Q1 2024 Lincoln National Corp Earnings Call
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Speaker Change: Good morning, and thank you for joining Lincoln financial group's first quarter 'twenty 'twenty four earnings conference call. At this time lines are in listen only mode. Later, we will announce the opportunity for a question and instructions will be given at that time.
Unknown Executive: Good morning, and thank you for joining Lincoln Financial Group's first quarter 2024 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. If you need assistance at any time, please press the star key followed by the number zero, and someone will assist you. Now, I would like to turn the call over to senior vice president and head of investor relations, Tina Madon, please.
Speaker Change: We need assistance during at any time. Please press star followed by the numbers zero and someone will assist you.
Speaker Change: Now I would like to turn the call over to senior Vice President head of Investor Relations Tina Madden.
Tina Madon: Good morning, everyone and welcome to our 2024 first quarter earnings call. We appreciate your interest in Lincoln.
Tina Madon: Good morning, everyone, and welcome to our 2024 First Quarter Earnings Call. We appreciate your interest in Lincoln.
Tina Madon: Our quarterly press release, statistical supplement, and, new this quarter, our earnings supplement can all be found on the investor relations page of Lincoln's website, www.lincolnfinancials.com. These documents include reconciliations of the non-GAAP measures used on today's 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 want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, share repurchases, liquidity, and capital resources, are forward-looking statements under the Private Securities Litigation Reform Act of 1995.
Tina Madon: Clearly press release statistical supplement and new this quarter our earnings supplement can all be found on the Investor Relations page of Lincoln's Web site Www Dot Lincoln financial Dot Com.
Tina Madon: Documents include reconciliations of the non-GAAP measures used on today's 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.
Tina Madon: Before we begin I want to remind you that any statements made during today's call regarding expectations future actions trends in our businesses perspective services or product future performance or financial results, including those relating to deposits expenses income from operations.
Tina Madon: Share repurchases liquidity and capital resources are forward looking statements under the private Securities Litigation Reform Act of 1095.
Tina Madon: These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning, as well as those detailed in our 2023 annual report on Form 10-K, most recent quarterly reports on Form 10-Q, and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President, and CEO, and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Now, I'll turn the call over to Ellen. Ellen
Tina Madon: These forward looking statements involve risks and uncertainties that could cause our actual results.
Tina Madon: To differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2023 annual report on Form 10-K, most recent quarterly report on form <unk>.
Tina Madon: 10-Q, and from time to time in our other filings with the SEC.
These forward looking statements are made only as of today and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today.
Tina Madon: Presenting this morning are Ellen Cooper, Chairman, President and CEO, and Chris <unk>, Chief Financial Officer.
Speaker Change: After their prepared remarks, we will address your questions.
Ellen Gail Cooper: Let me now turn the call over to Ellen Ellen.
Ellen Gail Cooper: Thank you, Tina, and good morning, everyone. We appreciate you joining us on our call today. I want to start by reiterating that we are continuing to progress with Lincoln's strategic repositioning, and our first quarter reflects progress toward our longer-term priorities. Last quarter, we shared our investor outlook, which was grounded in three key objectives. A strong capital foundation that is built and maintained for enterprise stability across market cycles while supporting investment for profitable growth.
Thank you Tina and good morning, everyone. We appreciate you joining our call today.
Ellen Gail Cooper: I wanted to start by reiterating that we are continuing to progress with Lincoln's strategic repositioning and our first quarter reflects advancement toward our longer term priorities.
Last quarter, we shared our investor outlook, which was grounded in three key objectives.
Ellen Gail Cooper: <unk>.
Ellen Gail Cooper: A strong capital foundation that is built and maintained for enterprise stability across market cycles, while supporting investment for profitable growth.
Ellen Gail Cooper: Second opt.
Ellen Gail Cooper: Optimizing our Operating Model to Advance a Scalable Framework for Managing Enterprise Resources such as Expense Efficiencies and General Account Optimization. And third, Delivering Profitable Growth by Strategically Realigning Towards Businesses and Products with More Stable Cash Flows, Focusing on Maximizing Risk-Adjusted Returns while Decreasing Sensitivity to the Equity Market. Within our four businesses, we are executing well on our strategies to achieve these targeted outcomes, and we are confident in our ability to deliver results that will drive long-term value creation for our shareholders.
Ellen Gail Cooper: Optimizing our operating model to advance a scalable framework for managing enterprise resources, such as expense efficiencies and general account optimization.
Ellen Gail Cooper: Third delivering profitable growth by strategically realigning towards businesses and products with more stable cash flows focusing on maximizing risk adjusted returns, while decreasing sensitivity to equity markets.
Ellen Gail Cooper: Within our core businesses, we are executing well on our strategies to achieve these targeted outcomes and we are confident in our ability to deliver results that will drive long term value creation for our shareholders. While this is a multiyear journey and results may not always be linear the actions we are taking now.
Ellen Gail Cooper: While this is a multi-year journey, and results may not always be linear, the actions we are taking now position Lincoln to deliver sustainable growth in the years ahead. We will leverage our powerful franchise, trusted brand, distribution prowess, and broad product portfolio to meet customer needs across our four businesses. These attributes will continue to serve as a solid foundation for our future growth. Now, I will briefly touch on our first quarter performance.
Ellen Gail Cooper: Position Lincoln to deliver sustainable growth in the years ahead.
We will leverage our powerful franchise trusted brand distribution prowess and broad product portfolio to meet customer needs across our four businesses.
Ellen Gail Cooper: These attributes will continue to serve as a solid foundation for our future growth.
Ellen Gail Cooper: Let me now briefly touch on our first quarter performance our results, excluding the impact of significant items exceeded our expectations.
Ellen Gail Cooper: Our results, excluding the impact of significant items, exceeded our expectations. Although each of our businesses is at a different stage of strategic realignment, we are pleased with their execution, with some notable highlights. Our annuities business reported its highest earnings quarter in nearly two years, and Group Protection delivered a strong quarter of year-over-year earnings growth, solid premium growth, and margin expansion. Retirement plan services generated more than $1 billion in sales, its highest level in seven quarters, and the performance of our life business was in line with our expectations.
Ellen Gail Cooper: Although each of our businesses is at a different stage of strategic realignment. We are pleased with their execution with some notable highlights.
Ellen Gail Cooper: Our annuities business reported its highest earnings quarter in nearly two years and group protection delivered a strong quarter of year over year earnings growth solid premium growth and margin expansion.
Ellen Gail Cooper: Retirement plan services generated more than $1 billion in sales its highest level in seven quarters and the performance of our life business was in line with our expectations.
Ellen Gail Cooper: These outcomes reflect our disciplined focus on positioning our business for increased growth and enhanced margins in keeping with our overall strategic vision. Now turning to retail solutions, which include annuities and life. As I mentioned earlier, Annuities had a very strong earnings quota, excluding the impact of significant items, reflecting solid returns on a diversified book of business. Ending account balances increased 5% sequentially, driven by favorable equity markets, which provided a strong tailwind to earnings.
Ellen Gail Cooper: These outcomes reflect our disciplined focus on positioning our business for increased growth and enhanced margins and keeping with our overall strategic vision.
Ellen Gail Cooper: Now turning to retail solutions, which includes annuities and life.
Ellen Gail Cooper: As I mentioned earlier.
Ellen Gail Cooper: Annuities had a very strong earnings quarter, excluding the impact of significant items, reflecting solid returns on a diversified book of business.
Ellen Gail Cooper: Ending account balances increased 5% sequentially driven by favorable equity markets, which provided a strong tailwind to earnings.
Ellen Gail Cooper: Coming off a record fourth quarter and 2023 sales were lower at approximately $2 8 billion, but importantly.
Ellen Gail Cooper: Coming off a record fourth quarter in 2023, sales were lower at approximately $2.8 billion but, importantly, reflected a well-balanced product mix as we continue to focus on the growth of spread-based categories. In fixed annuities, we are growing our addressable market and extending our reach to new segments by optimizing our capabilities, which includes strategic positioning across fixed product categories and with our distribution partners. Additionally, our RILA business continues to be an important area of focus and a growth segment of the market. However, with more competitors entering this product category, our RILA sales were down year over year.
Ellen Gail Cooper: <unk> reflected a well balanced product mix as we continue to focus on the growth of spread based categories.
Ellen Gail Cooper: In fixed annuities, we are growing our addressable market and extending our reach to new segments by optimizing our capabilities, which include strategic positioning across fixed product categories and with our distribution partners.
Ellen Gail Cooper: Additionally, our railway business continues to be an important area of focus and a growth segment of the market.
Ellen Gail Cooper: With more competitors entering this product category.
