Q2 2024 Lincoln National Corp Earnings Call

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Unknown Executive: in Quarter, 2024 earnings conference call. At this time, all lines are in listen-only mode.

2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. If you need assistance at any time during the call, please press the star key followed by zero and someone will assist you. Now, I would like to turn the conference over to Senior Vice President, Head of Investor Relations, Tina Madon. Please go ahead.

Unknown Executive: 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.

Tina Madon: Now I would like to turn the conference over to Senior Vice President, Head Investor Relations, Tina Madon. Please go ahead. Thank you. Our quarterly earnings press release, earnings supplement, and statistical supplement can all be found on the investor relations page of our website, www.lincolnfinancial.com. These documents include reconciliation 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: Thank you.

Unknown Executive: Our quarterly earnings press release, earnings supplement, and statistical supplement can all be found on the investor relations page of our website, www.linkingfinancial.com. 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 related 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: Our quarterly earnings press release, earnings supplement, and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com.

Speaker Change: 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.

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, prospective services or products, future performance or financial results, including those related to deposits, expenses, income from operations, share purchases, liquidity and capital resources, are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward looking statements involve risks in 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.

Unknown Executive: 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, our most recent quarterly reports on Form 10-Q, and from time to time in our other filings with the SEC, and Deliver Profitable Growth to improve free cash flow and grow the franchise. We are pleased to update you that we ended the quarter with an estimated RBC ratio of more than 420% as we successfully closed the sale of our wealth management business.

Speaker Change: Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses,

Speaker Change: Prospective Services or Products, Future Performance or Financial Results.

Speaker Change: Including those related 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.

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

Speaker Change: These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning.

Speaker Change: 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.

Tina Madon: 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.

Speaker Change: 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 Nezapur, Chief Financial Officer. After they are prepared remarks, we'll address your questions.

Speaker Change: Presenting this morning are Ellen Cooper, Chairman, President and CEO , and Chris Nezypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen?

Tina Madon: Let me now turn the call over to Ellen. Ellen?

Ellen Cooper: Thank you, Tina, and good morning, everyone. Thank you for joining our call today. During the second quarter, we continue to make steady progress toward the three objectives we outlined earlier this year. Build upon a strong capital foundation to ensure enterprise stability across market cycles and support investment for future growth. Optimizer operating model to advance a scalable framework to maximize our resources and deliver profitable growth to improve free cash flow and grow the franchise.

Ellen Cooper: Thank you, Tina, and good morning, everyone. Thank you for joining our call today.

Speaker Change: During the second quarter, we continued to make steady progress toward the three objectives we outlined earlier this year.

Speaker Change: Build upon a strong capital foundation to ensure enterprise stability across market cycles and support investment for future growth.

Speaker Change: Optimize our operating model to advance a scalable framework to maximize our resources and deliver profitable growth to improve free cash flow and grow the franchise.

Ellen Cooper: Let me briefly touch on each of these objectives, starting with foundational capital. We are pleased to update you that we ended the quarter with an estimated RBC ratio of more than 420 percent, as we successfully closed the sale of our wealth management business. In our investor outlook from earlier this year, we communicated our goal to build and maintain an RBC buffer of 420. 20 points over our 400% RBC target as we continue to take the necessary steps to minimize our capital volatility. The combination of the build of capital above our target level and the actions we are taking to increase free cash flow generation should provide greater capital flexibility over the next few years.

Speaker Change: Let me briefly touch on each of these objectives, starting with foundational capital.

Speaker Change: We are pleased to update you that we ended the quarter with an estimated RBC ratio of more than 420% as we successfully closed the sale of our Wealth Management business.

Speaker Change: In our investor outlook from earlier this year, we communicated our goal to build and maintain an RBC buffer of 420, 20 points over our 400% RBC target, as we continue to take the necessary steps to minimize our capital volatility.

Speaker Change: The combination of the build of capital above our target level and the actions we are taking to increase free cash flow generation should provide greater capital flexibility over the next few years.

Ellen Cooper: This is an important milestone as we position our business for its next chapter. We also made further progress in optimizing our operating model this quarter and started to see the benefits of the expense reductions we made earlier this year. Additionally, we received the license for our affiliated Bermuda subsidiary, which will help us stay competitive in new business segments and support our financial objectives, such as enhancing our free cash flow. Lastly, we advanced against our objective of delivering profitable growth as we transform Lincoln into an organization characterized by businesses, segments, and products with more stable cash flows and higher risk-adjusted returns.

Speaker Change: This is an important milestone as we position our business for its next chapter.

Speaker Change: We also made further progress in optimizing our operating model this quarter and started to see the benefits of the expense reductions we made earlier this year.

Unknown Executive: Additionally, we received the license for our affiliated Bermuda subsidiary, which will help us stay competitive in new business segments and support our financial objectives, such as enhancing our free cash flow and position our retirement business for future growth. Turning to our second quarter performance, our results were solid and exceeded our expectations as we continue to execute on our strategic priorities, with a few key highlights. Root Protection continued its momentum, delivering earnings in line with its record prior year quarter and strong sales growth across all products and segments.

Speaker Change: Additionally, we received the license for our affiliated Bermuda subsidiary, which will help us stay competitive in new business segments and support our financial objectives, such as enhancing our free cash flow.

Speaker Change: Lastly, we advanced against our objective of delivering profitable growth as we transform Lincoln into an organization characterized by businesses, segments, and products with more stable cash flows and higher risk-adjusted returns.

Ellen Cooper: As we look ahead, we expect to continue to grow and diversify our group business across products and market segments. Evolve our annuity business with a well-balanced product mix that includes expansion of spread and spread-like products, reposition our life business to emphasize more risk sharing and accumulation products, and position our retirement business for future growth. We are a market leader in our at-scale businesses and will leverage our competitive advantages, including our powerful franchise, trusted brand, distribution leadership, and broad product portfolio, to lay the groundwork for future expansion. While this is a multi-year journey and the strategic realignment in each of our four businesses is at different stages, we are executing well, as demonstrated this quarter in our overall sales levels and, most importantly, in our sales mix.

Speaker Change: As we look ahead, we expect to continue to grow and diversify our group business across products and market segments, evolve our annuity business with a well-balanced product mix that includes expansion of spread and spread-like products,

Speaker Change: Reposition our life business to emphasize more risk sharing and accumulation products, and position our retirement business for future growth.

Speaker Change: We are a market leader in our at-scale businesses and will leverage our competitive advantages, including our powerful franchise, trusted brand, distribution leadership, and broad product portfolio to lay the groundwork for future expansion.

Speaker Change: While this is a multi-year journey and the strategic realignment in each of our four businesses is at different stages, we are executing well as demonstrated this quarter in our overall sales levels and, most importantly, in our sales mix.

Ellen Cooper: Turning to our second quarter performance, our results were solid and exceeded our expectations as we continue to execute on our strategic priorities, with a few key highlights. Our annuity business grew earnings by 10% year-to-year, delivering its highest earnings quarter in two years and achieving its second strongest sales quarter in over four years. We're protecting continued its momentum, delivering earnings in line with its record prior year quarter and strong sales growth across all products and segments. Our life business, excluding the impact of below-target alternative investment income, delivered earnings in line with our expectations and a sequential increase in sales.

Speaker Change: Turning to our second quarter performance, our results were solid and exceeded our expectations as we continue to execute on our strategic priorities with a few key highlights.

