockholders of $1.2 billion, or $7.35 per diluted share. The difference between net and adjusted operating income for the quarter was predominantly driven by two factors.

Speaker Change: Second our annuities business had a onetime favorable item of $14 million or <unk> <unk> per share associated with a model refinement.

Speaker Change: Excluding the impact of our annual assumption review and each year full year 2023, adjusted income from operations was $1 1 billion a.

Speaker Change: A slight improvement compared to 2022 as growth in our group business more than offset expense pressures faced across the enterprise.

Speaker Change: Now turning to net income for the quarter, we reported a net loss available to common stockholders of $1 2 billion.

Speaker Change: Were $7 35 per diluted share.

Speaker Change: The difference between net and adjusted operating income for the quarter was predominantly driven by two factors.

Chris Mesipour: First, there was an unfavorable non-economic impact within non-operating income driven by the negative movement in market risk benefits as the impact of lower interest rates more than offset the benefits from higher equity markets. Of note, we remain pleased with the performance of our VA Hedge Program. The performance of the program throughout 2023 has the block well positioned for the year ahead. Second, there was a change in the fair value of the GAP embedded derivative related to the Fortitude Re reinsurance transaction with the corresponding offset to this change flowing through AOCI. So now let's turn to the segment results, starting with group protection. Group reported operating income of $52 million compared to $26 million in the prior year quarter.

Speaker Change: First there was an unfavorable non economic impact within nonoperating income driven by the negative movement in market risk benefits as the impact of lower interest rates more than offset the benefits from higher equity markets.

Speaker Change: Of note we remain pleased with the performance of our VA hedge program. The performance of the program throughout 2023 is the block well positioned for the year ahead.

Speaker Change: Second there was a change in the fair value of the gap embedded derivative related to the fortitude re reinsurance transaction with a corresponding offset to this change flowing through OCI.

Speaker Change: So now, let's turn to the segment results starting with group protection.

Speaker Change: Group reported operating income of $52 million compared.

Speaker Change: Compared to $26 million in the prior year quarter.

Chris Mesipour: The progress was broad-based, as both disability and life-loss ratios showed improvement compared to the prior year quarter. And while fourth-quarter earnings tend to be lower due to seasonality, excluding the impacts of the Assumption Review, results increased $8 million sequentially, as improved life mortality more than offset the seasonal headwinds. For the fourth quarter, the group life loss ratio was 67%, decreasing over 7 percentage points versus the prior year quarter and roughly 10 percentage points sequentially. The improvement was driven by declining severity from the elevated levels experienced in the third quarter.

Speaker Change: The progress was broad based as both disability and life loss ratios showed improvement compared to the prior year quarter.

Speaker Change: And while fourth quarter earnings tend to be lower due to seasonality, excluding the impacts of the assumption review.

Speaker Change: <unk> increased $8 million sequentially as improved life mortality more than offset the seasonal headwinds.

Speaker Change: For the fourth quarter the group life loss ratio was 67% decreasing over seven percentage points versus the prior year quarter, and roughly 10 percentage points sequentially.

Speaker Change: The improvement was driven by declining severity from the elevated levels experienced in the third quarter.

Chris Mesipour: For disability, the loss ratio was 83%, decreasing by 260 basis points versus the prior year quarter, driven by fewer LTD claims incurred. However, sequentially, excluding the impacts of the Assumption Review, the disability loss ratio increased by over 7 percentage points, reflecting higher claim severity and seasonal trends we've experienced in the past. Now, briefly touching on full-year results. Excluding assumption reviews, the Group reported full-year operating income of $275 million and a margin of 5.5%, compared to $53 million and a margin of roughly 1% in 2020. The improvement reflected continued progress in our margin expansion efforts through the execution of our strategy, including diversifying our book of business across market segments and products, maintaining pricing discipline on new and renewing business, and operational investments we have made to support claimants in their return to work journey.

Speaker Change: For disability loss ratio was 83% decreasing by 260 basis points versus the prior year quarter, driven by fewer LTV claims incurred.

Speaker Change: Sequentially, excluding the impacts of the assumption review the disability loss ratio increased over seven percentage points, reflecting higher claims severity and seasonal trends we've experienced in the past.

Speaker Change: Now briefly touching on full year results.

Speaker Change: Excluding assumption reviews group reported full year operating income of $275 million and a margin of five 5% compared to $53 million and a margin of roughly 1% in 2022.

Speaker Change: The improvement reflected continued progress in our margin expansion efforts through the execution of our strategy, including diversifying our book of business across market segments and products, maintaining pricing discipline on new and renewing business.

Speaker Change: And operational investments, we have made to support claimants and their return to work journey.

Chris Mesipour: As we look towards 2024, the group business will continue to drive growth in both our operating earnings and free cash flow. As I noted last quarter, we remain focused on achieving a sustainable margin of 7%, and as we progress towards that goal, we would expect continued execution of our strategy to drive another 50 to 100 basis points of margin expansion in 2024. Turning to annuities, Annuities reported operating income of $279 million, which, as I noted earlier, includes a one-time favorable impact of $14 million from model refinement compared to $275 million in the prior year quarter. Excluding the one-time impact, the decrease was primarily due to higher expenses.

Speaker Change: As we look towards 2020 for the group business will continue to drive growth in both our operating earnings and free cash flow.

Speaker Change: As I noted last quarter, we remain focused on achieving a sustainable margin of 7%.

Speaker Change: And as we progress towards that goal. We would expect continued execution of our strategy to drive another 50 to 100 basis points of margin expansion in 2024.

Speaker Change: Turning to annuities.

Speaker Change: Moody's reported operating income of $279 million, which.

Speaker Change: Which as I noted earlier includes a one time favorable impact of $14 million from model refinements compared to $275 million in the prior year quarter.

Speaker Change: Excluding the one time impact the decrease was primarily due to higher expenses.

Chris Mesipour: sequentially, excluding the impacts of the Assumption Review and the one-time item, results improved by approximately $5 million, primarily due to improvements in spread income, partially offset by lower average account balances. However, ending account balances were up 4% for the same period, which will be a tailwind for first quarter results. As we look to 2024, we expect the spread improvement we experienced in the fourth quarter to continue throughout the year, and the annuities business to remain a key driver of earnings and free cash flow for the company. Now, shifting to the retirement plan. The retirement home reported operating income of $38 million compared to $52 million in the prior year quarter.

Speaker Change: Sequentially, excluding the impacts of the assumption review and the onetime item results improved by approximately $5 million.

Speaker Change: Primarily due to improvements in spread income, partially offset by lower average account balances. However.

Speaker Change: However, ending account balances were up 4% for the same period, which will be a tailwind for first quarter results.

Speaker Change: As we look to 2024, we expect the spread improvement we experienced in the fourth quarter to continue throughout the year and the annuities business to remain a key driver of earnings and free cash flow for the company.

Speaker Change: Yeah.

Speaker Change: Now shifting to retirement plan services.

Speaker Change: Retirement reported operating income of $38 million compared.

Speaker Change: Compared to $52 million in the prior year quarter.

Chris Mesipour: For the full year, earnings were $171 million, compared to $211 million in the prior year. The declines were primarily driven by higher expenses and participant-driven stable value outflows resulting from higher interest rates throughout 2023. Average account balances for the quarter increased 9% versus the prior year quarter, and end-of-period account balances were over $100 billion for the first time, driven by strength in the equity markets and a ninth consecutive year of positive net flows. Lastly, turning to life insurance. Life reported an operating loss of $6 million compared to an operating loss of $9 million in the prior year quarter, with the run rate impacts from both the 4-2 transaction and our annual assumption review being offset by an improvement in alternative investment income.

Speaker Change: For the full year earnings were $171 million compared to $211 million in the prior year.

Speaker Change: The declines were primarily driven by higher expenses and participant driven stable value outflows, resulting from higher interest rates throughout 2023.

Speaker Change: Average account balances for the quarter increased 9% versus the prior year quarter and end of period account balances were over $100 billion for the first time driven by strength in the equity markets and our ninth consecutive year of positive net flows.

Speaker Change: Lastly, turning to life insurance.

Speaker Change: <unk> reported an operating loss of $6 million.

Speaker Change: Compared to an operating loss of $9 million in the prior year quarter with the run rate impacts from both the <unk> transaction and our annual assumption review.

Speaker Change: Offset by an improvement in alternative investment income.

Chris Mesipour: Of note, the impact from the 4-2 transaction this quarter was approximately $15 million, slightly less than the expected quarterly run rate of $25 million due to the timing of the close of the transaction. However, at the same time, we experienced slightly higher mortality severity in the quarter, largely offsetting the favorable impact in the quarter from the timing of the close of the transaction. Sequentially, excluding the impacts of the Assumption Review and one-time items, earnings declined by $29 million, driven primarily by higher expenses and the run rate impacts from the 4-2 transaction.