Ellen Gail Cooper: <unk> sales were down year over year. However, we are launching our second generation <unk> product. This month with refreshed features and unique crediting strategies to further support the profitable growth of our <unk> business.
Ellen Gail Cooper: However, we are launching our second generation RILA product this month with refreshed features and unique crediting strategies to further support the profitable growth of our RILA business. VA with guaranteed living benefit sales were up year over year and continue to be an integral part of our overall product solutions and deliver a strong customer value proposition. However, this product category remains a smaller contributor to our total annuity sales, representing less than 20% of sales in the quarter.
Ellen Gail Cooper: VA with guaranteed living benefit sales were up year over year and continues to be an integral part of our overall product solutions and delivered a strong customer value proposition. However, this product category remains a smaller contributor to our total annuity sales representing less than 20% of sales in the quarter.
Ellen Gail Cooper: <unk>.
Ellen Gail Cooper: Our annuities business continues to benefit from our broad strategic partner network and the engagement of our large wholesaling force with financial professionals. And as we look ahead, we see a strong pipeline to support further momentum in 2024. In summary, these results reflect the strength of our annuities business as we continue to achieve our objectives for capital efficiency and meet our target product returns while providing customers with a broad range of solutions to meet their evolving needs. Now turning to life.
Ellen Gail Cooper: Our annuities business continues to benefit from our broad strategic partner network and the engagement of our large wholesaling force with financial professionals and as we look ahead, we see a strong pipeline to support further momentum in 2024.
Ellen Gail Cooper: In summary, these results reflect the strength of our annuities business as we continue to achieve our objectives for capital efficiency and meet our target product returns, while providing customers with a broad range of solutions to meet their evolving needs.
Ellen Gail Cooper: Now turning to life.
Ellen Gail Cooper: As I mentioned earlier, the performance of our life business in the first quarter was consistent with our expectations. The year-over-year and sequential declines in life sales are driven by our intentional strategic realignment as we de-emphasize long-term guarantees, such as guaranteed BUL, and commoditized lower-margin segments of the term market. We are taking additional steps to shift the focus of our life business to products with more stable cash flows and higher risk-adjusted returns, such as accumulation products.
Ellen Gail Cooper: As I mentioned earlier the performance of our life business in the first quarter was consistent with our expectations.
Ellen Gail Cooper: The year over year and sequential declines in life sales are driven by our intentional strategic realignment as we deemphasize long term guarantees such as guaranteed UL and Commoditized lower margin segments of the term market.
Ellen Gail Cooper: We are taking additional steps to shift the focus of our life business to products with more stable cash flows and higher risk adjusted returns such as accumulation products.
Ellen Gail Cooper: We expect to further support this shift with product and distribution actions. For example, on the distribution side, we realigned our life team to optimize our wholesaler footprint, putting us closer to our key strategic partners to better enable and accelerate our product shift, and we are already seeing a stronger pipeline in accumulation products. While the transformation of our life business will take time, leveraging our strengths in product, distribution, and industry-leading underwriting, coupled with strengthening our customer-centric service model with enhanced digital delivery, will help us deliver against this important strategic priority. Next, turning to workplace solutions, which includes group protection and retirement plan services.
Ellen Gail Cooper: We expect to further support this shift with product and distribution actions.
Ellen Gail Cooper: For example.
Ellen Gail Cooper: On the distribution side, we realigned our life team to optimize our wholesale footprint, putting us closer to our key strategic partners to better enable and accelerate our product shift and we are already seeing a stronger pipeline and accumulation products.
Ellen Gail Cooper: While the transformation of our life business will take time.
Ellen Gail Cooper: Leveraging our strength and product distribution and industry, leading underwriting coupled with strengthening our customer centric service model with enhanced digital delivery will help us deliver against this important strategic priority.
Ellen Gail Cooper: Next turning to workplace solutions, which includes group protection and retirement plan services.
Ellen Gail Cooper: Our group business delivered the second best earnings quarter in its history and further expanded its margin to 6.2%, reflecting strong improvement year over year. We continue to advance towards our 7% sustainable margin target for this business, prioritizing margin expansion over top-line growth. Pricing discipline remains a primary focus as we profitably grow our group business. The Renewal Cycle for 2024 Effective Business illustrates this discipline. We achieved our targeted rate increases with just a modest decline in persistency, and despite this reduction, our ability to generate 3% total premium growth year over year reinforces the strength of our relationships and ability to deliver value to customers. Additionally, sales were 13% higher than in the prior year quarter, due in part to a 25% increase in supplemental health.
Ellen Gail Cooper: Our group business delivered the second best earnings quarter in its history and further expanded its margin to six 2%.
Reflecting strong improvement year over year.
Ellen Gail Cooper: We continue to advance towards our 7% sustainable margin target for this business prioritizing margin expansion over topline growth.
Ellen Gail Cooper: Pricing discipline remains a primary focus as we profitably grow our group business.
Ellen Gail Cooper: The renewal cycle for 2024 effective business illustrates this discipline we.
Ellen Gail Cooper: We achieved our targeted rate increases with just a modest decline in persistency and despite this reduction our ability to generate 3% total premium growth year over year reinforces the strength of our relationships and ability to deliver value to customers.
Ellen Gail Cooper: Additionally, sales were 13% higher than in the prior year quarter due in part to a 25% increase in supplemental health.
Ellen Gail Cooper: Offering a strong supplemental health product suite allows us to meet the financial wellness needs of our customers across all segments. Now, let me touch on a few specifics regarding the execution of our group objectives. Our segment-level strategies are key pillars of our margin expansion effort. We are transforming how we do business and are making strategic investments to ensure that our end-to-end offerings align with the unique needs of each segment. We have expanded our digital and self-service capabilities to help customers interact how and where they want. We have also upgraded our underwriting technology to reduce turnaround times and drive process efficiencies.
Ellen Gail Cooper: Offering a strong supplemental health product suite allows us to meet the financial wellness needs of our customers across all segments.
Speaker Change: Now, let me touch on a few specifics regarding the execution of our group objectives.
Our segment level strategies are key pillars of our margin expansion efforts.
Speaker Change: We are transforming how we do business and are making strategic investments to ensure that our end to end offerings align with the unique needs of each segment, we have expanded our digital and self service capabilities to help customers interact how and where they want.
We have also upgraded our underwriting technology to reduce turnaround times and drive process efficiencies and we have re engineered our client service model to improve our distribution partnerships.
Ellen Gail Cooper: And we have re-engineered our client service model to improve our distribution partnerships and claimant experience. These investments will support future growth in the small market, the fastest growing part of the market, while maintaining our leadership position in both the regional and national markets. Additionally, enhanced capabilities and expanded product offerings are driving the growth we are achieving in supplemental health premium. Over time, these investments will lead to a more diversified book of business and enable us to continue achieving our financial targets in the coming years.
Speaker Change: Claimant experience.
Speaker Change: These investments will support future growth and small market the fastest growing part of the market, while maintaining our leadership position in both the regional and national markets.
Speaker Change: Additionally, enhanced capabilities.
Speaker Change: And expanded product offerings are driving the growth we are achieving in supplemental health premium over.
Speaker Change: Over time these investments will lead to a more diversified book of business and enable us to continue achieving our financial targets in the coming years.
Ellen Gail Cooper: We are confident that our strategy and ability to advance the performance of our group business will result in it becoming a more significant part of our overall portfolio. This objective is consistent with our long-term strategy to achieve a balanced mix of earnings from businesses and products with more stable cash flows and higher risk-adjusted returns. Now turning to Retirement Plan Services, or RPS, where earnings declined year-over-year, as expected, due to lower spread income.
We are confident that our strategy and ability to advance the performance of our group business will result in it becoming a more significant part of our overall portfolio.
Speaker Change: This objective is consistent with our long term strategy to achieve a balanced mix of earnings from businesses and products with more stable cash flows and higher risk adjusted returns.
Speaker Change: Now turning to retirement plan services, or Rps, where earnings declined year over year as expected due to lower spread income. However, first year sales were robust increasing more than 50% for the same period, while achieving our target returns.
Ellen Gail Cooper: However, first-year sales were robust, increasing more than 50% for the same period while achieving our target returns. The increase was broad-based across segments, with particular strength in the mid-large market, where we have focused on reinforcing the key points of our competitive differentiation and on increasing our engagement with our distribution partners. Our success has also stemmed from the unique approach we take to serving our clients across our retirement business. We offer a highly consultative model focused on the quality of participant outcomes complemented by a broad suite of product offerings.
Speaker Change: The increase was broad based across segments with particular strength in the mid large market, where we have focused on reinforcing the key points of our competitive differentiation and on increasing our engagement with our distribution partners.