Speaker Change: Our annuities business grew earnings by 10% year-over-year, delivering its highest earnings quarter in two years and achieving its second strongest sales quarter in over four years.

Speaker Change: Group Protection continued its momentum, delivering earnings in line with its record prior year quarter and strong sales growth across all products and segments.

Unknown Executive: Our life business, excluding the impact of below-target alternative investment income, delivered earnings in line with our expectations and a sequential increase in sales. And finally, retirement plan services produced sequential earnings growth and sales within the range of the last few quarters. We aim to achieve this by expanding our addressable market and enhancing our competitiveness through the optimization of our capabilities. Sequentially, sales were up 34%, and sales levels were higher across all product categories, with more than 70% of the overall sales in the quarter in spread and spread-like products.

Speaker Change: Our life business, excluding the impact of below-target alternative investment income, delivered earnings in line with our expectations and a sequential increase in sales. And finally, retirement plan services produced sequential earnings growth and sales within the range of the last few quarters.

Ellen Cooper: And finally, retirement plan services produced sequential earnings growth and sales within the range of the last few quarters.

Ellen Cooper: Now turning to retail solutions, which includes our annuities and life businesses. Our annuity strategy focuses on growth, while shifting to a more balanced mix. We aim to achieve this by expanding our addressable market and enhancing our competitiveness through the optimization of our capabilities. The strong earnings delivered this quarter in our annuities business were broad-based and reflected continued progression and solid returns on a diversified book of business. Total annuity sales of 3.8 billion were up 48% from the prior year quarter. Sequentially, sales were up 34%, and sales levels were higher across all product categories, with more than 70% of the overall sales in the quarter in spread and spread-like products.

Speaker Change: Now turning to Retail Solutions, which includes our annuities and life businesses.

Speaker Change: Our annuity strategy focuses on growth while shifting to a more balanced mix. We aim to achieve this by expanding our addressable market and enhancing our competitiveness through the optimization of our capabilities.

Speaker Change: The strong earnings delivered this quarter in our annuities business were broad-based and reflected continued progression and solid returns on a diversified book of business.

Speaker Change: Total annuity sales of $3.8 billion were up 48% from the prior year quarter.

Speaker Change: Sequentially, sales were up 34% and sales levels were higher across all product categories with more than 70% of the overall sales in the quarter in spread and spread-like products.

Ellen Cooper: We are building on our long-standing relationships with distribution partners to further expand shelf space and select product categories and utilizing our leading distribution framework to provide marketing, training, and data to support our partners and enlarge our footprint. Our six sales more than doubled year-over-year and increased more than 70% sequentially as we apply the capabilities we have built over the course of the last year to sustain a consistent and growing competitive presence in the fixed marketplace. Ryla also continued to be a strategic focus and demonstrated solid momentum, with sales increasing by more than 15% sequentially. We successfully launched our second-generation product in the quarter, and although it is still early, the refreshed features and unique crediting strategies are resonating in the market.

Unknown Executive: We are building on our longstanding relationships with distribution partners to further expand shelf space and select product categories and utilizing our leading distribution Framework to provide marketing, training, and data to support our partners and enlarge our footprint. Our fixed sales more than doubled year over year and increased more than 70% sequentially as we applied the capabilities we built over the course of the last year to sustain a consistent and growing competitive presence in the fixed marketplace.

Speaker Change: We are building on our long-standing relationships with distribution partners to further expand shelf space in select product categories and utilizing our leading distribution framework to provide marketing, training, and data to support our partners and enlarge our footprint.

Speaker Change: Our fixed sales more than doubled year over year and increased more than 70% sequentially as we applied the capabilities we have built over the course of the last year to sustain a consistent and growing competitive presence in the fixed marketplace.

Unknown Executive: RILA also continued to be a strategic focus and demonstrated solid momentum with sales increasing by more than 15% sequentially. We successfully launched our second generation product in the quarter, and although it is still early, the refreshed features and unique crediting strategies are resonating in the market. We are adapting our business to focus on products with more stable cash flows and higher risk-adjusted returns, and we are supporting this by repositioning our life distribution team to optimize our wholesalers' footprint. Sales levels for the second quarter, which typically accounted for 15 to 20% of our annual sales volume, increased by 68% compared to a lower than usual quarter last year.

Speaker Change: RILA also continued to be a strategic focus and demonstrated solid momentum, with sales increasing by more than 15% sequentially.

Speaker Change: We successfully launched our second generation product in the quarter, and although it is still early, the refreshed features and unique crediting strategies are resonating in the market.

Ellen Cooper: VA with guaranteed living benefits sales were up 28% year-over-year and continued to be integral to our overall product solutions while delivering 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.

Speaker Change: VA with Guaranteed Living Benefits sales were up 28% year over year and continue to be integral to our overall product solutions while delivering a strong customer value proposition.

Speaker Change: However, this product category remains a smaller contributor to our total annuity sales, representing less than 20% of sales in the quarter.

Ellen Cooper: In summary, these results reflect the strength of our annuity's business as we continue to achieve our objectives for a balanced product mix while providing customers with a broad range of solutions to fulfill their evolving needs. Now, turning to life, we achieved 15% sequential sales growth as a result of our ongoing strategic realignment. We are adapting our business to focus on products with more stable cash flows and higher risk-adjusted returns, and we are supporting this by repositioning our life distribution team to optimize our wholesalers' footprint. This will improve our reach and elevate our coverage, and by doing so, we aim to better enable and accelerate our product shift.

Speaker Change: In summary, these results reflect the strength of our annuities business as we continue to achieve our objectives for a balanced product mix while providing customers with a broad range of solutions to fulfill their evolving needs.

Speaker Change: Now turning to life.

Speaker Change: We achieved 15% sequential sales growth as a result of our ongoing strategic realignment.

Speaker Change: We are adapting our business to focus on products with more stable cash flows and higher risk-adjusted returns. And we are supporting this by repositioning our life distribution team to optimize our wholesalers' footprint.

Speaker Change: This will improve our reach and elevate our coverage, and by doing so, we aim to better enable and accelerate our product shift.

Ellen Cooper: While the realignment of our life business will take time, we are confident that leveraging our strengths in product, distribution, and underwriting while strengthening our customer-centric service will increase our competitive differentiation and drive higher earnings growth.

Speaker Change: While the realignment of our life business will take time, we are confident that leveraging our strengths in product, distribution, and underwriting, while strengthening our customer-centric service, will increase our competitive differentiation and drive higher earnings growth.

Ellen Cooper: Next, turning to workplace solutions, which includes our group protection and retirement plan services businesses. Within Group, our strategy is to grow and achieve sustainable target margins by diversifying our business across products and market segments, with an emphasis on expanding our presence in small market and supplemental health. Group delivered another excellent quarter, and we are very pleased with the results and strategic momentum of this business. Adjust it for the timing impact of an experience refund that Chris will further discuss; earnings were in line with its record prior year quarter, resulting in an 8.2% margin. We continue to prioritize margin expansion over top-line growth.

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

Speaker Change: Within GROUP, our strategy is to grow and achieve sustainable target margins by diversifying our business across products and market segments with an emphasis on expanding our presence in small market and supplemental health.

Speaker Change: Group delivered another excellent quarter, and we are very pleased with the results and strategic momentum of this business.