Speaker Change: Of note the impact from the 42 transaction. This quarter was approximately $15 million slightly less than the expected quarterly run rate of $25 million due to the timing of the close of the transaction.

Speaker Change: At the same time, we experienced slightly higher mortality severity in the quarter largely offsetting the favorable impact in the quarter from the timing of the close of the transaction.

Speaker Change: Sequentially, excluding the impacts of the assumption review and one time items earnings declined by $29 million.

Speaker Change: Driven primarily by higher expenses and the run rate impacts from the 42 transaction.

Chris Mesipour: Taking a step back, as I've previously highlighted, there are a number of headwinds facing the life business, but we continue to expect some of these to lessen over the next few years. In 2024, we anticipate the life business to have modestly positive earnings, driven in part by lower expenses, improving spreads, and higher alternative investment income. We view the actions that we took in 2023 to be foundational to our efforts to deliver earnings growth in this business over time, with continued progress being made in 2024. Moving on to investment. Following the close of the reinsurance transaction, our total invested assets decreased by $28 billion.

Speaker Change: Taking a step back as I previously highlighted there are a number of headwinds facing the life business, but we continue to expect some of these to lessen over the next few years in 2024, we anticipate the life business to have modestly positive earnings driven in part by lower expenses, improving spreads and higher alternative.

Speaker Change: Investment income.

Speaker Change: We view the actions that we took in 2023 to be foundational to our efforts to deliver earnings growth in this business over time with continued progress being made in 2024 moving to investments following the close of the reinsurance transaction, our total invested assets decreased to $28 billion.

Chris Mesipour: The portfolio shift is in line with our investment strategy of maintaining both a high-quality and well-diversified portfolio. The portfolio remains 97% investment grade with an average credit rating of A. Credit performance was solid during the quarter with negligible credit-related losses.

Speaker Change: The portfolio shift is in line with our investment strategy of maintaining both a high quality well diversified portfolio.

Speaker Change: The portfolio remains 97% investment grade with an average credit rating of AA.

Speaker Change: Credit performance was solid during the quarter with negligible credit related losses additional details on our investment portfolio can be found on pages, 14, and 15 and our outlook presentation.

Chris Mesipour: Additional details on our investment portfolio can be found on pages 14 and 15 in our Outlook presentation. Now, briefly, turning to an update on our commercial mortgage loan portfolio. The portfolio continues to be conservatively positioned and perform extremely well. Throughout 2023, we had no material loan modifications or losses, no delinquencies, and no forced extensions.

Speaker Change: Now briefly turning to an update on our commercial mortgage loan portfolio.

Speaker Change: The portfolio continues to be conservatively positioned and perform extremely well.

Speaker Change: Through our 2023, we had no material loan modifications or losses, no delinquencies and no forced extensions within our office portfolio, we have future maturities of 133 and $178 million coming due in 2024, and 2025, respectively, which.

Chris Mesipour: Within our office portfolio, we have future maturities of $133 and $178 million coming due in 2024 and 2025, respectively, which represents less than 2% of our commercial mortgage loan portfolio. The near-term maturing office loans continue to perform well and are conservatively positioned with an average debt-to-service coverage ratio of 3.5 times. Lackley on Alternative Investment Profits. As mentioned previously, Alternative Investments generated an annualized return of 7% this quarter and for the full year delivered an 8% return. Our alternative portfolio continues to benefit from our diversified investment approach, delivering strong, risk-adjusted long-term returns. I will turn to the outlook in a moment, but first, I want to highlight the information that we've provided today. The Outlook presentation posted on our website is intended to address three areas of focus.

Speaker Change: Presents less than 2% of our commercial mortgage loan portfolio.

Speaker Change: The near term maturing office loans continue to perform well and are conservatively positioned with an average debt service coverage ratio of three five times.

Speaker Change: Lastly on alternative investment performance as mentioned previously alternative investments generated an annualized return of 7% this quarter and for the full year delivered an 8% return.

Speaker Change: Our alternatives portfolio continues to benefit from our diversified investment approach delivering strong risk adjusted long term returns I will turn to the outlook in a moment, but first I want to highlight the information that we've provided today the.

Speaker Change: The outlook presentation posted on our website is intended to address three areas of focus.

Chris Mesipour: First, as Ellen referred to, is more detail on our strategic priorities for the company. Second, we have laid out a number of guideposts around fundamental financial metrics for the company and our business. We recognize the importance of increased disclosures and metrics, and we view today as a solid step in that direction. However, this is only a starting point as we progress along our journey to reposition our business. Third, in the appendix, we provide an outlook for adjusted operating earnings for 2024. We felt it was necessary to provide a grounding for both the full-year ranges of outcomes for the businesses and some of the quarterly seasonality to a level set after the 4-2 transaction and its impact on our financial statements. Given the time allotment today, our intention is not to go through every slide but to hit the major highlights.

Speaker Change: As Alan referred to as more detail on our strategic priorities for the company.

Speaker Change: We have laid out a number of guideposts around fundamental financial metrics for the company and our businesses.

Speaker Change: We recognize the importance of increased disclosures and metrics and we view today is a solid step in that direction. However, this is a starting point as we progress along our journey to reposition our business.

Speaker Change: Third in the appendix, we provided an outlook for adjusted operating earnings for 2024.

Speaker Change: We felt it was necessary to provide a grounding for both the full year ranges of outcomes for the businesses and some of the quarterly seasonality to level set after the 4% to transaction and its impact on our financial statements.

Speaker Change: Given the time allotment today, our intention is not to go through every slide but to hit the major highlights.

Chris Mesipour: Turning to the outlook itself, there are three main points. The first is that we see a substantial opportunity to continue to transform Lincoln. Our foundation is one built on at-scale retail and workplace businesses, with leading distribution and a large strength and balance. The opportunity, however, is to leverage those competitive advantages to evolve our business into one characterized by more stable cash flows, foundational capital strength, and a focus on maximizing risk-adjusted return. And doing this will require us to first hold more capital than we have previously. Second, further optimize our operating model. And third, grow profitably, which for us entails increasing the size and scale of our group business, expanding our spread and spread-like products inside our retail businesses, and generally decreasing our sensitivity to equity markets. Our ability to execute will require strategic, financial, and operational initiatives, many of which we began in the last year. In the Outlook presentation, we provide examples of these initiatives, along with an illustrative timeline, as can be seen on page 8.

Speaker Change: Turning to the outlook itself there are three main points.

Speaker Change: First is that we see substantial opportunity to continue to transform Lincoln.

Speaker Change: Our foundation is one built upon at scale retail and workplace businesses with leading distribution and a large strengthen the balance sheet.

Speaker Change: The opportunity however is to leverage those competitive advantages to evolve our business into one characterized by more stable cash flows foundational capital strength and our focus on maximizing risk adjusted returns.

Speaker Change: And doing this will require us to first hold more capital than we have previously.

Speaker Change: Second further optimize our operating model and third grow profitably, which for us entails increasing the size and scale of our group business, expanding our spread and spread like products inside our retail businesses and generally decreasing our sensitivity to equity markets.

Speaker Change: Our ability to execute will require strategic financial and operational initiatives many of which we began in the last year.

Speaker Change: And the outlet presentation, we provide examples of these initiatives along with an illustrative timeline as can be seen on page eight.

Chris Mesipour: We felt it was important to show the timeline to help you understand the journey we're on and also provide context for the growth in our free cash flow over the next few years rather than simply focusing on 2024, as a number of these initiatives will have one-time costs or some inherent uncertainty around timing. For example, last quarter, I discussed the expense headwinds we were facing and the opportunity to continue right-sizing our expense base. Earlier this week, we took action to remove organizational complexity.

Speaker Change: We felt it was important to show the timeline to help you understand the journey, we're on and to also provide context for the growth in our free cash flow over the next few years, rather than simply focusing on 2024 as a number of these initiatives will have onetime costs or some inherent uncertainty around timing.

Speaker Change: For example, last quarter I discussed the expense headwinds, we are facing and the opportunity to continue right sizing our expense base.

Speaker Change: Earlier this week, we took action to remove organizational complexity.

Chris Mesipour: With this headcount reduction, we're working to optimize our organizational structure and continue to set Lincoln on a more efficient and agile path. While these actions will be additive to the run rate value of the company, there is a cost associated with this reduction that will impact us in the first half of the year. Additionally, as we continue to diversify our product strategy, we see opportunity to optimize our general account. Our multi-manager sourcing model provides us with that flexibility, and we're exploring the optimal way to strategically achieve the goals of adding incremental risk-adjusted yields. This initiative will begin to show value in the upcoming quarters, but it will take some time to reposition the portfolio and fully capture the run rate value. Another strategic initiative being explored to optimize our operating model is an expanded use of affiliated reinsurance. As you know, we have utilized LINVAR effectively for years to manage our VA guarantees.