Speaker Change: Our success has also stems from the unique approach, we take to serving our clients across our retirement business.
Speaker Change: We offer a highly consultative model focused on the quality of participant outcomes complemented by a broad suite of product offerings.
Ellen Gail Cooper: Combined, these attributes position us to compete effectively within our target markets. As a result, our momentum continues to build, and although it is still early in the year, we have a strong pipeline of known wins. While the conversion rate on this will vary from quarter to quarter, we expect a robust level of sales in 2024, reinforcing that our strategy is gaining traction. RPS had positive net flows of nearly $400 million, driven by increased sales, seasonally strong recurring deposits, and excellent plan sponsor retention.
Speaker Change: Combined these attributes position us to compete effectively within our target markets.
Speaker Change: As a result, our momentum continues to build and although it is still early in the year, we have a strong pipeline of known wins.
Speaker Change: While the conversion rate on this will vary from quarter to quarter, we expect a robust level of sales in 2020 for reinforcing that our strategy is gaining traction.
Speaker Change: Rps had positive net flows of nearly $400 million driven by increased sales.
Speaker Change: <unk> strong recurring deposits and excellent plan sponsor retention, we have seen strong flows into some of our newer offerings such as your path where assets under management have grown almost 50% year over year.
Ellen Gail Cooper: We have seen strong flows into some of our newer offerings, such as Your Path, where assets under management have grown almost 50% year over year. We continue to innovate and invest in our retirement business, improving the products and services we provide to our clients. We are also increasing the operational efficiency of this business consistent with our objective to optimize our overall operating model. To wrap up, I want to reiterate my confidence that the strategic repositioning underway here at Lincoln will drive sustainable growth and improve the profitability, operational efficiency, and capital flexibility of our franchise.
We continue to innovate and invest in our retirement business improving the products and services, we provide to our clients.
Speaker Change: We are also increasing the operational efficiency of this business consistent with our objective to optimize our overall operating model.
Speaker Change: To wrap up I want to reiterate my confidence that this strategic repositioning underway here at Lincoln will drive sustainable growth and improve the profitability operational efficiency and capital flexibility of our franchise.
Ellen Gail Cooper: We are a market leader across our four businesses and have significant foundational competitive advantages that will enable us to achieve these objectives. Our first quarter performance was strong, with many signs of growth and positive change. We are seeing a number of green shoots that are tangible evidence of our transition taking hold and the momentum building across our business. Our actions are strengthening our competitive differentiation within our core markets and how we deliver value to our partners and customers.
Speaker Change: We are a market leader across our four businesses and have significant foundational competitive advantages that will enable us to achieve these objectives.
Speaker Change: Our first quarter performance was strong with many signs of growth and positive change we.
Speaker Change: We are seeing a number of green shoots that are tangible evidence of our transition taking hold and the momentum building across our business.
Speaker Change: Our actions are strengthening our competitive differentiation within our core markets.
Speaker Change: And in how we deliver value to our partners and customers.
Ellen Gail Cooper: They are also increasing our nimbleness and flexibility as we rebalance our product portfolio and build on our innovation as we enter new markets. Together, these elements will drive meaningful value for our shareholders over the long term. I look forward to sharing additional updates with you in the coming quarters.
Speaker Change: We're also increasing our nimbleness and flexibility as we rebalance our product portfolio and build on our innovation as we enter new markets. Together. These elements will drive meaningful value for our shareholders over the long term I look forward to sharing additional updates with you.
Speaker Change: You in the coming quarters, and with that let me turn the call over to Chris.
Christopher Michael Neczypor: Thank you, Ellen, and good morning, everyone. While our overall results were impacted by a handful of significant items in the quarter, our underlying results were better than expectations, demonstrating our continued success in executing against our strategic priorities. I'm going to focus on three areas this morning. First, I'll recap our first quarter results, including a review of our segment-level financials and provide an update on capital. Second, I'll touch on our efforts related to optimizing our operating model. And third, I'll review our investment portfolio.
Chris: Thank you Ellen and good morning, everyone.
Chris: Our overall results were impacted by a handful of significant items in the quarter, our underlying results were better than expectations, demonstrating our continued success in executing against our strategic priorities.
Chris: Im going to focus on three areas. This morning.
Chris: First I'll recap, our first quarter results, including a review of our segment level financials and provide an update on capital.
Chris: Second I will touch on our efforts related to optimizing our operating model.
Chris: And third I'll review, our investment portfolio.
Christopher Michael Neczypor: So let's start with a recap of the quarter. This morning, we reported first quarter adjusted operating income available to common stockholders of $71 million, or $0.41 per share. As I noted in my opening remarks, our results were impacted by a few significant items. First, as I mentioned on last quarter's call, there was a $39 million impact from severance in our other operations segment related to the headcount reduction we made during the quarter. Second, there was a $90 million impact from illegal approval in our other operations segment.
So let's start with a recap of the quarter.
Chris: This morning, we reported first quarter adjusted operating income available to common stockholders of $71 million or <unk> 41 per share.
Christopher Michael Neczypor: Third, we had a balance sheet true up in preparation for the close of the sale of our wealth management business, which had a $19 million impact. Last, tax-related items drove $16 million of unfavorability, primarily impacting annuities and other operations. Our alternative investments portfolio delivered an annualized return of more than 9% in the quarter, or $78 million. However, on an after-tax basis, this was $6 million below our targeted return, or $0.04 per share.
Chris: As I noted in my opening remarks, our results were impacted by a few significant items.
Chris: First as I mentioned on last quarter's call there was a $39 million impact from severance and our other operations segment.
Related to the head count reduction we made during the quarter.
Chris: Second there was a 90 million impact from a legal approval also in our other operations segment.
Chris: Third we had a balance sheet true up in preparation for the close of the sale of our wealth management business, which had a $19 million impact.
Chris: <unk> tax related items drove a $16 million of <unk>, primarily impacting the annuities and other operations.
Chris: Our alternative investments portfolio delivered an annualized return of more than 9% in the quarter were $78 million.
Chris: On an after tax basis, this was $6 million below our targeted return or <unk> <unk> per share.
Chris: Overall, our alternative investment portfolio results continued to be strong benefiting from our diversified investment approach, while delivering solid risk adjusted long term returns.
Chris: In total these items negatively impacted our quarterly results by $170 million or $8 per share.
Christopher Michael Neczypor: Overall, our alternative investment portfolio results continue to be strong, benefiting from our diversified investment approach while delivering solid risk-adjusted long-term returns. In total, these items negatively impacted our quarterly results by $170 million, or $1 per share. Now, turning to net income for the quarter, we reported net income available to common stockholders of $1.2 billion, or $6.93 per diluted share.
Chris: Now turning to net income for the quarter.
Chris: We reported net income available to common stockholders of $1 2 billion.
Chris: Or $6 93 per diluted share.
Christopher Michael Neczypor: The difference between net and adjusted operating income for the quarter was predominantly driven by two factors. First, inclusive of hedge program performance, there was a favorable impact on net income within non-operating income, driven by net positive movement and market risk benefits resulting from higher interest rates and equity markets in the quarter. Second, there was a positive change in the fair value of the GAP embedded derivative related to the Fortitude reinsurance transaction.
Chris: The difference between net and adjusted operating income for the quarter was predominantly driven by two factors.
Chris: First inclusive book hedge program performance, there was a favorable impact to net income within nonoperating income driven by net positive movement in market risk benefits, resulting from higher interest rates and equity markets in the quarter.
Chris: Second there was a positive change in the fair value of the GAAP embedded derivative related to the fortitude reinsurance transactions.
Christopher Michael Neczypor: This change was primarily driven by the impact of higher interest rates on available-for-sale securities in the funds-withheld portfolio backing the agreement, with the corresponding offset flowing through Accumulated Other Comprehensive Income, or AOCI. Now, turning to the segment results.
Chris: This change was primarily driven by the impact of higher interest rates on available for sale securities and the funds withheld portfolio backing the agreement with the corresponding offset flowing through accumulated other comprehensive income or OCI.
Speaker Change: Now turning to the segment results.
Christopher Michael Neczypor: Let's start with Group, which reported a strong quarter with operating income of $80 million and a margin of 6.2%, compared to $71 million in the prior year quarter and a margin of 5.6%. The improvement was driven by continued diversification of our book of business, execution of our pricing strategy, and disciplined expense management actions. Our group results continue to benefit from a favorable macro backdrop, including low unemployment and a supportive interest rate environment.
Speaker Change: Let's start with group, which reported a strong quarter with operating income of $80 million and a margin of six 2% compared to $71 million in the prior year quarter and a margin of five 6%.
Speaker Change: The improvement was driven by continued diversification of our book of business execution of our pricing strategy and disciplined expense management actions.