Speaker Change: Adjusted for the timing impact of an experienced refund that Chris will further discuss, earnings were in line with its record prior year quarter, resulting in an 8.2% margin. We continue to prioritize margin expansion over top-line growth.

Ellen Cooper: Premium growth of 3% reflected discipline, new business and renewal pricing, combined with persistency in line with our expectations, reinforcing the strength of our relationships and ability to deliver value to our customers. Sales levels for the second quarter, which have typically accounted for 15 to 20% of our annual sales volume, increased by 68% compared to a lower than usual quarter last year. This growth spanned all products and market segments, driven primarily by new business from existing customers, including supplemental health. These results highlight our continued execution to diversify our business and achieve profitable growth. Our targeted segment strategies, which are key pillars of our margin expansion efforts, are gaining further traction as we offer tailored solutions within each segment.

Chris Neczypor: Premium growth of 3% reflected disciplined new business and renewal pricing, combined with persistency in line with our expectations, reinforcing the strength of our relationships and ability to deliver value to our customers.

Chris Neczypor: Sales levels for the second quarter, which have typically accounted for 15-20% of our annual sales volume, increased by 68% compared to a lower than usual quarter last year.

Chris Neczypor: This growth spanned all products and market segments, driven primarily by new business from existing customers, including supplemental help. These results highlight our continued execution to diversify our business and achieve profitable growth.

Unknown Executive: Our targeted segment strategies, which are key pillars of our margin expansion efforts, are gaining further traction as we offer tailored solutions within each segment. We are also building the necessary capabilities to accelerate the expansion of our presence in the small market segment with strategic investments in talent, capabilities, and technology. To accelerate the pace at which our group business evolves, we are meeting our customers where they want to be met. We are expanding our digital and self-service capabilities, upgrading our underwriting technology, and re-engineering our client service model.

Chris Neczypor: Our targeted segment strategies, which are key pillars of our margin expansion efforts, are gaining further traction as we offer tailored solutions within each segment.

Ellen Cooper: As we continue to grow our leadership position in national and regional markets, we are also building the necessary capabilities to accelerate the expansion of our presence in the small market segment with strategic investments in talent, capabilities, and technology. To accelerate the pace at which our group business evolves, we are meeting our customers where they want to be met, expanding our digital and self-service capabilities, upgrading our underwriting technology, and re-engineering our client service model. These investments, along with expanded product offerings, are driving our growth.

Chris Neczypor: As we continue to grow our leadership position in national and regional markets, we are also building the necessary capabilities to accelerate the expansion of our presence in the small market segment with strategic investments in talent, capabilities, and technology.

Chris Neczypor: To accelerate the pace at which our group business evolves, we are meeting our customers where they want to be met.

Chris Neczypor: Expanding our digital and self-service capabilities, upgrading our underwriting technology, and re-engineering our client service model. These investments, along with expanded product offerings, are driving our growth.

Unknown Executive: These investments, along with expanded product offerings, are driving our growth. We are confident that executing our strategy to deliver sustainable results will help our group business become a more significant part of our overall business model. In RPS, our strategy is to continue growing in our core record keeping and institutional market segments through our differentiated service model. RPS's quarterly results were in line with our expectations.

Ellen Cooper: We are confident that executing our strategy to deliver sustainable results will help our group business become a more significant part of our overall business mix.

Chris Neczypor: We are confident that executing our strategy to deliver sustainable results will help our group business become a more significant part of our overall business mix.

Ellen Cooper: Now turning to retirement plan services or RPS. In RPS, our strategy is to continue growing in our core record keeping and institutional market segments through our differentiated service model. RPS's quarterly results were in line with our expectations. Although earnings declined year over year due to lower spread income, they grew 11% sequentially due to higher account balances and expense improvement. While first-year sales were flat year over year, total deposits increased by 13%. As we look ahead to the remainder of the year, we continue to have a strong pipeline of known wins across all of our segments, which we anticipate will materialize beginning in the third quarter of this year.

Chris Neczypor: Now turning to Retirement Plan Services, or RPS.

Chris Neczypor: In RPS, our strategy is to continue growing in our core record-keeping and institutional market segments through our differentiated service model.

Chris Neczypor: RPS's quarterly results were in line with our expectations.

Chris Neczypor: Although earnings declined year-over-year due to lower spread income, they grew 11% sequentially due to higher account balances and expense improvement.

Unknown Executive: While first-year sales were flat year over year, total deposits increased by 13%, and as we look ahead to the remainder of the year, we continue to have a strong pipeline of known wins across all of our segments, which we anticipate will materialize beginning in the third quarter of this year. We see substantial opportunity to continue transforming Lincoln. Our foundation is built on at-scale retail and workplace businesses with leading distribution and a strengthened balance sheet.

Chris Neczypor: While first-year sales were flat year-over-year, total deposits increased by 13%, and as we look ahead to the remainder of the year, we continue to have a strong pipeline of known wins across all of our segments, which we anticipate will materialize beginning in the third quarter of this year.

Ellen Cooper: We continue to invest in RPS, benefiting from our flexible model to enhance the products and services we offer our customers. We are also increasing the operational efficiency of this business, which is consistent with our objectives to optimize our overall operating model.

Chris Neczypor: We continue to invest in RPS.

Chris Neczypor: Benefiting from our flexible model to enhance the products and services we offer our customers.

Chris Neczypor: We are also increasing the operational efficiency of this business.

Chris Neczypor: In closing, I want to reiterate our conviction in our strategic repositioning.

Ellen Cooper: In closing, I want to reiterate our conviction in our strategic repositioning. We see substantial opportunities to continue transforming Lincoln. Our foundation is built on at-scale retail and workplace businesses with leading distribution and a strengthened balance sheet. Our focus is on leveraging our competitive advantages to evolve our businesses, enhance differentiation, and create a platform for sustainable growth, increasing profitability, operational efficiency, and greater capital flexibility.

Chris Neczypor: We see substantial opportunity to continue transforming Lincoln.

Chris Neczypor: Our foundation is built on at-scale retail and workplace businesses with leading distribution and a strengthened balance sheet.

Chris Neczypor: Our focus is on leveraging our competitive advantages to evolve our businesses, enhance differentiation, and create a platform for sustainable growth, increasing profitability, operational efficiency, and greater capital flexibility.

Ellen Cooper: Our strong second-quarter performance sets the stage for further momentum. We are confident in our ability to deliver results that will drive long-term value creation for our shareholders.

Unknown Executive: Our strong second quarter performance sets the stage for further momentum. We are confident in our ability to deliver results that will drive long-term value creation for our shareholders. I look forward to sharing further updates with you in the coming quarters.

Chris Neczypor: Our strong second quarter performance sets the stage for further momentum. We are confident in our ability to deliver results that will drive long-term value creation for our shareholders.

Ellen Cooper: I look forward to sharing further updates with you in the coming quarters.

Chris Neczypor: With that, let me now turn the call over to Chris. Thank you, Ellen, and good morning, everyone. Our second-quarter results demonstrated further execution against those strategic priorities, and our underlying results came in at the high end of our expectations. I'm going to focus on three areas this morning. First, I'll recap our second-quarter results, including a review of our segment-level financials. Second, I'll touch on capital, and third, I'll review our investment portfolio. So let's start with a recap of the quarter. This morning, we reported second-quarter adjusted operating income available to common stockholders of $319 million, or $1.84 per share.