Speaker Change: With this head count reduction, we're working to optimize our organizational structure and continue to set Lincoln on a more efficient and agile path.

Speaker Change: While these actions will be additive to that run rate value of the company. There is a cost associated with this reduction that will impact us in the first half of the year. Additionally, as we continue to diversify our product strategy, we see opportunities to optimize our general account, our multi manager sourcing model provides us that flexibility and we're explore.

Speaker Change: The optimal way to strategically achieved the goals of adding incremental risk adjusted yields. This initiative will begin to show value in the upcoming quarters, but it will take some time to reposition the portfolio and fully capture the run rate value.

Speaker Change: Another strategic initiative being explored to optimize our operating model is an expanded use of affiliated reinsurance.

Speaker Change: As you know we have utilized lindbergh effectively for years to manage our VA guarantees.

Chris Mesipour: However, going forward, we are exploring the potential to establish additional domiciles, such as Bermuda, as a tool to deliver profitable growth across a variety of our other products. We are actively working on this and expect it to be a meaningful positive to pre-cash flow over the next few years, given our increased focus on our capital framework. Ultimately, we expect the outcomes of these initiatives to result in substantial progress over the next few years and drive improvement in our free cash flow conversion. On page 9, we show that by 2026, we expect free cash flow conversion to improve from roughly 35% in 2023 to a range of 45% to 55%. At the same time, our operating income is expected to continue to grow. Enterprise growth in both operating income and free cash flow conversion will be driven by improvement across all our business segments. Some examples of the drivers within each segment can be found on page 10, with three main dynamics to point out.

Speaker Change: However, going forward, we are exploring the potential to establish additional domiciled such as Bermuda as a tool to deliver profitable growth across a variety of our other products.

Speaker Change: We are actively working on this and expect it to be a meaningful positive to free cash flow over the next few years, given our increased focus on our capital framework.

Speaker Change: Ultimately, we expect the outcomes of these initiatives to result in substantial progress over the next few years and drive improvement in our free cash flow conversion.

Speaker Change: On page nine we show that by 2026, we expect free cash flow conversion to improve from roughly 35% in 2023 to a range of 45% to 55%.

Speaker Change: At the same time, our operating income is expected to continue to grow.

Speaker Change: The enterprise growth in both operating income and free cash flow conversion to be driven by improvement across all our business segments.

Speaker Change: Some examples of the drivers within each segment can be found on page 10, with three main dynamics to point out.

Chris Mesipour: The first is that we expect annuities and retirement plan services to grow in low single digits consistent with recent historical growth rates as account balances grow and we experience some continued lift from spread expansion. It is also worth noting that we are only assuming 6% market appreciation in our estimates. The more material driver of earnings growth will come from our less market-dependent businesses, with the group executing on its path to a 7% margin, while retail life benefits from some headwinds turning to tailwinds, with improving mortality and spreads helping along with a more normalized alternative return and a focus on expense rationalization. The second key message is that we will be working to sustain RBC above 420% going forward. We ended the year above 400% RBC, an estimated increase of more than 20 percentage points from the third quarter.

Speaker Change: First is that we expect our annuities and retirement plan services to grow low single digits consistent with recent historical growth rates as account balances grow and we experienced some continued lift from spread expansion.

Speaker Change: It is also worth noting we're only assuming 6% market appreciation in our estimates.

Speaker Change: The more material driver to earnings growth will come from our less market dependent businesses with group executing on its path to a 7% margin while retail life benefits from some headwinds turning to tailwind with improving mortality and spreads helping along with a more normalized alternatives return and our focus on expense rationalization.

Speaker Change: The second key message is that we will be working to sustain RBC above 420% going forward.

Speaker Change: We ended the year above 400% RBC, an estimated increase of more than 20 percentage points from the third quarter.

Chris Mesipour: Note, this does not include the significant benefit expected from the closing of the OSE transaction in the first half of this year. We view a 420% RBC level as allowing enough buffer to maintain a minimum 400% RBC during a normal recessionary environment and are committed to taking additional steps to further minimize our capital volatility. The combination of higher free cash flow generation and the rebuild of capital above our target levels should provide significantly greater capital flexibility over the next few years. The last key point is that these 2026 metrics should not be construed as long-term targets.

Speaker Change: Note. This does not include the significant benefit expected from the closing of the OSA transaction in the first half of this year.

Speaker Change: We view, a 420% RBC level, allowing enough buffer to maintain a minimum 400% RBC during a normal recessionary environment and are committed to taking additional steps to further minimize our capital volatility.

Speaker Change: The combination of higher free cash flow generation and the rebuild of capital above our target levels should provide a significantly greater capital flexibility over the next few years.

Speaker Change: The last key point is that these 2026 metrics should not be construed as long term targets over time, our free cash flow conversion should continue to increase really driven by two dynamics.

Chris Mesipour: Over time, our free cash flow conversion should continue to increase, really driven by two dynamics. The first is the natural timing of reserve building for the Legacy Life Portfolio, which becomes less of a drag over time. The second dynamic is the mix shift.

Speaker Change: The FERC is the natural timing of reserve building for the legacy life portfolio, which becomes less of a drag overtime.

Speaker Change: The second dynamic is the mix shift as we evolve our mix and allocate capital to higher risk adjusted returning businesses. The overall free cash flow conversion will trend higher and we would expect long term to see free cash flow conversion closer to $65 to 75%.

Chris Mesipour: As we evolve our mix and allocate capital to higher risk-adjusted return businesses, the overall free cash flow conversion will trend higher, and we would expect, long-term, to see free cash flow conversion closer to 65 to 75%. As Ellen mentioned, this is a multi-year journey, but the actions taken in 2023 to solidify the foundation of the company, coupled with our confidence in executing against the initiatives we've outlined today, will enable Lincoln to deliver sustainable growth in the years ahead. I will now turn the call back over to you. Thank you, Chris.

Speaker Change: As Alan mentioned this is a multiyear journey, but the actions taken in 2023 to solidify the foundation of the company coupled with our confidence in executing against the initiatives. We've outlined today will enable lincoln to deliver sustainable growth in the years ahead I will now turn the call back over to Tina. Thank.

Tina Madden: Thank you Chris.

Operator: 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-cue if you have additional questions. With that, let me turn the call over to the operator to begin the Q&A.

Tina Madden: 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.

Tina Madden: With that let me turn the call over to the operator to begin Q&A operator.

Operator: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. For optimal sound quality, please do not use a speakerphone.

Operator: Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Operator: For optimal sound quality. Please do not use the speakerphone. Please speak directly into your receiver our usual wired headset with a microphone.

Operator: Please speak directly into your receiver or use a wired headset with a microphone. Again, press star 1 for questions. We'll go first to Alex Scott at Goldman Sachs. Hi, good morning.

Tina Madden: Press Star West our questions.

Tina Madden: We'll go first to Alex Scott at Goldman Sachs.

Alex Scott: Hi, Good morning, first one I have is on the free cash flow and.

Alex Scott: First one I have for you is on the free cash flow. And, you know, I know you're not given a 24 specific guide, but wanted to see if you can, you know, expand on the the severance costs and, you know, how we should consider that in the context of 2024 cash flow. You know, as well as, Yeah, helping us think through. You know, some of the year-over-year, you know, puts and takes. Hey, Alex.

Alex Scott: I know youre not giving the 24 specific guide, but wanted to see if you can expand on the severance costs.

Alex Scott: How we should consider that in the context of 2020 for cash flow.

Speaker Change: As well as <unk>.

Speaker Change: Helping us think through.

Alex Scott: Some of the year over year puts and takes.

Chris Mesipour: Good morning. Sure. So look, I think the step back. Right. The goal of the outlook is really to think about over the next couple of years the growth in income and then, you know, what we see is ultimately, you know, two to three years from now, what the free cash flow conversion will look like, and then longer term, you know, what do we think the mix of business should support? So what I would say about 2024 is that it'll improve relative to 2023, and 2025 will improve relative to 2024. I think, you know, when you look at the slides we put out as an example on page eight, what you see is that there's a number of initiatives that, you know, are embedded in the way that we're thinking about the next couple of years. And so there's some uncertainty around timing, right?

Alex Scott: Hey, Alex Good morning sure.

Alex Scott: So look I think.

Alex Scott: If you step back right.

Alex Scott: Goal of the outlook is really to think about over the next couple of years.

Alex Scott: Growth in income and then what we see is ultimately.

Alex Scott: Two to three years from now with the free cash flow conversion will look like and then longer term.

Alex Scott: What do we think the mix of business should support.

Alex Scott: So what I would say about 2024.

Alex Scott: Is that it will improve relative to 2023, and 2025 will improve relative to 2024 I think when you look at the.