Speaker Change: Our group results continue to benefit from a favorable macro backdrop, including low unemployment and a supportive interest rate environment.
Speaker Change: Additionally, as Alan noted, we generated premium growth of 3% year over year in line with our expectations and reflective of our disciplined pricing approach on new and renewing business, which is supportive of our focus on margin expansion.
Christopher Michael Neczypor: Additionally, as Ellen noted, we generated premium growth of 3% year over year, in line with our expectations and reflective of our disciplined pricing approach on new and renewing business, which is supportive of our focus on margin expansion. For the quarter, the group life loss ratio was 76%, decreasing over four percentage points versus the prior year quarter. And while life results will continue to have variability quarter to quarter, the results this quarter were driven by lower incidence as we continue to see the benefit of our pricing actions coupled with improving mortality trends. For disability, the loss ratio was 74%, increasing by roughly 3 percentage points year over year.
For the quarter the group life loss ratio was 76% decreasing over four percentage points versus the prior year quarter.
And wildlife results will continue to have variability quarter to quarter. The results. This quarter were driven by lower incidents as we continue to see the benefit of our pricing actions, coupled with improving mortality trends.
Speaker Change: For disability loss ratio was 74% increasing by roughly three percentage points year over year.
Christopher Michael Neczypor: While short-term disability drove the elevated loss ratio versus the prior year quarter, overall disability results were within our desired range. The underlying fundamentals of the business remain strong, and incidents and claim recoveries were in line with our longer-term expectations. Improving results for group protection continue to reflect the execution of our margin expansion strategy. As we look towards the second quarter, I want to highlight a few things.
Speaker Change: While short term disability drove the elevated loss ratio versus the prior year quarter overall disability results were within our desired range.
Speaker Change: The underlying fundamentals of the business remains strong and incidents and claim recoveries were in line with our longer term expectations.
Speaker Change: The improving results for group protection continued to reflect the execution of our margin expansion strategy.
Speaker Change: As we look towards the second quarter I want to highlight a few things.
Christopher Michael Neczypor: While the record result we reported in last year's second quarter underscored the benefits of the strategic actions we've been taking, the environment at that time led to record low incidence levels supporting record LTD earnings, and we have seen some moderation back toward expected levels since. So overall, our results this quarter demonstrate the underlying strength of our group business. While we anticipate some moderation in our results next quarter relative to the second quarter of last year, we also expect some seasonal upside relative to our first quarter results this year.
Speaker Change: While the record results, we reported in last year's second quarter underscored the benefits of the strategic actions, we've been taking the environment at that time led to record low incidence levels supporting record Ltd's earnings and we have seen some moderation back toward expected levels.
Speaker Change: So overall our results this quarter demonstrate the underlying strength of our group business, while we anticipate some moderation in our results next quarter relative to the second quarter of last year. We also expect some seasonal upside relative to our first quarter results. This year.
Speaker Change: Turning to annuities.
Christopher Michael Neczypor: Turning to annuities, Annuities reported operating income of $259 million, which, as I noted earlier, included unfavorable, significant items totaling $31 million, resulting from tax-related items and a balance sheet drawn up in preparation for the close of the sale of our wealth management business. This compares to $274 million in the prior year quarter, which included a favorable tax-related item of $11 million. Excluding the tax-related and wealth management business significant items, annuity earnings increased $27 million year-over-year due to the benefits of higher average account balances and improvements in spread income.
Speaker Change: Annuities reported operating income of $259 million.
Speaker Change: Which as I noted earlier included unfavorable significant items totaling $31 million.
Speaker Change: <unk> from tax related items.
Speaker Change: Balance sheet true up in preparation for the close of the sale of our wealth management business.
Speaker Change: This compares to $274 million in the prior year quarter, which included a favorable tax related item of $11 million.
Speaker Change: Okay.
Speaker Change: Excluding the tax related and wealth management business significant items annuities earnings increased $27 million year over year.
Due to the benefits of higher average account balances and improvements in spread income.
Christopher Michael Neczypor: Additionally, ending account balances increased 5% sequentially, as benefits from higher equity markets more than offset an increase in net outflows. The increase in outflows for the quarter was driven by a combination of factors. The first is the impact of favorable equity markets on variable annuity account balances, which in turn increases the total amount of ALFOs, all else being equal. And second, as has been the case for well over a year now, higher interest rates drive higher outflows from fixed products. However, as a reminder, approximately $15 billion, or nearly 60%, of our fixed annuity block is reinsured, and surrenders on reinsured business are ceded to our reinsurance counterparties.
Speaker Change: Additionally, ending account balances increased 5% sequentially as benefits from higher equity markets more than offset an increase in net outflows.
Speaker Change: The increase in outflows for the quarter was driven by a combination of factors.
Speaker Change: The first was the impact of favorable equity markets on variable annuity account balances, which in turn increases the total amount of outflows all else being equal.
Speaker Change: And second as has been the case for well over a year now higher interest rates drive higher outflows in fixed products. However, as a reminder, approximately $15 billion or nearly 60% of our fixed annuity block is reinsured and surrenders on reinsured business, our ceded to our reinsurance counterparties.
Speaker Change: Lastly, as we continue to focus on expanding our spread and spread like product lines <unk> account balances now represent almost 20% of total account balances compared to less than 10% three years ago.
Christopher Michael Neczypor: Lastly, as we continue to focus on expanding our spread and spread-like product lines, RILA account balances now represent almost 20% of total account balances compared to less than 10% three years ago. This quarter's underlying results reflect the continued strength of our annuities business. Higher ending account balances, combined with continued improvement in our spread margin, position this business for continued earnings growth. Now, shifting to retirement plan services, which reported operating income of $36 million compared to $43 million in the prior year quarter.
Speaker Change: This quarter's.
Speaker Change: The underlying result reflects the continued strength of our annuities business.
Speaker Change: Higher ending account balances combined with continued improvement in our spread margin position. This business for continued earnings growth.
Speaker Change: Now shifting to retirement plan services, which reported operating income of $36 million compared to $43 million from the prior year quarter.
Christopher Michael Neczypor: The decline was primarily driven by continued participant-driven stable value outflows and crediting rate actions, partially offset by an increase in fee income from higher account balances. Base spread compression is expected to continue throughout 2024, primarily driven by crediting rate actions before stabilizing in 2025. And while participant-driven stable value outflows persisted in the quarter, the rate and total level decreased for a third straight quarter. Now turning to the account balance. Average account balances for the quarter increased 13% year-over-year, and end-of-period account balances were nearly $107 billion, up 15% versus the prior year quarter.
Speaker Change: The decline was primarily driven by continued participant driven stable value outflows in crediting rate actions, partially offset by an increase in fee income from higher account balances.
Speaker Change: Base spread compression is expected to continue throughout 2024, primarily driven by crediting rate actions before stabilizing in 2025.
Speaker Change: And while participant driven stable value outflows persisted in the quarter the rate and total level decreased for a third straight quarter.
Speaker Change: Now turning to account balances average account balances for the quarter increased 13% year over year and end of period account balances were nearly $107 billion.
Speaker Change: Up 15% versus the prior year quarter.
Christopher Michael Neczypor: This result was driven by strength in the equity markets, as well as net flows, which were positive for the quarter following consecutive quarters of outflows. As Ellen mentioned, the strength of our pipeline gives us confidence in our ability to grow our retirement business. Lastly, turning to life insurance, Life reported an operating loss of $35 million compared to an operating loss of $13 million in the prior year quarter as the run rate impacts of the Fortitude re-transaction were partially offset by improved alternative investment income.
Speaker Change: This result was driven by strength in the equity markets as well as net flows which were positive for the quarter following consecutive quarters of outflows.
Speaker Change: As Ellen mentioned the strength of our pipeline gives us confidence in our ability to grow our retirement business.
Speaker Change: Lastly, turning to life insurance.
Speaker Change: <unk> reported an operating loss of $35 million.
Speaker Change: <unk> to an operating loss of $13 million in the prior year quarter as the run rate impacts of the fortitude re transactions were partially offset by improved alternative investment income.
Speaker Change: Shifting to mortality, while mortality for the quarter was generally in line with expectations on a net basis underlying results were somewhat mixed.
Christopher Michael Neczypor: Shifting to mortality, while mortality for the quarter was generally in line with expectations on a net basis, underlying results were somewhat mixed. For example, in our universal lifeblock, on a growth basis, we saw elevated mortality driven by a pickup in severity, which can be the case from time to time when you have a relatively small number of large space amount claims come in. On a net basis, however, the majority of this excess mortality was covered by reinsurance.