Chris Neczypor: I look forward to sharing further updates with you in the coming quarters. With that, let me now turn the call over to Chris.

Chris Neczypor: Thank you, Ellen, and good morning, everyone.

Chris Neczypor: Our second quarter results demonstrated further execution against our strategic priorities, and our underlying results came in at the high end of our expectations.

Chris: First, I'll recap our second quarter results, including a review of our segment-level financials. Second, I'll touch on capital. And third, I'll review our investment portfolio.

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

Chris Neczypor: First, I'll recap our second quarter results, including a review of our segment-level financials.

Chris Neczypor: Second, I'll touch on capital, and third, I'll review our investment portfolio. So let's start with a recap of the quarter.

Chris: So let's start with a recap of the quarter. This morning, we reported second quarter adjusted operating income available to common stockholders of $319 million, or $1.84 per share. On an after-tax basis, this amount was $41 million below our return target, or $0.23 per share.

Chris Neczypor: This morning we reported second quarter adjusted operating income available to common stockholders of $319 million or $1.84 per share.

Chris Neczypor: There were no significant items in the quarter, but there were two normalizing items. First, our alternative investments portfolio delivered a 4% annualized return in the quarter, or $36 million. On an after-tax basis, this amount was $41 million below our return target, or $23 per share. Second, there was a $23 million benefit in group protection due to the timing of an experienced refund. I'll press on this further when discussing our segment results. Now, turning to net income for the quarter, we reported net income available to common stockholders of $884 million, or $5.11 per diluted share. The difference between net and adjusted operating income was predominantly driven by three factors that impacted net income.

Chris Neczypor: There were no significant items in the quarter, but there were two normalizing items. First, our alternative investments portfolio delivered a 4% annualized return in the quarter worth $36 million.

Chris Neczypor: On an after-tax basis, this amount was $41 million below our return target, or $0.23 per share.

Chris Neczypor: Second, there was a $23 million benefit in group protection due to the timing of an experience refund. I'll touch on this further when discussing our segment results.

Chris Neczypor: Now turning to net income for the quarter. We reported net income available to common stockholders of $884 million, or $5.11 per diluted share.

Chris: The difference between net and adjusted operating income was predominantly driven by three factors that impacted net income. The first was a favorable impact of four hundred and thirty six million dollars related to the closing of the sale of our wealth management business. The second was a favorable impact of $198 million within non-operating income. This was driven by a net positive movement in market risk benefits that resulted from higher interest rates and equity markets in the second quarter and was inclusive of hedge program performance.

Chris Neczypor: The difference between net and adjusted operating income was predominantly driven by three factors that impacted net income. The first was a favorable impact of $436 million related to the closing of the sale of our wealth management business.

Chris Neczypor: The first was a favorable impact of $436 million related to the closing of the sale of our wealth management business. The second was a favorable impact of $198 million within non-operating income. This was driven by a net positive movement and market risk benefits that resulted from higher interest rates and equity markets in the second quarter and was inclusive of hedge program performance. The third was a positive change of $158 million in the fair value of the gap embedded derivative related to our Fortitude re-insurance transaction. This change was primarily driven by the impact of higher interest rates on available-for-sale securities in the funds with heliportfolio backing the agreement, with the corresponding offset flowing through accumulated other comprehensive income or AOCI.

Chris Neczypor: The second was a favorable impact of $198 million within non-operating income. This was driven by a net positive movement in market risk benefits that resulted from higher interest rates in equity markets in the second quarter and was inclusive of hedge program performance.

Chris: The third was a positive change of $158 million in the fair value of the GAAP-embedded derivative related to our Fortitude Re reinsurance transaction. 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. Partially offsetting these positive impacts were gap accounting losses driven by the expected turnover of assets by four to two degrees in our reinsured block. Now turning to the segment results.

Chris Neczypor: The third was a positive change of $158 million in a fair value of the GAAP-embedded derivative related to our Fortitude Re reinsurance transaction.

Chris 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.

Chris Neczypor: Partially offsetting these positive impacts where gap accounting losses driven by the expected turnover of assets by 42-degree in our range-short blocks.

Chris Neczypor: Partially offsetting these positive impacts were gap accounting losses driven by the expected turnover of assets by 42 degree in our reinsured block.

Chris Neczypor: Now, turning to the segment results. Let's start with group which reported a record quarter with operating income of $130 million and a margin of 10% compared to $109 million in the prior year quarter and a margin of 8.6%. Of note included in this quarter's result was a $23 million benefit within our disability results from the timing of an annual experience refund related to one state's paid family leave. In prior years, this benefit was recognized in the third quarter. Excluding this benefit, groups operating income was $107 million and a margin of 8.2%. Group's results this quarter are a continued reflection of the execution of our strategy to diversify our book of business and maintain discipline in our pricing actions.

Chris Neczypor: Now turning to the segment results.

Speaker Change: Let's start with Group, which reported a record quarter with operating income of $130 million and a margin of 10% compared to $109 million in the prior year quarter and a margin of 8.6%.

Chris Neczypor: Of note, included in this quarter's result was a $23 million benefit within our disability results from the timing of an annual experience refund related to one state's paid family leave program. In prior years, this benefit was recognized in the third quarter.

Unknown Executive: In prior years, this benefit was recognized in the third quarter. Group's results this quarter are a continued reflection of the execution of our strategy to diversify our book of business and maintain discipline in our pricing actions. For disability, the loss ratio was 66% this quarter, decreasing by approximately five percentage points year over year.

Chris Neczypor: Excluding this benefit, Group's operating income was $107 million and a margin of 8.2%.

Chris Neczypor: Group's results this quarter are a continued reflection of the execution of our strategy to diversify our book of business and maintain discipline in our pricing actions.

Chris Neczypor: Additionally, the benefits from the favorable macro backdrop, including low unemployment and a supportive interest rate environment, persisted in the quarter. Turning to group product line results for the quarter, the group life loss ratio was 76% this quarter, 4 percentage points higher versus the prior year quarter. The increased loss ratio was driven by severity volatility, as our mortality trended towards younger age populations. We typically have higher benefit amounts. For disability, the loss ratio was 66% this quarter, decreasing by approximately 5 percentage points year over year, and timing of the annual experience refund accounted for 4 percentage points of this improvement.

Chris Neczypor: Additionally, the benefits from the favorable macro backdrop, including low unemployment and a supportive interest rate environment, persisted in the quarter.

Chris Neczypor: Turning to group product line results for the quarter. The group life loss ratio was 76% this quarter, 4 percentage points higher versus the prior year quarter.

Chris Neczypor: The increased loss ratio was driven by severity volatility, as our mortality trended towards younger age populations who typically have higher benefit amounts.

Chris Neczypor: For disability, the loss ratio was 66% this quarter, decreasing by approximately 5 percentage points year-over-year.

Chris Neczypor: The timing of the annual experience refund accounted for 4 percentage points of this improvement.

Chris Neczypor: The loss ratio was favorable relative to our longer term expectations and benefited from record low claim incidents and strong LTV recoveries, enabling positive return to work outcomes for our claimants.

Chris Neczypor: The loss ratio was favorable relative to our longer-term expectations and benefited from record-low claim incidents and strong LTE recoveries, enabling positive return-to-work outcomes for our claimants.