Alex Scott: Slides, we put out as an example on the.

Alex Scott: On page eight.

Alex Scott: What you see is that there is a number of initiatives.

Alex Scott: Our embedded in the way that we're thinking about the next couple of years and so there is some.

Alex Scott: Uncertainty around timing right affiliated reinsurance is a good example.

Chris Mesipour: Affiliated reinsurance is a good example of something we're working on that, you know, could land in twenty four, or could land in twenty five. You know, the expense initiative that I mentioned in response to your question, I mean, that's another great example where the run rate impact from that will be a meaningful lift to free cash flow, but the one-time cost this year will be a negative to free cash flow in twenty twenty four. So, you know, we think focusing on twenty twenty six gets you to the point where you can understand the steady state.

Alex Scott: It's something we're working on that.

Alex Scott: Land in 'twenty four 'twenty five.

Alex Scott: The expense initiatives that I mentioned to your question I mean, Thats. Another Great example, where the run rate impact from that.

Alex Scott: We will be a meaningful lift to free cash flow, but the.

Alex Scott: Onetime costs this year.

Alex Scott: It will be a negative free cash flow in 2024.

Alex Scott: So.

Alex Scott: We think focusing on 2026 gets you to the point, where you can understand the steady state I think.

Chris Mesipour: I think if you look at twenty-two three, you know, where we landed somewhere close to four hundred in terms of free cash flow, and we would expect that to continue to improve, but, you know, there's just some uncertainty around timing for some of the initiatives. And then for some of the other initiatives, there's just, you know, a degree of one-time cost that will be required.

Alex Scott: If you look at 2023.

Alex Scott: Where we landed somewhere.

Alex Scott: To 400 in terms of free cash flow and we would expect that continued to improve.

Alex Scott: But there's just some uncertainty around timing for some of the initiatives and then for some of the other initiatives.

Alex Scott: The degree of onetime cost that will be required.

Ellen Cooper: And Alex, just one additional point as it related to expenses in particular and your question about severance. So as we think about expenses going forward, it is really critical to us that once we get through the initial upfront costs here, that ultimately, G&A expenses will see a downward trend. And the action that we took and the severance that we noted in our outlook, what you can see there is that it's about a 5% reduction in our overall workforce. And as Chris commented in his script, this is really intended to remove organizational complexity and just put us on a more efficient and agile path as we go forward. I got it.

Speaker Change: And Alex just to.

Alex Scott: One additional point just as it related to expenses in particular and your question about severance.

Alex Scott: So as we think about expenses going forward. It is really critical to us that once we get through the initial upfront costs here that ultimately G&A expenses that youll see a downward trend and and the action that we took and severance that we noted.

Alex Scott: In our outlook.

Alex Scott: What you can see there is that it's about a 5% reduction in our overall workforce and as Chris commented in his script. This is really intended to remove the organizational complexity and just put us on a more efficient and agile panties as we go forward.

Chris Mesipour: And a few specific questions. It'll be about a $40 million after-tax one-time item in the first quarter. Okay. All right.

Speaker Change: Got it.

Speaker Change: To your specific question.

Speaker Change: It'll be about a $40 million after tax one time item in first quarter.

Alex Scott: Okay.

Alex Scott: And when you guys are defining free cash flow, is that before or after interest expense at the holding company? So that is after interest expense at the holding company. Got it.

Speaker Change: Alright, and when you guys are defining free cash flow is that before or after interest expense at the holdco.

Speaker Change: So that is after interest expense at the Holdco.

Speaker Change: Got it okay, and if I can say one more in I noticed affiliate reinsurance was mentioned I think five times in your outlook slides. So it seems like that's something you are pretty focused on can you help us think through like what are the inefficiencies on the balance sheet today that youre looking at.

Chris Mesipour: Okay. And if I could say one more, and I noticed affiliate reinsurance was mentioned, I think, five times in your Outlook slides. So it seems like that's something you're pretty focused on. Can you help us think through, like, what are the inefficiencies on the balance sheet today that you're looking at? So, look, I think, you know, if you step back, you know, we've utilized Barbados, as I mentioned, and as you know, effectively to manage some of our guarantees in the annuity block. I think that, if you look across the industry, we're one of the few that haven't utilized other domiciles. And so, you know, we mentioned Bermuda as an example. Ultimately, as we continue to move towards, you know, optimizing the capital framework and really thinking about economic capital, Bermuda, you know, makes a lot of sense. There's a lot to like about the regulatory regime. There's a lot to like about the U.S., obviously, as well.

Speaker Change: Okay.

Speaker Change: So look I think if.

Speaker Change: If you step back.

Speaker Change: We've utilized Barbados as I mentioned and as you know effective way to manage some of our.

Speaker Change: Guarantees in the annuity block I think that if you look across the industry. We're one of the few that havent utilized other domiciled.

Speaker Change: And so we mentioned Bermuda.

Speaker Change: As an example.

Speaker Change: Ultimately as we continue to move towards optimizing the capital framework and really thinking about economic capital.

Speaker Change: Bermuda makes a lot of sense, because there's a lot to like about the regulatory regime theres a lot to like.

Speaker Change: The U S, obviously as well, but it.

Chris Mesipour: But, you know, it's prudent to have multiple tools in the toolkit as we look out the next couple of years. Thank you. We'll move next to Tom Gallagher at Evercore ISI. Hi, thanks.

Speaker Change: It's prudent to have multiple tools in the toolkit as we look out the next couple of years.

Speaker Change: Thank you.

Speaker Change: We'll move next to Tom Gallagher of Evercore ISI.

Tom Gallagher: First, a question on the capital plan, and then I had a follow-up on free cash flow, just on the capital. So, I just want to make sure I understand the moving pieces here. So, I heard you on the 420 RBC, so that would imply an extra 10 or 20 points of RBC.

Tom Gallagher: Hi, Thanks first a question on capital plans and then I had a follow up on free cash flow just on the capital.

Tom Gallagher: So I just want to make sure I understand the moving pieces here. So I heard you on the $4 20, RBC, so that would imply an extra 10 or 20 points of RBC.

Tom Gallagher: How much debt reduction, Chris, is embedded in your 2026 plan? When I see the delevering, I assume part of that is growth in equity, and part is debt reduction. So, how much incremental debt reduction would you look to be changing the holding company cash from the current $458 million? Are you looking to grow that in a sale by how much? That's the, sorry, long-winded, first question. I'll stop there. That's all right.

Tom Gallagher: How much debt reduction.

Tom Gallagher: This is embedded in your 2026 plan when I see the.

Tom Gallagher: The Delevering I assume part of that is growth of equity part is debt reduction so how much incremental debt reduction and then would you look to be changing the holding company cash.

Tom Gallagher: The current $458 million or you're looking to grow that and if so by how much that's sorry long winded first question I'll stop there.

Chris Mesipour: That was a solid first five questions, Tom, but we're happy to answer them. So, I think you laid it out correctly. You know, we're ending the year. You know, somewhere between 400 and 410.

Speaker Change: Alright that was a <unk>.

Speaker Change: Solid first five questions, but we're happy to answer them.

Speaker Change: So I think you laid it out correctly.

Speaker Change: We're ending the year.

Speaker Change: Somewhere between 440 <unk> as a reminder, we started the year at 377, alright. So.

Chris Mesipour: You know, as a reminder, we started the year at 377, right? So, you know, we told you the focus for the year was going to be on rebuilding capital. We worked to get back to the 400 percent target, so we feel really good about that. I would also remind you that this is before the capital that we'll receive when the OSEA deal closes. So that'll be a nice lift and should get us, you know, within the ballpark of the buffer that we're looking to hold. You know, as we mentioned when we put the press release out for that, we will look to use some of those proceeds to, you know, delever and opportunistically repurchase some debt. So as it relates to 2026, what I would say is I think you're exactly right that some of the leverage will naturally come down as equity grows.

Speaker Change: We told you the focus for the year is going to be on rebuilding capital we worked too.

Speaker Change: Get back to the 400%.

Speaker Change: Target. So we feel really good about that I would also remind you that this is before the.

Speaker Change: Capital that more received when the deal closes so that'll be a nice lift and should get us within the ballpark.

Speaker Change: Yes.

Speaker Change: Of the buffer that were looking to hold as we mentioned when we put the press release out for that.

Speaker Change: We will look to use some of those.

Speaker Change: Proceeds to.

Speaker Change: Delever and.

Speaker Change: Opportunistically repurchased some debt so as it relates to the 2026, what I would say is I think youre exactly right that some of the leverage will naturally.

Speaker Change: Come down as equity grows and what we're looking at right now is what are the options.