Speaker Change: In our Universal life block on a gross basis, we saw elevated mortality driven by a pickup in severity, which can be the case free time to time when you have a relatively small number of large face amount claims come in.
Speaker Change: On a net basis. However, the majority of this excess mortality was covered by reinsurance.
Christopher Michael Neczypor: On the positive side, we saw better than expected mortality in our term business. So, as a reminder, the mechanics of LDTI require us to smooth variability in overtime. Overall, life's first quarter results were in line with expectations. Looking ahead, while seasonal improvements in mortality will support results in the coming quarters, our expense actions will drive further earnings benefits over the remainder of the year. Touching briefly on company-wide G&A expenses, as I've mentioned in recent quarters, we remain diligently focused on continuing to right-size our expense base.
Speaker Change: On the positive side, we saw better than expected mortality in our term business, though as a reminder, the mechanics of LD ti require us to smoothed variability in overtime.
Speaker Change: Overall lifes first quarter results were inline with expectations.
Speaker Change: Looking ahead, while seasonal improvements in mortality will support results in the coming quarters, our expense actions will drive further earnings benefit over the remainder of the year.
Speaker Change: Yes.
Speaker Change: Touching briefly on company wide G&A expenses as I've mentioned in recent quarters, we remain diligently focused on continuing to rightsize our expense base.
Christopher Michael Neczypor: During the quarter, excluding the impacts of the significant items, we began to see improvement for the company overall. It's important to note that a large portion of the sequential improvement is due to two factors. First, seasonal drivers, particularly as lower sales volumes reduce sales-driven compensation expenses.
During the quarter, excluding the impacts of the significant items, we began to see improvement for the company overall.
Speaker Change: It is important to note that a large portion of the sequential improvement is due to two factors.
Speaker Change: Seasonal drivers, particularly as lower sales volumes reduced sales driven compensation expenses and second there was lower spark related investment given the large expense in <unk> associated with that infrastructure modernization project.
Christopher Michael Neczypor: And second, there was lower SPARC-related investment given the large expense in 4Q associated with that infrastructure modernization project. On an underlying basis, however, we are starting to see real progress in removing unnecessary discretionary spending and taking action on reducing organizational complexity. We will begin to see the benefit of this progress in the second quarter and beyond. I want to remind you that the benefits we expect to see for 2024 were included in the earnings outlook we provided last quarter and will be a driver of growing our free cash flow in the coming years. Let's now turn to capital.
Speaker Change: On an underlying basis. However, we are starting to see real progress in removing unnecessary discretionary spending and taking action on reducing organizational complexity.
Speaker Change: We will begin to see the benefit of this progress in the second quarter and beyond.
Speaker Change: I want to remind you that the benefits we expect to see for 2024 were included in the earnings outlook, we provided last quarter and will be a driver of growing our free cash flow in the coming years.
Speaker Change: Let's now turn to capital we ended the quarter with an estimated RBC ratio in the range of 400% to 410% in line with year end 2023.
Christopher Michael Neczypor: We ended the quarter with an estimated RBC ratio in the range of 400 to 410%, in line with year-end 2023. While there are always many moving pieces in any given quarter, the stability of our RBC range this quarter is driven by underlying business results with the benefit of stronger equity markets, which helps to partially offset the impacts from illegal accruals and sovereign debt. Moving to investments, where credit results once again reflected the high quality nature of our portfolio, which remains 97% investment grade.
Speaker Change: While there are always many moving pieces in any given quarter the stability of our RBC range. This quarter is driven by underlying business results with the benefit of stronger equity markets, which helps to partially offset the impacts from the legal accruals and severance.
Speaker Change: Moving to investments where credit results once again reflected the high quality nature of our portfolio, which remains 97% investment grade.
Speaker Change: Our conservative positioning reflects disciplined portfolio construction regular stress testing and proactive credit risk management.
Christopher Michael Neczypor: Our conservative positioning reflects disciplined portfolio construction, regular stress testing, and proactive credit risk management. I want to provide three updates on our investment portfolio today. First, on our ongoing efforts to optimize our general account through the expansion of our asset sourcing capabilities. Second, on our commercial mortgage loan portfolio. And then third, briefly touch on our alternative investment performance, starting with our General Account Portfolio Optimization efforts. As I mentioned earlier, we have continued to maintain a high-quality portfolio.
Speaker Change: Want to provide three updates on our investment portfolio today first on our ongoing efforts to optimize our general account through the expansion of our asset sourcing capabilities second on our commercial mortgage loan portfolio and then third briefly touch on our alternative investment performance.
Speaker Change: Starting with our general account portfolio optimization efforts as I mentioned earlier, we have continued to maintain a high quality portfolio at.
Christopher Michael Neczypor: At the same time, our enterprise product mix has allowed us to reduce the overall duration of our liabilities. As a result, we have more opportunities to add incremental yield while maintaining similar risk-adjusted returns. To do this, we've begun to sort incremental yield by leveraging our unique multi-manager framework.
Speaker Change: At the same time, our enterprise product mix has allowed us to reduce the overall duration of our liabilities as a result, we have more opportunities to add incremental yield while maintaining similar risk adjusted returns.
Speaker Change: To do this we have begun to source incremental yield by leveraging our unique multi manager framework.
Christopher Michael Neczypor: In doing so, our investment strategy remains focused on maintaining diversification while capitalizing on less liquid assets and structured asset class premiums. During the quarter, we expanded our relationships with several managers to provide specialized asset management expertise and incremental sourcing of structured products and mortgage loans. As we look ahead, we continue to see value in expanding relationships that align with our credit view and complement our well-positioned investment portfolio. These investments will take time to emerge and add incremental yield to the portfolio, but throughout 2024, we expect our optimization strategy to be supportive of earnings and product competitiveness.
Speaker Change: In doing so our investment strategy remains focused on maintaining diversification, while capitalizing on less liquid assets and structured asset class premiums.
Speaker Change: During the quarter, we expanded our relationships with several managers to provide specialized asset management expertise and incremental sourcing of structured products and mortgage loans.
Speaker Change: As we look ahead, we continue to see value in expanding relationships that align with our credit view and complement our well positioned investment portfolio.
Speaker Change: These investments will take time to emerge and add incremental yield to the portfolio, but throughout 2024, we expect our optimization strategy to be supportive of earnings and product competitiveness.
Speaker Change: Now turning to our commercial mortgage loan portfolio. We continue to have an extremely high quality portfolio, representing 15% of our total invested assets. It is conservatively positioned and has performed well.
Christopher Michael Neczypor: Now turning to our commercial mortgage loan portfolio, we continue to have an extremely high-quality portfolio representing 15% of our total invested assets. It is conservatively positioned and has performed well. Office mortgages represent just 2.9% of our overall invested assets.
Speaker Change: Office mortgages represent just two 9% of our overall invested assets. They are conservatively positioned with an average loan size of $16 million.
Christopher Michael Neczypor: They are conservatively positioned with an average loan size of $16 million and are diversified by loan size and geography. Importantly, near-term maturities remain manageable and have strong debt-to-service coverage ratios of more than 3.5 times on average over the next two years. Additional details on our CML portfolio can be found in our quarterly investor presentation. Lastly, on alternative investment performance, alternative investments generated a return of 2.3% this quarter, slightly below our expectation of 2.5%.
Speaker Change: And our diversified by loan size and geography.
Speaker Change: Importantly, near term maturities remain manageable and have strong debt service coverage ratios of more than three five times on average over the next two years.
Speaker Change: Additional details on our CML portfolio can be found in our quarterly investor presentation.
Speaker Change: Lastly on alternative investment performance alternative investments generated a return of two 3% this quarter slightly below our expectation of two 5%.
Christopher Michael Neczypor: Our returns during the quarter were broad-based, with positive contributions from all underlying asset categories. They reflected the diversification of our portfolio and somewhat limited exposure to the real estate and venture sectors that have been most negatively impacted by the current market environment. The portfolio remains diversified across strategy, sector, and vintage and is well-positioned to continue to achieve our long-term return objectives in a wide variety of economic environments. In closing, I will reiterate three points.
Speaker Change: Our returns during the quarter were broad based with positive contributions from all underlying asset categories. They reflected the diversification of our portfolio and somewhat limited exposure to the real estate and venture sectors that have been most negatively impacted by the current market environment the portfolio.
Speaker Change: Yo remains diversified across strategy sector, and vintage and is well positioned to continue to achieve our long term return objectives in a wide variety of economic environments.
Speaker Change: In closing, let me reiterate three points.