Chris Neczypor: As we look to the second half of the year, there are a couple of items to keep in mind. First, disability results are significantly favorable in the first half of the year, and we expect moderation of the strong results in the third and fourth quarters, consistent with historical trends. And second, as I mentioned earlier, our third quarter results have historically included the benefit from the annual experience refund. Overall, group results continue to reflect our commitment to an execution against our margin expansion strategy, and while the results in the second half of the year will moderate relative to the record results we experienced in the first half, we remain confident that our results will be at the high end of our 50 to 100 basis points of expected margin expansion in 2024.

Unknown Executive: As we look to the second half of the year, there are a couple of items to keep in mind. First, disability results are seasonally favorable in the first half of the year, and we expect moderation of the strong results in the third and fourth quarters, consistent with historical trends. Annuities reported operating income of $297 million compared to $271 million in the prior year quarter.

Chris Neczypor: As we look to the second half of the year, there are a couple of items to keep in mind.

Chris Neczypor: First, disability results are seasonally favorable in the first half of the year, and we expect moderation of the strong results in the third and fourth quarters consistent with historical trends.

Chris Neczypor: And second, as I mentioned earlier, our third quarter results have historically included the benefit from the annual experience refund.

Chris Neczypor: Overall, group results continue to reflect our commitment to and execution against our margin expansion strategy. And while the results in the second half of the year will moderate relative to the record results we experienced in the first half, we remain confident that our results will be at the high end of our 50 to 100 basis points of expected margin expansion in 2024.

Chris Neczypor: Now turning to annuities, annuities reported operating income of $297 million compared to $271 million in our year quarter. On a sequential basis, results improved $7 million, excluding the unfavorable significant items that impacted first-quarter results. The year-over-year at sequential improvements were broad-based, driven by higher account balances, increased spread income, and reduced expenses. Turning to account balances, ending account balances totaled $160 billion, a 5% increase versus the prior year quarter, as higher equity markets more than offset the impact of outflows. Overall, outflow levels were elevated in the quarter, which was expected given the higher interest rate environment and strong equity market performance.

Chris Neczypor: Now turning to annuities.

Chris Neczypor: Annuities reported operating income of $297 million compared to $271 million in the prior year quarter.

Chris Neczypor: On a sequential basis, results improved $7 million excluding the unfavorable significant items that impacted first quarter results.

Unknown Executive: The year-over-year and sequential improvements were broad-based, driven by higher account balances, increased spread income, and reduced expenses. Ending account balances totaled $160 billion, a 5% increase versus the prior year quarter, as higher equity markets more than offset the impact of outflows. Overall outflow levels were elevated in the quarter, which was expected given the higher interest rate environment and strong equity market performance. However, net flows improved relative to the first quarter due to strong sales in both fixed and variable annuities.

Chris Neczypor: The year-over-year and sequential improvements were broad-based, driven by higher account balances, increased spread income, and reduced expenses.

Chris Neczypor: Turning to account balances. Ending account balances totaled $160 billion, a 5% increase versus the prior year quarter, as higher equity markets more than offset the impact of outflows.

Chris Neczypor: Overall outflow levels were elevated in the quarter, which was expected given the higher interest rate environment and strong equity market performance. However, net flows improved relative to the first quarter due to strong sales in both fixed and variable annuities.

Chris Neczypor: However, net flows improved relative to the first quarter due to strong sales in both fixed and variable annuities. At the end of the quarter, General Account Products represented more than 25% of total account balances as we continue to focus on expanding our spread and spread-like product lines. Rylea now represents 20% of total account balances, 4 percentage points versus the prior year quarter. This quarter's results reflect not only the strength of our enforced annuities business, but also our continued execution of our product mixed shift. Our annuities business remains well positioned to deliver strong earnings in the second half of the year.

Chris Neczypor: At the end of the quarter, general account products represented more than 25% of total account balances, as we continue to focus on expanding our spread and spread-like product lines.

Chris Neczypor: RILA now represents 20% of total account balances, up 4 percentage points versus the prior year order.

Chris Neczypor: This quarter's results reflect not only the strength of our in-force annuities business, but also our continued execution of our product mix shift. Our annuities business remains well positioned to deliver strong earnings in the second half of the year.

Unknown Executive: Our annuities business remains well positioned to deliver strong earnings in the second half of the year. The decline was primarily driven by elevated participant-driven stable value outflows over the last 12 months, resulting from higher interest rates, partially offset by reduced net GNA expenses. However, results increased by $4 million, or 11% sequentially, due to higher account balances and lower net G&A expenses. Our base spread for the quarter was 103 basis points, compressing roughly 15 basis points compared to the prior year quarter.

Chris Neczypor: Now turning to retirement plan services, which reported operating income of $40 million compared to $47 million in the prior year quarter. The decline was primarily driven by elevated participant-driven stable value outflows over the last 12 months, resulting from higher interest rates, partially offset by reduced net DNA expenses. However, results increased by $4 million or 11% sequentially due to higher account balances and lower net DNA expenses. Our base spread for the quarter was 103 basis points, compressing roughly 15 basis points compared to the prior year quarter. In the current rate environment, we expect spreads to stabilize at around 100 basis points in the second half of the year.

Chris Neczypor: Now turning to Retirement Plan Services, which reported operating income of $40 million compared to $47 million in the prior year order.

Chris Neczypor: The decline was primarily driven by elevated participant-driven stable value outflows over the last 12 months, resulting from higher interest rates, partially offset by reduced net G&A expenses.

Chris Neczypor: However, results increased by $4 million, or 11% sequentially, due to higher account balances and lower net G&A expenses.

Chris Neczypor: Our base spread for the quarter was 103 basis points, compressing roughly 15 basis points compared to the prior year quarter.

Unknown Executive: In the current rate environment, we expect spreads to stabilize at around 100 basis points in the second half of the year. While stable value outflows persist in the quarter, the quarterly trend continues to be encouraging, and we experienced our lowest level of stable value outflows in the last seven quarters. Average account balances for the quarter increased by over 13% year-over-year, and end-of-period account balances were nearly $108 billion, up 12% versus the prior year quarter.

Chris Neczypor: In the current rate environment, we expect spreads to stabilize at around 100 basis points in the second half of the year. While stable value outflows persisted in the quarter, the quarterly trend continues to be encouraging, and we experienced our lowest level of stable value outflows in the last seven quarters.

Chris Neczypor: While stable value outflows persisted in the quarter, the quarterly trend continues to be encouraging, and we experienced our lowest level of stable value outflows in the last seven quarters.

Chris Neczypor: Now turning to account balances. Average account balances for the quarter increased over 13% year over year, and end of period account balances were nearly $108 billion, up 12% versus the prior year quarter. Overall, the sequential improvement reflects our disciplined focus on revenue growth and continued focus on expense efficiencies, and we remain well positioned to deliver solid earnings in the coming quarters.

Chris Neczypor: Now turning to account balances.

Chris Neczypor: Average account balances for the quarter increased over 13% year-over-year, and end-of-period account balances were nearly $108 billion, up 12% versus the prior year quarter.

Unknown Executive: Overall, the sequential improvement reflects our disciplined focus on revenue growth and continued focus on expense efficiencies, and we remain well positioned to deliver solid earnings in the coming quarters. Life reported an operating loss of $35 million compared to operating income of $33 million in the prior year quarter, as the run rate impacts of the Fortitude retransaction and below-target alternative investment income were partially offset by lower expenses.