Chris Mesipour: And, you know, what we're looking at right now is what are the options as it relates to actually, you know, opportunistically bringing down debt. So given where spreads are in the markets and so forth, it seems prudent to take a deep look at liability management. At the end of the day, Tom, the other point that I think is worth making is that the preferred comes due in a couple of years, and that is an expensive cost of capital.

Speaker Change: As it relates to actually.

Speaker Change: Opportunistically, bringing down debt, so given where spreads are in the markets and so forth.

Speaker Change: Seems prudent to take.

Speaker Change: Take a deep look at the liability management at the end of the day, Tom the other point that I think is worth making is that the preferred comes due in a couple of years and that is an expensive cost of capital. So net net when you step back.

Chris Mesipour: So net net, when you step back, and you think about the free cash flow that is implied in 2026, and you think about the fact that, you know, we're paying a $300 million dividend, there's just a lot of financial flexibility. So we think that there's going to be a number of things that we're going to be able to do, you know, depending on, you know, market conditions and where we see our debt trading at and so forth. Gotcha, thanks.

Speaker Change: If you think about the free cash flow that is implied in 2026.

Speaker Change: And you think about the fact that we're paying $300 million dividend. There's just a lot of financial flexibility. So we think that theres going to be a number of things that we're going to be able to do.

Speaker Change: Depending on market conditions.

Speaker Change: Where we see our debt trading at and so forth.

Speaker Change: Got you. Thanks, and then just on one question on life insurance free cash flow, but 26 free cash flow guide by segment I noticed life to still doesn't have any.

Tom Gallagher: And then just on one question on life insurance free cash flow, by the 26 free cash flow guide by segment, I noticed life still doesn't have any. I think the one concern that's still out there on your stock is that, you know, you had obviously a reserve strengthening for SGUL. And when I look at 26 free cash flow, and there's none coming from life insurance, is that signaling that the reserves still need to be strengthened there, since there's, you know, effectively no free cash flow? Or do you think you're out of the woods as it comes to balance sheet risk and life insurance reserves? Yeah, so thanks for the question, Tom.

Speaker Change: I think the one concern that's still out there on your stock is that.

Speaker Change: You had obviously a reserve strengthening for SQL and when I look at 26 free cash flow and there is nothing coming from life insurance.

Speaker Change: Is that signaling that the reserves still need to be strengthened there since there is effectively no free cash flow or do you think you're out of the woods as it comes to balance sheet risk and life insurance reserves.

Speaker Change: Yes. So thanks for the question, Tom and look at the end of the day. If you think about free cash flow of the business segment level.

Chris Mesipour: And look, at the end of the day, if you think about free cash flow at a business segment level, there are lots of ways to define it. But at the end of the day, it's really the capital generation that's coming out of that business, less the amount of money that we're investing in new business. Right.

Speaker Change: There's lots of ways to to.

Speaker Change: Define it but at the end of the day, it's really the capital generation, that's coming out of that business.

Speaker Change: Yes.

Speaker Change: The amount of money that we're investing for new business.

Chris Mesipour: So, what I would say is that, you know, rest assured that over the next couple of years, we are continuing to invest in the life business. And, you know, sales in that segment obviously require capital straight in any given year. So we are, you know, by 2026, more comfortable with the capital generation coming from that block. Obviously, the Fortitude deal last year took a big step forward in terms of de-risking the GUL block.

Speaker Change: So what I would say is that rest assured that over the next couple of years, we are continuing to invest in the life business and sales in that segment, obviously require capital strain in any given year. So we are.

Speaker Change: By 2026, more comfortable with the capital generation coming from that block, obviously, the 4% to deal last year took a big.

Speaker Change: Step forward in terms of Derisking the <unk>.

Chris Mesipour: But at the end of the day, you know, we do still invest a significant amount of money into new business capital in the life business. One of the things that we highlight, though, and Ellen has talked a lot about the move to a more capital efficient product portfolio, if that will help. And then obviously, to Alex's question, you know, as we look at different jurisdictions and domiciles from an economic framework, that should be able to help with new business capital as well.

Speaker Change: <unk> block, but at the end of the day, we do still invested a significant amount of money into new business capital in the life business. One of the things that we highlight though is in elements talked a lot about the move to a more capital efficient product portfolio that will help.

Speaker Change: And then obviously to Alex's question as we look at different.

Speaker Change: Addictions and domicile from an economic framework that.

Speaker Change: Be able to help with the new business capital as well so at the end of the day, we feel increasingly better obviously after the deal, but I would just remind you that when you think about free cash flow. It's not just the reserve build in the capital that you are generating it also takes into account any new.

Chris Mesipour: So at the end of the day, we feel increasingly better, obviously, after the deal. But I would just remind you that when you think about free cash flow, it's not just the reserve build and the capital that you're generating. It also takes into account any new, new business capital that you're investing in the business. Does that help?

Speaker Change: New business capital that you're investing in the business does that help.

Tom Gallagher: Yeah, fair point. Thanks. We'll go next to Ryan Krueger at KBW. Hey, thanks. Good morning.

Speaker Change: Fair Fair point thanks.

Speaker Change: Yes.

Speaker Change: We will go next to Ryan Krueger at K B W.

Ryan Krueger: Hey, Thanks, Good morning my.

Ryan Krueger: My first question was on affiliated reinsurance. Is this something that you're thinking about primarily using for new business to improve free cash flow and improve capital efficiency? Are you also of the view that that could also release capital from the in-force upfront? Ryan, you know, it's a good question.

Ryan Krueger: First question was on the affiliated Reinsurer and is this something that youre thinking about primarily.

Ryan Krueger: Using for new business to improve free cash flow and improved capital efficiency are you also.

Ryan Krueger: The view that that could also release capital from some of the in force upfront.

Speaker Change: So Brian.

Brian: It's a good question what I would say is we're we're looking at everything right I think to go back to the earlier point, we are one of the few that haven't.

Chris Mesipour: What I would say is we're looking at everything, right? I think, you know, to go back to the earlier point, we are one of the few that haven't worked to build out multiple tools in the toolkit. I think it would be fair to say that, at the end of the day, if you're going to stand up, you know, an affiliated reinsurance subsidiary that you would, you know, seeded initially with some liability. So, you know, I would imagine that there would be an element of current business that would go to start the reinsurance affiliate. And then, you know, more importantly, over time, it would absolutely be a tool in the toolkit and a thoughtful way of us deploying new business. Got it, thanks.

Speaker Change: And our work to build out multiple tools in the toolkit I think it would be fair to say.

Speaker Change: At the end of the day, if youre going to standup.

Speaker Change: And affiliated reinsurance.

Speaker Change: Subsidiary that you would seeded initially with with some liability. So I would imagine that there would be an element of current enforce that would go to start the reinsurance affiliate and then.

Speaker Change: More importantly over time.

Speaker Change: It would absolutely be a tool.

Speaker Change: The toolkit in a thoughtful way of us deploying for new business.

Speaker Change: Got it thanks and then.

Ryan Krueger: And then, I don't think you've talked too much yet about the optimization of the legacy life liabilities that you listed, which, you know, I think policy buyouts could, you know, maybe be one option, but also probably require capital to do so. So I was just hoping you could expand a little bit on what you're looking to do there and how we should think about the potential, I guess, costs of doing something like that. Yeah, right.

Speaker Change: I think you talked too much yet about the optimization of legacy life liabilities that you listed which I think policy buyouts to maybe be one option, but also probably require capital to do so so I was just hoping you could expand a little bit on what you're looking to do there.

Speaker Change: How we should think about the potential I guess cost of doing something like that.

Speaker Change: Yeah, right. So we put it on the page to basically make the point that this is continues to be a <unk>.

Chris Mesipour: So we put it on the page to, you know, basically make the point that this is, you know, continues to be a significant focus for us, as you would expect. But I think when you're thinking about a legacy lifeblock, right, it runs the gamut; there are the transactions that the transaction that we did last year, right with Fortitude, that obviously helped to optimize the results for the block that we seeded. I think at the other end of the spectrum, you could think about something around affiliated reinsurance.

Chris Mesipour: A significant focus for us as you would expect but I think when you're when you're thinking about a legacy life block right and it runs the gamut there as the transactions that the transaction that we did last year right with fortitude that obviously helped to optimize the results for the block that we ceded I think at the other end of the spectrum you could think about.

Speaker Change: Something around the affiliated reinsurance, but really in between there is.

Chris Mesipour: But really, in between, there's all the other dynamics that you can work towards thinking about hedging, you can think about different asset allocations within that block. So, you know, the point is that we're looking at everything. As you would expect, we took a big step forward last year, but we think that there's a lot of upside over the next two years there. Okay, great.

Chris Mesipour: All the other dynamics that you can.

Speaker Change: Work towards thinking about hedging you can think about different asset allocations within that block.

Chris Mesipour: So the point is that we're looking at everything as you would expect we took a big step forward last year, but we think that theres a lot of upside over the next two years there.