Christopher Michael Neczypor: First, our underlying results this quarter exceeded expectations, while our overall results were impacted by a handful of significant items. Second, the benefits from the actions we are taking, including those on the expense side and through our general account optimization, will continue to emerge throughout the year, and we are pleased with the progress we are making. And third, while each of our businesses continue to be in different stages of optimizing their underlying financial profiles, we are confident that the actions we are taking today will continue to drive increasing earnings growth and profitability in line with our longer-term expectations. With that, I will turn the call back to Tina.
Speaker Change: <unk>.
Speaker Change: Our underlying results this quarter exceeded expectations, while our overall results were impacted by a handful of significant items.
Speaker Change: Second the benefits from the actions, we are taking including those on the expense side and through our general account optimization will continue to emerge throughout the year and we are pleased with the progress we are making.
Speaker Change: Third while each of our businesses continued to be in different stages of optimizing your underlying financial profiles. We are confident that the actions. We're taking today will continue to drive increasing earnings growth and profitability in line with our longer term expectations.
Speaker Change: With that let me turn the call back to Tina.
Tina: Thank you Chris before we turn to Q&A, Let me hand, the call back to Ellen for an update on the sale of our wealth management business to Jose Ellen.
Tina Madon: Chris, before we turn to Q&A, let me hand the call back to Ellen for an update on the sale of the wealth management business to OSEC. Ellen. Thank you, Tina. Good morning, everyone.
Ellen Gail Cooper: I'm so pleased to announce that with respect to the wealth management transaction, we've received regulatory approvals, and both parties are diligently working toward closing this month. As compared to the $700 million capital benefit we communicated when we announced the transaction in December, we now expect a capital benefit of $650 million, in part due to changes within our deferred tax attributes. Importantly, the net capital benefit from this transaction will provide us with additional capital to support our RBC buffer of $420 million and the opportunity to deliver overall increased financial flexibility. And with that, I will turn the call back to Tina. Tina?
Ellen Gail Cooper: Thank you Tina and good morning, everyone I am.
Ellen Gail Cooper: So pleased to announce with respect to the wealth management transaction, we have received regulatory approvals and both parties are diligently working towards closing this month as.
Ellen Gail Cooper: As compared to the $700 million capital benefit we communicated when we announced the transaction in December we now expect our capital benefit of $650 million in part due to changes within our deferred tax attributes.
Ellen Gail Cooper: Importantly, the net capital benefit from this transaction will provide us additional capital to support our RBC buffer of $4 20, and the opportunity to deliver overall increased financial flexibility and with that let me turn the call back to Tina Tina. Thanks, Allen will now be.
Tina Madon: Thanks, Ellen. We'll now begin the question and answer portion of the call. Please limit yourself to one question and one follow-up, and then re-cue if you have additional questions. Now, let me turn the call over to the operator to begin the Q&A. Operator?
Tina: Again, the question and answer portion of the call. Please limit yourself to one question and one follow up and then re queue. If you have additional questions now let me turn the call over to the operator to begin the Q&A operator.
Tina: Thank you for optimum quantity.
Operator: Thank you. For optimal sound quality, please do not use a speakerphone. Please speak directly into your receiver or use a wired headset with a microphone. If you'd like to ask a question, please press star and number 1 on your telephone keypad. Our first question comes from Ryan Krueger from KBW. Your line is now open.
Speaker Change: <unk> you speaking from please speak directly into your receiver Houston wide headset.
Operator: If you'd like to ask a question.
Speaker Change: And number one on that.
Operator: Telephone keypad.
Operator: Our first question comes from Ryan Krueger from TB.
Ryan Joel Krueger: Your line is now open.
Ryan Joel Krueger: Hey, thanks. Good morning. My first question was hoping you could give some update on your progress towards affiliated reinsurance in Bermuda and where you stand there at this point.
Ryan Joel Krueger: Hey, Thanks. Good morning. My first question was hoping you could give us some update on your progress toward.
Ryan Joel Krueger: Affiliated reinsurance in Bermuda, and where do you stand there at this point.
Unknown Executive: Hey Ryan, good morning. Look, I think, you know, we continue to make progress. There isn't anything incremental to update relative to what we said last quarter. You know, it continues to be a significant focus for us. We're pleased with the progress and, you know, as things progress, we'll update. But there is nothing material in terms of an update relative to last quarter.
Speaker Change: Hey, Ryan good morning.
Ryan Joel Krueger: Look I think we continue to make progress there isn't.
Ryan Joel Krueger: Anything incremental to update relative to what we said last quarter continue.
Ryan Joel Krueger: Continues to be a significant focus for us we're pleased with the progress.
Ryan Joel Krueger: As things progress we'll update.
Ryan Joel Krueger: Nothing material in terms of an update relative to last quarter.
Speaker Change: Got it thanks, and then for variable annuities and.
Ryan Joel Krueger: Got it. Thanks. And then for Variable Nudies and Lin Bar, can you give us an update on how the capital position looks in Lin Bar and how the hedging program is performing? Yeah, we
Speaker Change: Lynn Bar can you can.
Speaker Change: Can you give us an update there.
Speaker Change: The capital position looked and Lynn Barton.
Lynn Barton: The program is performing.
Lynn Barton: Yeah, we.
Unknown Executive: We've, you know, been able to see a number of different market environments. But, you know, we continue to have excess capital from a regulatory perspective. The program is working as intended. You know, we'll assess the ability to take a dividend and the desire to take a dividend out as we go throughout the year. But, you know, so far, so good. Again, we're about a year and a half into it, and we are pleased with the performance.
Unknown Executive: Yeah, we feel really good about the hedge program. We're about a year and a half into it.
Lynn Barton: We feel really good about.
Lynn Barton: Hedge program, we're about a year and a half into it.
Lynn Barton: Been able to see a number of different market environments.
Lynn Barton: We continue to have excess capital from a regulatory perspective. The program is working as intended.
Lynn Barton: We'll assess the ability to take a dividend and the desire to take a dividend out as we go throughout the year, but so far so good again, we're about a year and a half into it.
Lynn Barton: And are pleased with the with the performance.
Speaker Change: Great. Thank you.
Lynn Barton: Okay.
Lynn Barton: Our next question comes from Wes Carmichael of Autonomous Research. Your line is now open.
Wesley Collin Carmichael: Our next question comes from Wes Carmichael from Autonomous Research. Your line is now open.
Lynn Barton: Okay.
Wesley Collin Carmichael: Hey, good morning, and thanks for the question. I had a question on annuities and fixed annuity sales. They kind of bounced around a little bit and were down sequentially. I'm just wondering how you're thinking about the cadence of sales there and if there's anything we can do in terms of capital optimization through flow reinsurance to be able to distribute more.
Wes Carmichael: Hey, good morning, and thanks for the question.
Wes Carmichael: Question on annuities and fixed annuity sales, they kind of bounce around a little bit and we're down sequentially Im just wondering how youre thinking about the cadence of sales there and if theres anything you can do in terms of capital optimization through to flow reinsurance to be able to distribute more.
Speaker Change: Absolutely so.
Unknown Executive: Absolutely. So while our fixed annuity sales were down year over year, so a couple points that I want to make. If you look at the fact that, and we talked about this last quarter, we built the capabilities over the course of last year to have a more consistent presence in the fixed marketplace. And that included putting in place a more capital efficient solution and flow agreement. We established shelf space with select distribution partners.
Wes Carmichael: <unk>, our fixed annuity sales were down year over year. So a couple of points that I want to make if you look at the fact that and we talked about this last quarter. We built the capabilities over the course of last year to have a more consistent presence in the sixth marketplace.
Wes Carmichael: And that included a number of things it included putting in place a more capital efficient solution and.
Wes Carmichael: And flow agreement.
Wes Carmichael: <unk> established shelf space with select distribution partners.
Unknown Executive: And we also refined the strategic asset allocation that Chris had mentioned earlier. So if you look across from the time that we did that across the last four quarters, what you'll see is that in the fourth quarter for us, we saw very significant sales. And in the first quarter, although down, still higher than they were in the second and third quarters.
Wes Carmichael: And we also refined the strategic asset allocation that Chris had mentioned earlier. So if you look across from the time that we did that across the last four quarters, what youll see is that in the fourth quarter for us we.
Wes Carmichael: We saw very significant sales and in the first quarter, although down still higher than they were in the second and third quarter.
Wes Carmichael: And Additionally, we have a strong pipeline as we're moving into 2021.
Unknown Executive: And additionally, we have a strong pipeline as we're moving into 2024. So the critical piece for us in fixed is capital efficiency and ensuring that we are achieving risk-adjusted returns, and we feel really good about where we are. And more broadly speaking, we are very much focused as it relates to overall annuity sales on products that have more stable cash flows and really supporting a more balanced mix. And so again, the fixed opportunity for us is part of that overall balance.