Chris Neczypor: Overall, the sequential improvement reflects our disciplined focus on revenue growth and continued focus on expense efficiencies, and we remain well-positioned to deliver solid earnings in the coming quarters.

Chris Neczypor: Lastly, turning to life insurance. Life reported an operating loss of $35 million compared to operating income of $33 million in the prior year quarter, as the run rate impacts of the Fortitude retransaction and below target alternative investment income were partially offset by lower expenses. Mortality in the retail life business was in line with expectations; the squirter has slightly elevated mortality in our universal life business driven by a small number of high face amount claims, which was offset by favorability in our term business. Net GNA expenses for the quarter were down $11 million versus the prior year quarter, reflecting the targeted expense reductions we made in the first half of the year.

Speaker Change: Lastly, turning to life insurance. Life reported an operating loss of $35 million compared to operating income of $33 million in the prior year quarter, as the run rate impacts of the fortitude retransaction and below target alternative investment income were partially offset by lower expenses.

Unknown Executive: Mortality in the retail life business was in line with expectations this quarter, as slightly elevated mortality in our universal life business, driven by a small number of high face amount claims, was offset by favorability in our term business. Net T&A expenses for the quarter were down $11 million versus the prior year quarter, reflecting the targeted expense reductions we made in the first half of the year.

Speaker Change: Mortality in the retail life business was in line with expectations this quarter, as slightly elevated mortality in our universal life business, driven by a small number of high face amount claims, was offset by favorability in our term business.

Speaker Change: Net T&A expenses for the quarter were down $11 million versus the prior year quarter, reflecting the targeted expense reductions we made in the first half of the year.

Chris Neczypor: Overall, while lower alternative investment income pressured lights reported earnings this quarter, the underlying result was in line with our expectation, reflecting the strategic actions we've been taking to improve the earnings profile of this business. We expect favorability from mortality seasonality and the actions we have taken on expenses to support improvement in the life business in the second half of the year.

Chris: Overall, while lower alternative investment income pressured LIFE's reported earnings this quarter, the underlying result was in line with our expectation, reflecting the strategic actions we've been taking to improve the earnings profile of this business. We expect favorable seasonality from mortality seasonality and the actions we have taken on expenses to support improvement in the life business in the second half of the year. Let me now touch briefly on company-wide expenses. And thirdly, while the financial outcomes from our actions earlier this year strengthen the efficiency of our operations, we continue to see further opportunities to rationalize our expense base while growing the franchise alongside our strategic objectives. Shifting to capital, we ended the quarter with an estimated RBC ratio above 420 percent.

Speaker Change: Overall, while lower Alternative Investment Income pressured LICE-reported earnings this quarter, the underlying result was in line with our expectation, reflecting the strategic actions we've been taking to improve the earnings profile of this business.

Speaker Change: We expect favorability from mortality seasonality and the actions we have taken on expenses to support improvement in the life business in the second half of the year.

Chris Neczypor: Let me now touch briefly on company-wide expenses. Managing expenses remains a key strategic area focus. In the first quarter, we announced actions that were focused on reducing organizational complexity, resulting in a reduction in headcount across the organization, in addition to the ongoing efforts focused on removing unnecessary discretionary spending. As a result of these actions, excluding significant items from the first quarter of this year, DNA expenses had declined both sequentially and year-over-year. As we think about expenses more broadly, I want to highlight three items. First, seasonal items, particularly higher failed volumes, drive sequential expense growth over the course of the year.

Speaker Change: Let me now touch briefly on company-wide expenses.

Speaker Change: Managing expenses remains a key strategic area of focus. In the first quarter, we announced actions that were focused on reducing organizational complexity, resulting in a reduction in headcount across the organization, in addition to the ongoing efforts focused on removing unnecessary discretionary spending.

Speaker Change: As a result of these actions, excluding significant items from the first quarter of this year, G&A expenses have declined both sequentially and year over year.

Speaker Change: As we think about expenses more broadly, I want to highlight three items.

Speaker Change: First, seasonal items, particularly higher sales volumes, drive sequential expense growth over the course of the year. We saw those impacts in the second quarter and will continue to experience this impact in the second half of the year.

Chris Neczypor: We saw those impacts in the second quarter and will continue to experience this impact in the second half of the year. Second, we continue to evaluate opportunities to invest in talent, process efficiencies, and technology to improve the overall profitability of our businesses. And third, while the financial outcomes from our actions earlier this year strengthen the efficiency of our operations, we continue to see further opportunity to rationalize our expense base while growing the franchise alongside our strategic objectives.

Speaker Change: Second, we continue to evaluate opportunities to invest in talent, process efficiencies, and technology to improve the overall profitability of our businesses.

Speaker Change: And third, while the financial outcomes from our actions earlier this year strengthen the efficiency of our operations, we continue to see further opportunity to rationalize our expense base while growing the franchise alongside our strategic objectives.

Chris Neczypor: Shifting the capital, we ended the quarter with an estimated RBC ratio above 420 percent. As a reminder, our target RBC ratio is 400 percent, and we view a 420 percent RBC level as allowing a buffer to maintain our target RBC during a recessionary environment. As we discussed last quarter, the sequential improvement was driven by the completion of the sale of our wealth management business to Ozex, delivering roughly 650 million dollars in statutory capital benefits. Our leverage ratio improved 120 basis points sequentially to 28.9 percent, driven by the after-tax gain related to the close of the Ozex transaction and pay down of outstanding debt of over 50 million dollars.

Speaker Change: Shifting to capital, we ended the quarter with an estimated RBC ratio above 420 percent.

Speaker Change: As a reminder, our target RBC ratio is 400%, and we view a 420% RBC level as allowing a buffer to maintain our target RBC during a recessionary environment.

Chris: As we discussed last quarter, the sequential improvement was driven by the completion of the sale of our wealth management business to Osaic, delivering roughly $650 million in statutory capital benefits. Lastly, I want to provide an update on our newly licensed Bermuda-based reinsurance subsidiary, Alpine. In June, the Bermuda Monetary Authority issued a Class E license for Alpine, a wholly owned subsidiary of LNC.

Speaker Change: As we discussed last quarter, the sequential improvement was driven by the completion of the sale of our wealth management business to OSEG, delivering roughly $650 million in statutory capital benefit.

Speaker Change: Our leverage ratio improved 120 basis points sequentially to 28.9 percent, driven by the after-tax gain related to the close of the OSEG transaction and pay-down of outstanding debt of over $50 million.

Chris Neczypor: Overall, as elements achieving an RBC ratio above 420 is a key milestone reflecting the targeted actions we've taken to rebuild and protect capital and should provide significantly greater capital flexibility over the next few years.

Speaker Change: Overall, as Ellen mentioned, achieving an RIT ratio above 420 is a key milestone, reflecting the targeted actions we've taken to rebuild and protect capital, and should provide significantly greater capital flexibility over the next few years.

Chris: Looking ahead, Alpine will operate as an affiliated life and annuity reinsurance company. We are very pleased to join the Bermuda marketplace. The creation of Alpine and the increased reinsurance capacity centered around affiliate flow reinsurance for new business will support our strategy of improving free cash flow and ensuring a competitive presence in products and markets that are in line with our long-term strategic objectives. We expect to achieve the initial phase of this new business flow support in later in 2024 or early 2025.