Ryan Krueger: Thank you. We'll take our next question from Mike Ward at Citi. Thanks, guys. Good morning.

Speaker Change: Okay, great. Thank you.

Ryan Krueger: We will take our next question from Mike Ward at Citi.

Ryan Krueger: Yes.

Mike Ward: Thanks, guys good morning.

Mike Ward: I was just wondering, um, is there any kind of metric that, you know, we or you are tracking? It's probably early for this, but in terms of like a buyback resumption, should we think about that as maybe a 2026 target or a longer-term target than that? So, Mike, I think important first of all, just to reiterate the fact that every action that we took last year and everything that we have as we contemplate our path going forward are all focused on the strategic objectives around strengthening the balance sheet, improving free cash flow, and profitable growth. And so important, that as we are growing our earnings, as we are improving our free cash flow over time, those things obviously are going to support our increasing in terms of overall shareholder returns. So we're not today going to provide any specific timing as it relates to buybacks, but it goes without saying that as we are improving and growing our free cash flow, as we are growing our earnings, as we are shifting the overall earnings mix, and everything that you've heard about today, that that will also just increase our overall financial flexibility. Okay.

Mike Ward: I was just wondering.

Mike Ward: Is there any kind of metrics.

Mike Ward: We are you are tracking it's probably early for this but in terms of like a buyback or assumption should we should we think about that as like maybe 2026 target or longer term targets on that.

Mike Ward: Yeah.

Speaker Change: So okay.

Mike Ward: <unk>.

Speaker Change: I think importantly, first of all just to reiterate the fact that every action that we took last year and everything that we have as we contemplate our path to go forward are all focused on the strategic objectives around strengthening the balance sheet, improving free cash flow and profitable growth.

Mike Ward: And so importantly that as we are growing our earnings as we are improving our free cash flow over time. The dosing, obviously are going to support our increasing in terms of overall shareholder returns.

Mike Ward: So we're not today going to provide any specific timing as it relates to buybacks, but it goes without saying that as we are improving and growing our free cash flow as we are growing our earnings as we're shifting the overall earnings mix.

Mike Ward: And everything that you've heard about today that that will also just increase our overall financial flexibility.

Speaker Change: Got it totally makes sense. Thanks.

Ellen Cooper: Totally. It makes sense. Thanks. And then just on the wealth management sale, it seems like a pretty solid deal for you guys. Just kind of wondering if you could sort of elaborate on what exactly you're giving up in that transaction. Sure, Mike.

Ellen Cooper: And then just on the wealth management sale.

Ellen Cooper: It seems like a pretty.

Ellen Cooper: Solid deal for you guys.

Speaker Change: Just kind of wondering if you could sort of elaborate kind of on what exactly you are giving up.

Speaker Change: In that transaction.

Speaker Change: Sure Mike So.

Ellen Cooper: So if I take a step back, and there are there's one transaction that we closed last year, the Fortitude re-transaction, I'm going to spend a moment talking about that. So, As you all know, complicated transaction, $28 billion of liabilities, 40% of our GUL, and as part of that transaction, we were able to really stick to our overall strategic objectives. So we reduced our balance sheet risk, We improved our capital and we also improved and increased our ongoing free cash flow. So in the announcement of the wealth management transaction, and as we thought about that broadly, and we really looked at the overall opportunity for wealth management, and we evaluated the fact that, A, we did not believe that we had scale in that business, but it was a very good business, we made the decision to divest of it and recognize that in the comments of a net capital benefit of $700 million, we are improving our capital position and we have also communicated that there are no material earnings or free cash flow impacts as well.

Ellen Cooper: If I take a step back and there are there was one transaction that we closed last year. The fortitude re transaction I'm going to spend a moment talking about that so.

Ellen Cooper: As you all know complicated transaction 28 billion of liabilities, 40% of our <unk> and as part of that transaction, we were able to really stick to our overall strategic objectives. So we reduced our balance sheet risk, we improved our capital and we also.

Ellen Cooper: Improved and increased our ongoing free cash flow.

Ellen Cooper: So in the announcement of the wealth management transaction and as we thought about that broadly and we really looked at.

Ellen Cooper: Overall opportunities for wealth management, and we evaluated the fact that we did not believe that we had scale in that business, but it was a very good business.

Ellen Cooper: We made the decision to divest of it and recognize that in the comments of a net capital benefit of $700 million, we are improving our capital position and we have also communicated that there are no material earnings or free cash flow impacts as well, so again really sticking as we.

Ellen Cooper: So again, really sticking as we think about these overall transactions, importantly, to maximizing relative to the strategic objectives that we've laid out for you. I guess just, it seems like, you know, it's very solid proceeds for the, for wealth management. Is it just, you know, is it, I guess, other, is it competitors being on the same platform for distribution and wealth? Like, it just seems like a really solid deal. I'm wondering what the footnotes are. Yeah, so, so Mike, these are, so the wealth management business is a very attractive business, and in particular, it, it has profitable growth with scale, and so it really gets to this point around the fact that, as we evaluated our wealth management business, which is a great business, that we really determined that, unlike the other businesses that we're in, where we have, where we have significant scale, where they're very mature, where we have all the levers that we need around competitive advantages around our distribution strength, our product manufacturing, our customer-centric delivery, et cetera, that there was quite a bit that we ourselves would need to do to really build out the business to be at that same level, and that would really be in best for us and best, ultimately, for this business to be in the hands of an organization that does this as, you know, part of what they do 24-7 each and every day, that has the ultimate scale to really drive the profitable growth that we know can come out of this business, www.larryweaver.com over at the, We'll go next to Wilma Burgess at Raymond James. Hey, good morning.

Will H. Fuller: Think about this overall transactions.

Will H. Fuller: Importantly to maximizing relative to the strategic objectives that we've laid out for you.

Will H. Fuller: Okay great.

Will H. Fuller: That's just.

Ellen Cooper: It seems like it's very solid proceeds for the for wealth management.

Ellen Cooper: Is it just is it I guess other competitors being on the same platform.

Will H. Fuller: For distribution in wealth.

Ellen Cooper: It just seems like really solid deal wondering what the puts and takes are yes. So Mike. These are so the wealth management business is a very attractive business and in particular.

Ellen Cooper: It has profitable growth with scale and so it really gets to this point around the fact that as we evaluated our wealth management business, which is a great business that we really determined that unlike the other businesses that we're in where we have where we have significant scale, where theyre very mature where we have all of the levers that we need around <unk>.

Ellen Cooper: Additive advantages around our distribution strength of our product manufacturing are customer centric delivery et cetera that there was quite a bit that we ourselves we need to do to really build out the business to be at that same level and that would really be in best for us and best ultimately for this business to be in the hands of the organization.

Ellen Cooper: <unk> that does this as part of what they do 24, 7% each and every day that has the ultimate scale to really drive the profitable growth that we know can come out of this business.

Ellen Cooper: Okay.

Will H. Fuller: Alright. Thanks.

Will H. Fuller: We will go next to wellness service at Raymond James.

Will H. Fuller: Hey, good morning could you talk a little bit about the life segment earnings outlook.

Mike Ward: Could you talk a little bit about the life segment earnings outlook? We were expecting our model to show a loss in the segment, but the 24 guide looks better than we anticipated. Is there anything that has changed, or is this just kind of what shook out after the deal? So, Wilma, if you step back, the life business for Lincoln, you know, it used to earn about $600 million a year if you go back a couple years.

Speaker Change: Expecting our model a lawful thank you and then.

Wilma: 24 guidance, let's.

Wilma: What's better than anticipated.

Wilma: Or is there is this just kind of what you broke out after the deal.

Mike Ward: Yes.

Wilma: Well no.

Wilma: You step back the life business for Lincoln.

Mike Ward: You started about $600 million a year. If you go back a couple of years.

Chris Mesipour: And over the course of the year, in 2023, we tried to lay out, you know, the drivers of the degradation over time and how we went from 600 to basically flat for 2023. And, you know, embedded in that were a number of things that, you know, we highlighted that actually turned from headwinds to tailwinds over the next couple of years. So, if you step back, right, part of the lost earnings power for the life business was obviously tied to the assumption reset in 2022. Part of it was due to, you know, significant prepay income that we used to earn when interest rates were lower. Part of it was reinsurance-related. And so there's a number of those dynamics that, when you look out the next couple of years, obviously don't recover prepay income, you know, maybe a question mark, depending on what happens with rates. But, generally speaking, they are not what we would expect.

Speaker Change: And over the course of the year in 2023.

Chris Mesipour: We tried to lay out.

Chris Mesipour: The drivers of the <unk>.

Chris Mesipour: Degradation over time, and how we went from 600.

Chris Mesipour: Basically flat.

Chris Mesipour: For 2023.