Wes Carmichael: Critical piece for us in fixed is the capital efficiency and ensuring that we are achieving the risk adjusted returns and we feel really good about where we are and more broadly speaking, where we are very much focused as it relates to overall annuity sales on products that have more stable.
Wes Carmichael: Cash flows.
Wes Carmichael: And really supporting a more a more balanced mix and so again the fixed opportunity for us is as part of that overall balance.
Speaker Change: Okay, and maybe just a question on capital structure overall, and if you think out a couple of years in particular depressed that you issued I think a little over a year ago I know, there's a debt maturity coming up but anything that you guys are thinking that I know you recently raised some debt any actions you are thinking about taking on the capital structure side.
Wesley Collin Carmichael: Thanks. And maybe just a question on the capital structure overall. And if you think out a couple of years in particular, the press that you issued, I think a little over a year ago, I know there's a debt maturity coming up, but anything that you guys are thinking about, I know you recently raised some debt, but any actions you're thinking about taking on the capital structure side? Sure, Wes. So I would say a couple.
Speaker Change: Sure. So I would say a couple of things Big picture as it relates to capital I think we've communicated the longer term objective to hold a buffer over 400, we talked about that last quarter.
Unknown Executive: Sure, Wes. So I would say a couple of things. Big picture as it relates to capital, you know, I think we've communicated the longer-term objective to hold a buffer over 400. We talked about that last quarter, thinking around the 420 level. Going forward, the OSEG transaction, you know, will be a big step forward. We've also talked at the same time about deleveraging. That's obviously a priority for us. And so, to your point, we raised $350 million in senior debt in the first quarter, largely to pre-fund some of the maturities over the next year. But, you know, we believe that, post the closing of the transaction, we'll be in a position to bring down, at an aggregate level, our debt levels. So that's the first thing.
Speaker Change: I'm thinking around the 420 level.
Speaker Change: Going forward.
Speaker Change: Transaction will be a big step forward. We've also talked to the same time about deleveraging.
Speaker Change: That's obviously a priority for us and so we raised the to your point, we raised $350 million in senior debt in the first quarter largely to pre fund some of the maturities over the next year, but we believe that the.
Unknown Executive: The second thing, to your point, is that the preferred will come due in 2027. You know, we've been very vocal that it is our priority to repay that given the cost of that capital. And so, you know, as we look out over the next couple of years, bringing down the cost of that slice of the capital structure will be a priority. So, nothing new to report from last quarter, but we are making progress across all fronts.
Speaker Change: The closing of the transaction will be in position to bring down at an aggregate level.
Speaker Change: Our debt levels. So that's the first thing the second thing to your point is that the preferred will come due in 2027, we've been.
Speaker Change: We've been very vocal that it is our priority to repay that given the cost of that capital and so as we look out over the next couple of years.
Speaker Change: Bringing down the cost of that slice of the capital structure will be a priority. So nothing new to report from last quarter, but we are making progress across all fronts.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Question comes from.
Suneet Laxman L. Kamath: This question comes from Suneet Kamath from Jeffries. Your line is now open.
Jefferies: From Jefferies. Your line is now open.
Suneet Laxman L. Kamath: Thanks. Good morning.
Jefferies: Thanks, Good morning.
Jefferies: Just wanted to start with annuity sales it looks like.
Jefferies: Year over year, you were down and that seems in contrast to what we're seeing from other companies that have reported so far so just wanted to unpack that a little bit is there anything maybe.
Jefferies: Competitive wise that youre seeing in the market, that's causing that gap or just wanted to get some thoughts on your offering versus peers.
Speaker Change: Sure so.
Speaker Change: I'm going to start with the with the premise that we had talked about earlier and that is that when we are focused on annuity sales. We are also focusing on capital efficiency and uninsured that we are achieving our risk adjusted returns and so if you look across the products segments and.
Suneet Laxman L. Kamath: I just wanted to start with annuity sales. It looks like, you know, year over year you were down. And that seems in contrast to what we're seeing from other companies that have reported so far. So just wanted to unpack that a little bit. Is there anything maybe competitively that you're seeing in the market that's causing that gap? Or just wanted to get some thoughts on your offering versus peers. Thanks.
Speaker Change: I do want to mention that yes sales were down year over year.
Speaker Change: About 10%, but if you look across the last four quarters the.
Speaker Change: And the second highest quarter outside of the fourth quarter, which was a record for us in terms of overall annuity sales. So in the fixed annuity space and I mentioned. This previously we established capabilities with a more consistent presence.
Unknown Executive: Sure. So, Suneet, I'm going to start with the premise that we talked about earlier, and that is that when we are focused on annuity sales, we are also focusing on capital efficiency and on ensuring that we are achieving our risk-adjusted returns. And so, if you look across the product segments, and you know, and I do want to mention that, yes, sales were down year over year by about 10 percent, but if you look across the last four quarters, the second highest quarter outside of the fourth quarter, which was a record for us in terms of overall annuity sales.
Speaker Change: Yes.
Speaker Change: We are focused on fixed annuity with select distribution partners and that enables us to really ensure that we are achieving our target returns in our capital efficiency without solely competing on price and so that's really important to us.
Unknown Executive: So, in the fixed annuity space, and I mentioned this previously, we established capabilities with a more consistent presence. We are focused on fixed annuities with select distribution partners, and that enables us to really ensure that we are achieving our target returns and our capital efficiency without solely competing on price, and so that's really important to us. In the RILA space, and I'll spend a moment on this, this is a very important product category for us.
Speaker Change: In the <unk> space and I'll spend a moment on this this is a very important product category for us we have seen quite a few new entrants in there that are making <unk> more competitive and so there are sales year over year were down.
Unknown Executive: We have seen quite a few new entrants in there that are making RILA more competitive. And so, sales year over year are down. And, and our action there is that this month, we have a refresh of our RILA product that we're referring to as RILA 2.0.
Speaker Change: And in our action there is that this month, we have a refresh of our rail product that we're referring to is where I led to Plano and we really believe that this will provide additional differentiation and the ability to continue to grow this product category and we've got some unique features in there around <unk>.
Unknown Executive: And we really believe that this will provide additional differentiation and the ability to continue to grow this product category. And we've got some unique features in there around crediting strategies, and other product features that we think will drive those sales as well. And then finally, on the variable annuity side, VA without any guarantees continues to be a strong product segment for us, and you see year over year sales growth there. And VA with guarantee, as I mentioned up front, although a much smaller overall allocation at about 20% sales with very high returns, we're, we're really very pleased with that overall.
Speaker Change: <unk> strategies.
Speaker Change: In other product features that we think will drive those sales as well.
Speaker Change: And then finally on the variable annuity side.
Speaker Change: Without any guarantees continues to be a strong product segment for us.
Speaker Change: You see year over year sales growth there.
Speaker Change: NBA with guarantee as I mentioned upfront although.
Speaker Change: Much smaller overall allocation at about 20% sales with very high returns, where we're really very pleased with that overall, so if you add that up altogether.
Unknown Executive: So if you add that all together, overall 2.8 billion in annuity sales, we see a really strong pipeline as we move through 2024 that we feel really good about. And importantly, we're achieving our returns across all the product segments with capital efficiency, which is a very important part of our overall financial objective.
Speaker Change: Overall, $2 8 billion of annuity sales, we see a really strong pipeline as we move through 2024 that we feel really good about it.
Speaker Change: And importantly, we are achieving our returns across all the product segments with capital efficiency, which is a very important part of our overall financial objectives.
Speaker Change: Okay that makes sense and then I guess my second question is just on distribution have there been any major changes to your distribution footprint.
Suneet Laxman L. Kamath: Okay, that makes sense. And then I guess my second question is just on distribution. Have there been any major changes to your distribution footprint? It does seem like, as we traveled through the quarter, we were seeing more press releases about departures. But, you know, maybe that's not indicative of what's going on with the overall distribution organization. So just some thoughts there would be helpful.
Speaker Change: It does seem like as we traveled through the quarter, we were seeing more press releases about departures, but.
Speaker Change: Maybe that's not indicative of what's going on with the overall distribution organization. So just some thoughts there would be helpful.
Speaker Change: Yes, I think that some of what you are referring to.
Unknown Executive: Yeah, I think that some of what you're referring to were perhaps departures within the wealth management organization not related to the wholesale distribution associated with our retail or with our workplace businesses. So, let me say a couple of things about our distribution. Our distribution footprint, if there's anything that we can say in terms of changing, we continue to expand, we continue to enhance, and there have been no material changes as it relates to overall distribution.
Speaker Change: Or perhaps departures of.
Speaker Change: Within the wealth management organization not related to the wholesaling distribution associated with our with our retail.
Speaker Change: With our workplace businesses. So let me say a couple of things about our distribution our distribution footprint.