Chris Neczypor: Lastly, I want to provide an update on our newly licensed Permutiv-based reinsurance subsidiary, Alpine. In June, the Permutiv Monetary Authority issued a class E license for Alpine, a wholly owned subsidiary of LNC. Additionally, we executed an initial reinsurance transaction covering enforced blocks of fixed indexed annuities and certain group disability business to drive scale into the entity. Looking ahead, Alpine will operate as an affiliated life and annuity reinsurance company. We are very pleased to join the Permutiv market in place. The creation of Alpine and the increased free insurance capacity centered around affiliate flow reinsurance for new business will support our strategy of improving free cash flow and ensuring a competitive presence in the products and markets that are in line with our long-term strategic objectives.

Speaker Change: Lastly, I want to provide an update on our newly licensed Bermuda-based reinsurance subsidiary, Alpine. In June , the Bermuda Monetary Authority issued a Class E license for Alpine, a wholly owned subsidiary of LNC.

Speaker Change: Additionally, we executed an initial reinsurance transaction covering enforced blocks of fixed indexed annuities and certain group disability business to drive scale into the entity.

Speaker Change: Looking ahead, Alpine will operate as an affiliated life and annuity reinsurance company. We are very pleased to join the Bermuda Marketplace.

Speaker Change: The creation of Alpine and the increased reinsurance capacity centered around affiliate flow reinsurance for new business will support our strategy of improving free cash flow and ensuring a competitive presence in the products and markets that are in line with our long-term strategic objectives.

Chris Neczypor: We expect to achieve the initial phase of this new business flow later in 2024 or early 2025.

Speaker Change: We expect to achieve the initial phase of this new business flow support later in 2024 or early 2025.

Chris Neczypor: Now moving to investments. Overall performance was solid and continues to reflect the high quality nature of our portfolio. The portfolio remains 97% investment grade and continues to deliver positive net ratings migrations.

Speaker Change: Now moving to investments.

Speaker Change: Overall performance was solid and continues to reflect the high quality nature of our portfolio. The portfolio remains 97% investment grade and continues to deliver positive net ratings migrations.

Chris Neczypor: Similar to last quarter, I want to provide three updates on the portfolio. First, on our general account optimization efforts; second, on our commercial mortgage loan portfolio; and third, on our alternative investment performance. Starting with the progress on our general account portfolio optimization efforts, where we continue to leverage our multi-manager platform to drive increased value to the organization. We experienced sequential improvement in our new money yield in the second quarter with new money invested at a 6.9% yield. While a portion of this increase was driven by higher rates, the primary driver was a targeted shift in our asset mix to less liquid assets and high-quality structured products.

Chris: Similar to last quarter, I want to provide three updates on the portfolio. Next, a brief update on our commercial mortgage loan portfolio. The portfolio remains high quality and represents 15% of total invested assets, with offices representing only 2.9% of total invested assets. Additional details on our CML portfolio can be found in our quarterly earnings supplement. As a reminder, our alternative portfolio is comprised of a diverse mix of private equity and real asset strategies with relatively small allocations to hedge fund and real estate-related strategies.

Speaker Change: Similar to last quarter, I want to provide three updates on the portfolio. First, on our general account optimization efforts. Second, on our commercial mortgage loan portfolio. And third, on our alternative investment performance.

Speaker Change: Starting with the progress on our general account portfolio optimization efforts, where we continue to leverage our multi-manager platform to drive increased value to the organization.

Speaker Change: We experienced sequential improvement in our new money yield in the second quarter, with new money invested at a 6.9% yield. While a portion of this increase was driven by higher rates, the primary driver was a targeted shift in our asset mix to less liquid assets and high-quality structured products.

Chris Neczypor: As we look ahead to the second half of year, we expect continued progress as we execute our optimization strategy, which will further support spread earnings and product competitiveness.

Speaker Change: As we look ahead to the second half of the year, we expect continued progress as we execute our optimization strategy, which will further support spread earnings and product competitiveness.

Chris Neczypor: Next, a brief update on our commercial mortgage loan portfolio. The portfolio remains high-quality and represents 15% of total invested assets, with office representing only 2.9% of total invested assets. The office is going through a longer term transition, and there are headwinds in the sector, but we believe we are well-positioned to navigate the environment. As discussed on prior calls, near-term maturities within our office portfolio remain manageable and are conservatively positioned from a debt service coverage and loan-to-value perspectives. Additional details on our CML portfolio can be found in our quarterly earnings supplement.

Speaker Change: Next, a brief update on our Commercial Mortgage Loan Portfolio. The portfolio remains high quality and represents 15% of total invested assets, with Office representing only 2.9% of total invested assets.

Speaker Change: Office is going through a longer term transition, and there are headwinds in the sector, but we believe we are well positioned to navigate the environment. As discussed on prior calls, near-term maturities within our office portfolio remain manageable, and are conservatively positioned from a debt service coverage and loan-to-value perspective.

Speaker Change: Additional details on our CML portfolio can be found in our quarterly earnings supplement.

Chris Neczypor: Lastly, our alternative investments generated a quarterly return of 1% this quarter, below our quarterly expectation of 2.5%. As a reminder, our alternative portfolio is comprised of eight diverse mixes of private equity and real asset strategies with relatively small allocations to hedge funds and real estate-related strategies. However, over the last several quarters, our returns have been slightly below expectations, primarily due to lower merger and acquisition activity, which has reduced the pace of realizations in certain private equity strategies, and higher interest rates, which negatively impacted valuations on certain sub-strategies such as real estate. As we look ahead to the third quarter, similar to recent quarters, we expect alternative investment returns to be moderately below the 2.5% expectation.

Speaker Change: Lastly, our alternative investments generated a quarterly return of 1% this quarter, below our quarterly expectation of 2.5%.

Speaker Change: As a reminder, our Alternatives Portfolio is comprised of a diverse mix of private equity and real asset strategies, with relatively small allocations to hedge fund and real estate related strategies.

Chris: However, over the last several quarters, our returns have been slightly below expectations, primarily due to lower merger and acquisition activity, which has reduced the pace of realizations in certain private equity strategies and higher interest rates, which negatively impacted valuations on certain sub-strategies, such as real estate. As we look ahead to the third quarter, similar to recent quarters, we expect alternative investment returns to be moderately below the 2.5% expectation. With the execution of key strategic initiatives over the last year, including the closing of the sale of our wealth management business this quarter, we have made significant progress towards building the capital foundation that will support enterprise stability across market cycles and ensure investment for profitable growth.

Speaker Change: However, over the last several quarters, our returns have been slightly below expectations, primarily due to lower merger and acquisition activity, which has reduced the pace of realizations in certain private equity strategies, and higher interest rates, which negatively impacted valuations on certain sub-strategies, such as real estate.

Speaker Change: As we look ahead to the third quarter, similar to recent quarters, we expect alternative investment returns to be moderately below the 2.5% expectation.

Chris Neczypor: In closing, I want to reiterate three points. First, building a strong capital foundation has been a primary focus. With the execution of key strategic initiatives over the last year, including the closing of the sale of our wealth management businesses quarter, we have made significant progress towards building the capital foundation that will support enterprise stability across market cycles and ensure investment for profitable growth. Second, momentum in our earnings quarter reflects the progress being made from our operating model optimization effort and ongoing expense discipline. And third, while we are pleased with the progress we've made, our overall focus remains unchanged as we execute against our longer term strategic objectives to maintain a strong balance sheet, improve free cash flow, and grow the franchise.