Chris Mesipour: Embedded in that where a number of things that we've highlighted that actually turned from headwinds to tailwind over the next couple of years. So if you step back right part of the lost earnings power for the life business was obviously tied to the assumption reset in 2022.

Chris Mesipour: Part of it was due to significant prepay income that we used to earn.

Chris Mesipour: When interest rates were lower part of it.

Chris Mesipour: Was reinsurance related and so there's a number of of those dynamics that we're not.

Chris Mesipour: You look out the next couple of years, obviously don't recover prepay income maybe a question mark depending on what happens with rates, but generally speaking are not what we would expect however, there is a number of.

Chris Mesipour: However, you know, there's a number of dynamics that ultimately do reverse. And so, you know, one example that we've highlighted, you know, just at a high level is our alternative income. We had a great year for alternative income from a relative perspective and relative to markets, but at the end of the day, it was still below our long-term target. When we look out to 2024, we see that recovering.

Chris Mesipour: [noise] dynamics that ultimately do reverse and so.

Chris Mesipour: One example that we've highlighted.

Chris Mesipour: At a high level is our alternatives income we had a great year for <unk> from a relative perspective and relative to markets, but at the end of the day. It was still below our long term target when we look out to 2024, we see that recovering.

Chris Mesipour: We also see the opportunity to be more efficient as it relates to expenses. You know, I think the life business is one of the examples when you think about some of the longer-term expense ratio dynamics that we've highlighted, we see opportunity there. And then the last thing I would say is, you know, we've spent some time, you know, over the past couple of quarters making this point. We really haven't seen spread expansion in the life business despite higher rates in the past couple of years.

Chris Mesipour: We also see the opportunity to be more efficient as it relates to expenses I think the life businesses is one of the examples when you think about some of the longer term expense ratio dynamics that we've highlighted that we see opportunity. There and then the last thing I would say is we've spent some time over the past couple of quarters, making.

Chris Mesipour: At this point, we really havent seen.

Chris Mesipour: Spread expansion in the life business, despite higher rates from the past couple of years and the <unk>.

Chris Mesipour: And, you know, the point that we've made is that we had a duration extension program in place, which as short rates went up, became a headwind. And so as that program has run down, you would now expect to see spread expansion move through that portfolio. And obviously, it's a big portfolio, even after the transaction with Fortitude.

Chris Mesipour: Point that we've made is that we had a duration extension program in place, which as short rates went up became a headwind and so as that program has run down you would now expect to see spread expansion move through that portfolio and obviously its a big portfolio, even after the transaction with fortitude.

Chris Mesipour: So you put all that together, and on page 10 of the outlook, we have a relatively high earnings CAGR expected over the next three years, but it's obviously off of a very low base. So if you think about the math implied when you look at the starting point and then the growth numbers, you know, it gets you back to a number that is not where we used to be but certainly accounts for a number of the headwinds turning a little bit to tailwinds over the next two or three years. Thank you.

Chris Mesipour: Put all that together.

Chris Mesipour: On page 10 of the outlook, we have a relatively high.

Chris Mesipour: Hi earnings CAGR expected over the next three years, but it's obviously off of a very low base. So if you think about what the math is implied when you. When you look at the starting point and then the growth numbers. It gets you back to a number that is not where we used to be but certainly accounts for a number of the headwinds turning a little bit of tailwind over the next two years.

Chris Mesipour: Or three years.

Will H. Fuller: And second question on the group, 13 to 16% annual CAGR is a pretty strong target. I know that this is a business that you guys have been trying to improve for a while now, probably even before he had some issues with life. So maybe just talk about that and the confidence in that outlook there. Thank you.

Speaker Change: Thank you thank.

Chris Mesipour: Second question on group, 13% to 16% annual CAGR is a pretty strong targets and this.

Will H. Fuller: This is a business that you guys have been trying to.

Will H. Fuller: Improve for a while now probably even before initial device. So maybe just talk about that and the confidence in that outlook. There. Thank you.

Chris Mesipour: Sure, Wilma, and really, this ties into the conversation we've been having all year around the change in strategy, the investments that we're making in the business, and the recovery in the margins. So if you go back a couple of years, you know, really even a year or two, I mean, this was a business that, for Lincoln, generated a 1% margin.

Will H. Fuller: Sure.

Will H. Fuller: This ties into the conversation we've been having all year around the change in strategy.

Chris Mesipour: Investments that were making in the business and the recovery in our margins. So if you go back a couple of years really even a year or two I mean, this was a business that for Lincoln generated a 1% margin.

Chris Mesipour: And so we're going to end the year over 5%. So, you know, significant work has been done over the past, you know, five, six quarters to begin to turn the business around. You know, that's a 400 basis point increase in margins year over year. And our peers are, you know, north of 10%. So part of that is mixed.

Chris Mesipour: And so we're going to end the year over 5%.

Chris Mesipour: Significant work being done over the past five six quarters to begin to turn the business around that's a 400 basis point increase in margins year over year and our peers are north of 10%. So part of that is mix part of that is operational improvement. We have a lot of work to do to get back to a margin.

Chris Mesipour: Part of that is operational improvement. We have a lot of work to do to get back to a margin level that, you know, would be on par with some of our peers. But the improvement is already there. You're seeing it year over year.

Chris Mesipour: That would be on par with some of our peers, but the improvement is already there youre seeing at year over year.

Chris Mesipour: And, you know, there's a lot of investment that's gone into the business. There's been, you know, significant action from a strategy perspective. And so if you step back, the growth rates for the group over the next two or three years basically get you to the target level that we've been saying that we're targeting and have already shown substantial progress. So I feel pretty good about the growth rates there. You know, there is certainly more wood to chop.

Chris Mesipour: And there's a lot of investment that's gone into the business. There has been significant action from a strategy perspective, and so if you step back the.

Chris Mesipour: Growth rates for group over the next two or three years basically get you to the target level that we've been saying that we're targeting.

Chris Mesipour: Targeting and and have already shown substantial progress so I feel pretty good about the growth rates there.

Chris Mesipour: There are certainly more wood to chop. So we're not done but the investment that's being made in the business.

Ellen Cooper: So we're not done. But the investment that's being made in the business and the success we've seen so far gives us some, some confidence there. And, and we'll add a little bit more as it relates to strategy and why we have confidence as well. So, and to Chris's points, we're seeing everything as it relates to margin expansion improvement. And we're also seeing really strong top line growth as well. So, year over year, premiums increased by 5%. And what we are doing as we move forward, and we highlighted this really as our strategic realignment as it relates to the group business, is that we have tailored our strategy to go forward, or profitable growth strategy, into three distinct business segments across small business, regional, and national.

Ellen Cooper: And the success, we've seen so far.

Ellen Cooper: Gives us some some confidence there and add a little bit more as it relates to strategy and why we have confidence as well so.

Ellen Cooper: And to Chris's point, we're seeing everything as it relates to margin expansion improvement and we're also seeing really strong top line growth as well. So we had year over year premiums increased by 5% and what we are doing as we move forward and we highlighted this really is our strategic realignment as it relates to the group.

Ellen Cooper: Business is we have tailored our strategy go forward, our profitable growth strategy into three distinct business segments across small business regional and national and just to give you a sense of why we have confidence here. So when we look last year. For example at sales grew in each of the business segments in the place.

Ellen Cooper: And just to give you a sense of why we have confidence here. So when we look last year, for example, at sales, they grew in each of the business segments and the places where we are most focused, which are the small market and also supplemental health. So in this small market, sales increased by 15%. And in our regional and national markets, where we already have large existing books there, what we're really looking to do is to drive sales through existing customers.

Ellen Cooper: Where we are the most focused which are the small market and also supplemental health. So small market sales increased by 15% and in our regional and our national where we already have large existing books. There. What we're really looking to do is to drive sales through existing customers and so 42.

Will H. Fuller: And so 42% of our sales were represented there and supplemental health, which is a big strategy for us and also will drive some of the margin and earnings expansion that you see in the outlook. We had a more than 100% increase in sales there in 2023. So, and then, exactly as Chris said, we're continuing to make all the investments that we need to really have a differentiated experience for customers and tailor the overall strategy at these various different employer levels. Thank you. We'll take our next question from Joel Hurwitz at Dowling Parton. Hey, good morning.

Ellen Cooper: <unk> sales were represented there and supplemental health, which is a big strategy for US and also will drive some of the margin and earnings expansion that you see in the outlook, we had a more than 100% increase there in sales in 2023, so and that exactly as Chris said, we're continuing to make all the investments that we need.

Joel Hurwitz: We need to really have a differentiated experience for customers.

Joel Hurwitz: Taylor the overall strategy at these various different employer.

Will H. Fuller: Levels.

Joel Hurwitz: Okay. Thank you.

Joel Hurwitz: We will take our next question from Joel Horowitz of Dowling partners.