Speaker Change: If theres anything that we can say in terms of changing we continued to expand we continue to enhance.
Speaker Change: And there have been no material changes as it relates to overall distribution.
Unknown Executive: On the annuity side, we continue to have an incredibly strong footprint with significant shelf space. We've got a national presence; we have over 500 sales professionals. We very much are aligning ourselves with industry partners that are really very much focused on the fact that we are a solutions provider within the annuity space with a well-diversified sales mix. And then we have a number of other additional sales tools, best-in-class marketing technology, etc., that are really driving distribution effectiveness. On the life side, I want to spend a moment there on the retail side.
Speaker Change: On the annuity side, we continue to have an incredibly strong footprint.
Speaker Change: With significant shelf space.
Speaker Change: We've got a national presence, we have over 500 sales facing professionals.
Speaker Change: We very much are aligning ourselves with industry partners that are really very much.
Speaker Change: Focused on the fact that we are a solutions provider within within the annuity space with a well diversified sales mix.
Speaker Change: And then we have a number of other additional sales tools best in class marketing technology et cetera that are really driving distribution effectiveness.
Unknown Executive: Some of what we've done there is we have realigned our life distribution team, and part of what we're doing there is we are putting our wholesalers closer to the decision makers at our key strategic partners. And part of what this is doing is it's really enabling us to ultimately accelerate the product shift that we're in the process of doing around realigning our overall life strategy. So we're more closely matching go-to-market strategies, and we are already seeing some progress there as it relates to an improved pipeline, particularly in the IUL space.
Speaker Change: On the life side I want to spend a moment there on the retail side.
Speaker Change: Some of what we've done there is we have.
Speaker Change: We have realigned our life distribution team and part of what we're doing there is we are putting our wholesalers closer to the decision makers.
Speaker Change: At our key strategic partners and part of what this is doing is it's really enabling us to ultimately accelerate the product shift that we're in the process of doing around realigning.
Speaker Change: Our overall life strategy. So we're more closely matching go to market strategies.
Speaker Change: And we are already seeing some progress there as it relates to <unk>.
Speaker Change: Proved pipeline in particular in the.
Speaker Change: <unk> space. So we expect that some of these enhancements will further optimize the overall distribution footprint.
Unknown Executive: So we expect that some of these enhancements will further optimize the overall distribution footprint. So let me just pause there. There's also a lot of expanding and enhancing that we're doing on the workplace side, both on the retirement side and also on the group side, that we believe will support the acceleration of sales as well. And we can discuss that if that's another part that you would like to talk about. Yeah, that's fine. We can leave.
Speaker Change: So let me just pause there. There's also a lot of there's also a lot of expanding and enhancing that we're doing on the workplace side. Both on the retirement side and also on the group side that we believe will support the acceleration of sales as well and we can discuss that is that's another part that you would like to talk about.
Speaker Change: Yes, that's fine we can leave it there and pick it up later thanks Alan.
Suneet Laxman L. Kamath: Yep, that's fine. We can leave it there and pick it up later. Thanks, Ellen.
Speaker Change: Okay.
Speaker Change: Next question comes from.
Elyse Beth Greenspan: The next question comes from Elyse Greenspan from Wells Fargo. Your line is now open.
Speaker Change: Please open from Wells Fargo. Your line is now open.
Elyse Beth Greenspan: Hi, thanks. Good morning. My first question is about life insurance.
Speaker Change: Hi, Thanks. Good morning. My first question is on life insurance I believe you said that the first quarter was in line with your expectations, but if we adjust for the novel items that you call out.
Wells Fargo: You had a loss in the quarter, so just trying to tie that together.
Speaker Change: Just relative to your expectations and I guess the guidance you gave for that business right that's for modest.
Speaker Change: <unk> for the full year.
Speaker Change: Okay.
Speaker Change: Sure at least so keep in mind that I think the simple answer to your question is Q1 has heavier seasonality as it relates to mortality alright, that's true for us it's true for the industry. So when you look at the guidance that we gave I think we were actually slightly better depending on how you think about the midpoint.
Elyse Beth Greenspan: I believe you said that the first quarter was in line with your expectations, but, you know, if we adjust for the notable items that you call out, you were, you had a loss in the quarter. So just trying to tie that together, you know, just relative to your expectations. And I guess the guidance you gave for that business, right, that's for modest, you know, earnings for the full year.
Christopher Michael Neczypor: Sure, Elyse. So, you know, keep in mind. I think the simple answer to your question is that Q1 has heavier seasonality as it relates to mortality, right? That's true for us, and it's true for the industry. So when you look at the guidance that we gave, I think we were actually slightly better, depending on how you think about the midpoint. But if you look year over year, essentially, the change in earnings for the retail life business is almost entirely explained by the Fortitude retransaction with slightly better alternative investment income.
Speaker Change: But if you look year over year essentially the change in earnings for the retail life business.
Speaker Change: Is is almost entirely explained by the fortitude re transaction with slightly better alternative investment income. So just to reiterate what I said in our prepared remarks.
Christopher Michael Neczypor: So, you know, just to reiterate what I said in our prepared remarks, the quarter was in line from a retail life perspective. And to your specific question as it relates to the outlook, you know, just keep in mind that for the full year, you have to think about it from a seasonality perspective in the first quarter, which tends to be heavier just due to mortality. Does that help?
Speaker Change: The quarter was in line.
Speaker Change: From the from a life retail life perspective and to your specific question as it relates to the outlook just keep in mind that for the full year.
Speaker Change: You have to think about it from a seasonality perspective in the first quarter, which tends to be heavier just due to the mortality does that help.
Speaker Change: Yes, and then my second question.
Elyse Beth Greenspan: Yes. And then my second question, you gave us, you know, a little bit of an update on the capital benefit from the wealth management deal. And Chris, I think you said, right, you guys want to keep the RBC at like 420. So is the right way to think about it that the RBC benefit you'll take from that transaction will get you to 420? And then, you know, the rest will either be given to, you know, a parent or used for some debt actions, so I think.
Speaker Change: You gave us a little bit of update on the capital benefit from the wealth management deal.
Speaker Change: And Chris I think you said like you guys want to keep the RBC at like 420. So is the right way to think about it that the RBC benefit youll take from that transaction will get you to for 'twenty and then the rest will either be at parent or used for some debt actions.
Chris: So I think philosophically that's correct.
Christopher Michael Neczypor: So I think philosophically, that's correct, at least in the first quarter. We ended the first quarter actually slightly better than where we were at year end. So capital, and that's despite the one-time significant item.
Chris: Ended.
Chris: First quarter actually slightly better than where we were at year end, so capital and thats. Despite the onetime significant items. So capital continues to be moving in the right direction will close hopefully in the next week or two on the USAA transaction. It's great to have approval. There and then we will look as we've been discussing for the past two quarters.
Christopher Michael Neczypor: So capital continues to be, you know, moving in the right direction. We'll close, hopefully, in the next week or two on the OSE transaction. It's great to have approval there, and then we will look, as we've been discussing for the past two quarters, at what opportunities exist from a deleveraging perspective. But, you know, I think you're exactly right. The idea is that we intend to hold a buffer in excess of the 400 target.
Chris: What opportunities exist from a deleveraging perspective, but I think youre exactly right. The idea is we intend to hold a buffer.
Chris: Excess of the 400 target.
Christopher Michael Neczypor: You know, we've described 420 as the way to think about it, and the closing of the deal will get us largely there. Thank you. If you'd like to ask a question, please press star and number one on your telephone keypad. Okay.
Chris: Described for 'twenty is the way to think about it.
Chris: And the closing of the deal will get us largely there.
Speaker Change: Thank you.
Speaker Change: If you'd like to ask a question. Please press star and number one on your telephone keypad.
Operator: If you'd like to ask a question, please press star and number one on your telephone keypad. We will pause for a brief moment to wait for the questions to come in.
Operator: Okay, as we have no additional questions, I just want to thank everybody for joining us this morning. If you have additional questions after the call, please don't hesitate to contact us or email us at investorrelations at lfg.com.
Speaker Change: And number one on your telephone keypad.
POS Ramsey: POS Ramsey now Mr. Lee further questions to come in.
POS Ramsey: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: As we have no additional questions I just want to thank everybody for joining us. This morning, if you have additional questions after the call.
Speaker Change: Please don't hesitate to hesitate to get in contact with us or E Mail us at Investor Relations at <unk> Dot com.
Speaker Change: Thank you.
Speaker Change: Thank you for joining in today's call. We hope you have a wonderful day you may now disconnect.
Operator: Thank you for joining us on today's call. We hope you have a wonderful day. You may now disconnect from this session.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Yes.