Joel Hurwitz: Hey, good morning. So you guys mentioned that the 23 free capital generation was close to 400 million. So it looks like the pace accelerated in the fourth quarter.

Chris Mesipour: So you guys mentioned that the 23 free capital generation was close to 400 million. So it looks like the pace accelerated in the fourth quarter. Can you just talk about what drove the stronger Q4 capital generation? Sure, Joe. I would say it was tracking relatively close to what we've been seeing all year, maybe a little bit of an improvement. As you know, you had some tailwinds in the fourth quarter; markets were a little bit higher. And so I don't think there was anything game-changing as relates to Q4 relative to the first two or three quarters. We did have a couple of credit losses in the first quarter, which, you know, would have dragged it down if you're looking at a quarter of a quarter. But generally speaking, I don't think there was anything materially different. In the fourth quarter, other than what you would see in sort of your normal operating income, so markets a little bit higher and so forth. Was there any dividend taken from LINBAR again in the fourth quarter? There was not.

Chris Mesipour: Can you just talk about what drove the stronger Q4 capital generation.

Chris Mesipour: Sure Joe I would say was tracking relatively close to what we've been seeing all year.

Chris Mesipour: Maybe a little bit of an improvement.

Chris Mesipour: You had some tailwind in the fourth quarter markets were a little bit higher.

Chris Mesipour: And so I don't think there was anything game changing as it relates to Q4 relative to the first two or three quarters. We did have a couple of credit losses in the first quarter, which.

Chris Mesipour: Would've dragged it down if youre looking at a quarter over quarter, but generally speaking I don't think theres anything materially different.

Chris Mesipour: Fourth quarter other than what you would see in sort of your normal operating income some markets a little bit higher and so forth.

Chris Mesipour: Was there was there any dividend taken from Lindbergh again in the fourth quarter.

Chris Mesipour: We don't take dividends from LIMBAR every quarter, and we took one in the third quarter. That being said, you know, we obviously now have a year of the new VA hedge program, and we feel really good about where we landed at the end of the year. Okay, and then maybe expectations for LINBAR dividends in 24 now that you're more comfortable with the hedge program? Yeah, so what I would say is that, you know, we are increasingly comfortable, but it's only been a year. And so we felt good about the, you know, third quarter of 2023, and we were able to take a dividend out. But if you think about overall, in 2023, there was some volatility in markets, but it was relatively supportive. Overall, rates were probably, you know, the bigger driver overall of reserves and the Hedge Program. But generally speaking, you know, it was a very supportive backdrop. So, you know, I don't want to get in front of how we're thinking about LINBAR for 2024 and 2025.

Speaker Change: There was not we don't take one dividends from one more every quarter and we took one in the third quarter that being said we do.

Chris Mesipour: Obviously now have a year.

Chris Mesipour: The new VA hedge program and we feel really good about where we landed at the end of the year.

Chris Mesipour: Okay, and then just maybe expectations for Lindbergh dividends and 24 now that youre more comfortable with the hedge program.

Speaker Change: Yes, so what I would say is that we are increasingly comfortable.

Chris Mesipour: But it's only been a year and so we felt good.

Chris Mesipour: Yes.

Chris Mesipour: Third quarter of 2023.

Chris Mesipour: And we're able to take a dividend out, but if you think about overall in 2023, there was some volatility in markets, but it was relatively supportive overall rates were probably the bigger driver overall of reserves and.

Chris Mesipour: And the hedge program, but generally speaking it was a very supportive backdrop. So.

Chris Mesipour: I don't want to get in front of how we're thinking about Linde bar for 2024, and 2025, but I would say it should continue to improve assuming that markets.

Chris Mesipour: But I would say it should continue to improve, assuming that markets, you know, are supportive. And we just want to watch and see. It's only been a year with the new hedge program. And so we're just trying to be prudent. Okay, thank you. We'll move next to John Barnidge at Piper Sandler.

John Bakewell Barnidge: Are supportive and we just want to watch and see it's only been a year with the new hedge program.

John Bakewell Barnidge: So we're just trying to be prudent.

John Bakewell Barnidge: Okay. Thank you.

Chris Mesipour: Okay.

Chris Mesipour: We'll move next to John Barnidge at Piper Sandler.

John Bakewell Barnidge: Great, thank you very much. Appreciate the opportunity. Lots of weighting of group protection distribution for the fourth quarter.

John Bakewell Barnidge: Great. Thank you very much appreciate the opportunity lots of weighting of group protection distribution the fourth quarter. So good.

Ellen Cooper: Good sales growth there. Can you maybe talk about the opportunities for the products and product development pipeline for that business? Thank you. Sure, so, in the group protection business... And again, we are a five-plus-billion dollar premium group protection business. And we really have historically been in the group life and group disability areas. And as we are looking to grow overall, and I mentioned earlier the business segment-specific strategy, we are also looking to further increase our overall voluntary business. And you can actually see that year over year, our employee contributions continue to increase year over year from 22 to 23. And additionally, the supplemental health overall benefits as well.

John Bakewell Barnidge: Good sales growth there can you maybe talk about the opportunity set for our products and product development pipeline for that business.

Speaker Change: Thank you.

Ellen Cooper: Sure So in the group protection business.

Ellen Cooper: And again, we are at five plus billion premium group protection business and we really have historically been in the group life and in the group disability areas and as we are looking to overall grow and I mentioned earlier the business segments specific strategy.

Ellen Cooper: We are also looking.

Ellen Cooper: To further increase our overall voluntary.

Ellen Cooper: Business and you actually can see that year over year that our employee contributions.

Ellen Cooper: <unk> to increase year over year from 'twenty two to 'twenty three.

Ellen Cooper: And and additionally, the supplemental health overall.

Ellen Cooper: And we've got three different products there that are very important to our customers and ultimately to their employees. And as I mentioned earlier, we saw a doubling of overall sales there year over year, and we expect that to continue. The other thing that I will add is that I referenced earlier the small market segment. And what's important and different about the small market segment is that there we're really tailoring holistic offerings. So there smaller employers, as you can imagine, are looking for a one-stop shop with overall bundled offerings.

Ellen Cooper: Benefits as well and we've got three different products. There that are very important too to our customers and ultimately to their employees and as I mentioned earlier, we saw a doubling there.

Ellen Cooper: Of the of the overall sales year over year, and we expect that to continue the other thing that I'll add is that I referenced earlier, the small market segment and what's important and different about the small market segment is that there were really tailoring holistic offerings. So there.

Ellen Cooper: Mauler and clear as you can imagine are looking for a one stop shop with overall bundled offerings. So part of what we're uniquely able to offer there is yes differentiated customer service and all the technology and the infrastructure that they need but also bundling to various different products together.

Ellen Cooper: So part of what we're uniquely able to offer there is, yes, differentiated customer service and all the technology and infrastructure that they need, but also bundling the various different products together. And we believe that that's part of our value proposition as well. Thank you very much. And a follow-up question. With the call out of the use of affiliate reinsurance a number of times, how would you also think about third-party opportunities within Yeah, John, I think what I would say is, you know, as you would expect, we're looking at all options. Obviously, the affiliate of reinsurance is distinct from, I think, the opportunity that you're describing. But, you know, rest assured; when we think about the next two or three years, we will have all the different strategic opportunities on the table.

Speaker Change: We believe that that is part of our value proposition as well.

Ellen Cooper: Okay.

Speaker Change: Thank you very much and a follow up question with the call out of use of affiliate reinsurance and number of times. How would you how should we think also about third party opportunities within that.

Speaker Change: Yes, John I think what I would say is as you would expect.

Speaker Change: We're looking at all options, obviously, the affiliated reinsurance as distinct from I think the opportunity that you're describing.

Ellen Cooper: But rest assured when we think about the next two or three years, we would have all the different strategic opportunities on the table.

John Bakewell Barnidge: Thank you. And that concludes the question and answer session. For those left in the queue, we will follow up with you later this afternoon. I would like to turn the conference over to Tina Madden for closing remarks. Thanks, Audra, and thanks again to everyone on the call for joining us this morning. We're happy to take any follow-up questions you have. Please email us at InvestorRelations at LFG.com. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Thank you.

Ellen Cooper: Yes.

John Bakewell Barnidge: And that concludes the question and answer session for those left in the queue. We will follow up with you. Later this afternoon I would like to turn the conference over to Tina Madden for closing remarks.

Tina Madden: Thanks, RJ and thanks again to everyone on the call for joining US. This morning, we're happy to take any follow up questions. You have please E mail us at Investor Relations at <unk> Dot com. Thank you.

John Bakewell Barnidge: This concludes today's conference call. Thank you for your participation you may now disconnect.

John Bakewell Barnidge: Okay.

John Bakewell Barnidge: This concludes today's conference call. Thank you for your participation you may now disconnect.