Speaker Change: In closing, I want to reiterate three points. First, building a strong capital foundation has been a primary focus.

Speaker Change: With the execution of key strategic initiatives over the last year, including the closing of the sale of our wealth management business this quarter, we have made significant progress towards building the capital foundation that will support enterprise stability across market cycles and ensure investment for profitable growth.

Speaker Change: Second, momentum in our earnings this quarter reflects the progress being made from our operating model optimization effort and ongoing expense discipline.

Chris: And third, while we are pleased with the progress we've made, our overall focus remains unchanged as we execute against our longer-term strategic objectives to maintain a strong balance sheet, improve free cash flow, and grow the franchise. With that, I'll turn the call back over to Tina.

Speaker Change: And third, while we are pleased with the progress we've made, our overall focus remains unchanged as we execute against our longer-term strategic objectives to maintain a strong balance sheet, improve free cash flow, and grow the franchise. With that, let me turn the call back over to Tina.

Tina Madon: With that, let me turn the call back over to Tina. Thank you, Chris. We'll now begin the question-and-answer portion of the call. Please limit yourself to one question and one follow-up, and then read Q if you have additional questions.

Tina Madon: Thank you, Chris. 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? Thank you. We will now begin the question and answer session.

Tina Madon: Thank you Chris. 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?

Unknown Executive: Now let me turn the call over to the operator to begin the Q and A.

Unknown Executive: Operator? Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. For optimal sound quality, please do not use a speakerphone.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.

Unknown Executive: Please speak directly into your receiver or use a wired headset with a microphone.

Speaker Change: For optimal sound quality, please do not use a speakerphone. Please speak directly into your receiver or use a wired headset with a microphone. Your first question today comes from the line of Ryan Krueger from KBW. Your line is open.

Ryan Krueger: Your first question today comes from the line of Ryan Krueger from KBW. Your line is open.

Ryan Krueger: Hey, thanks, good morning. My first question was on free cash flow. Can you just, I guess first, can you just, can you give us a rough sense of what year first half of the year free cash flow was?

Ryan Kruger: Hey, thanks. Good morning. My first question was on free cash flow. Can you just, I guess first, can you just, can you give us a rough sense of what your first half of the year free cash flow was?

Chris Neczypor: Hey, Ryan. Good morning. So, look, I think what I would say is, you know, you can get a sense from the growth in capital and, you know, the continued paying of the common dividend and see that we're on track relative to the longer term outlook that we put out earlier this year. So, as a reminder, you know, the three-year outlook that we had talked about was a 35% free cash flow conversion in 2023, growing to 45 to 55% in 2026. I think at the time, you know, as a reminder, what we said was there's going to be puts and takes each quarter.

Operator: Hey Ryan, good morning.

Ryan Joel Krueger: So, look, I think what I would say is, you know, you can get a sense from the growth in capital and, you know, the continued payment of the common dividend, and see that we're on track relative to the longer-term outlook that we put out earlier this year. So, as a reminder, you know, the three-year outlook that we talked about was a 35 percent free cash flow conversion in 2023, growing to 45 to 55 percent in 2026.

Speaker Change: Hey Ryan, good morning.

Speaker Change: So, look, I think what I would say is, you know, you can get a sense from the growth in capital and, you know, the continued paying of the common dividend and see that we're on track relative to the longer-term outlook that we put out earlier this year. So as a reminder,

Ryan Kruger: The three-year outlook that we had talked about was a 35% free cash flow conversion in 2023, growing to 45% to 55% in 2026. I think at the time, as a reminder, what we said was there's going to be puts and takes each quarter.

Ryan Joel Krueger: I think at the time, you know, as a reminder, what we said was there's going to be puts and takes each quarter. You know, if we make the longer-term investments to make sure that we get to that, that three-year, You know, we've got some wood to chop still, but this quarter was a big step forward, both from getting to the 420 RPC, bringing the leverage ratio down, and executing on Alpine.

Chris Neczypor: You know, we make the longer term investments to make sure that we get to that, that three year, that three year number that we're targeting. So I think if you step back, you know, if you think about first quarter, right, we generated the capital that we had thought we would, and then we used some of it for severance given some of the expense actions that we took this quarter. You know, we used some of the proceeds from Mosaic as an example for de-leveraging. And, you know, then we're able to set up the Alpine, whereas I think we mentioned we started the entity in an overcapitalized position as we get ready for, you know, thinking about executing on the flow deal.

Ryan Kruger: You know, as we make the longer-term investments to make sure that we get to that three-year

Ryan Kruger: a three-year number that we're targeting. So I think if you step back, you know, if you think about first quarter, right, we generated the capital that we had thought we would and then we used some of it for severance given some of the expense actions that we took.

Chris Neczypor: So, at the end of the day, if you think about it, step back, you know, we're making the progress that we had thought about and communicated as part of the outlook. We are on track to get to that 45 to 55% free cash flow conversion by 2026. You know, we've got some wood to chop still, but this quarter was a big step forward, both from getting to the 420 RPC, bringing the leverage ratio down and executing on Alpine.

Ryan Kruger: We've got some wood to chop still, but this quarter was a big step forward, both from getting to the 420 RPC, bringing the leverage ratio down.

Chris Neczypor: So there's going to be puts and takes each quarter. You know, I think at the end of the day, if you look at the progress that we're making relative to what we've described as the path to get to the 2026 numbers, you can feel confident that we're making the progress that we need to make.

Ryan Joel Krueger: So there's gonna be puts and takes each quarter. You know, I think at the end of the day, if you look at the progress that we're making relative to what we've described as the path to get to the 2026 numbers, you can feel confident that we're making the progress that we need to make. Thanks, and then I'm Bermuda. Sure.

Chris Neczypor: Thanks, and then on Bermuda, can you give us any more sense of how much capital did you originally contribute to it?

Bermuda: Thanks, and then, Umber Mute it.

Chris Neczypor: What would be the impact of the cost you initially seeded, and then how are you thinking about the magnitude of internal reinsurance going forward? Sure. So, you know, the establishment of the Bermuda entity is an important step forward. You know, it's one of the key strategic objectives that we talked about as you think about executing on competing in the products and markets that are going to be critical to achieving our strategic objectives over the next couple of years. So really thinking about growth and spread and spread like products. You know, I think step one for us was to establish the entity we worked with Bermuda for the past year. We got licensed this quarter; we feel really good about that.

Ryan Joel Krueger: So, you know, the establishment of the Bermuda Entity is, is an important step forward. You know, it's one of the key strategic objectives that we talked about. And really, the goal there is to create scale at inception and a block that will, you know, generate free cash flow going forward. I will also say that we overcapitalized the entity relative to its long-term target, again with the goal of being able to execute an internal flow deal in the next couple of quarters. We're not going to get into all the different puts and takes on capital for L&L versus Alpine, but the capital is still in the system.

Speaker Change: Executing on competing in the products and markets that are going to be critical to achieving our strategic objectives over the next couple of years. So really thinking about growth and spread and spread like products.

Speaker Change: You know, I think step one for us was to establish the entity. We worked with Bermuda for the past year. We got licensed this quarter. We feel really good about that. We seeded about $7 billion, plus or minus, in fixed annuities, and then a little bit less than that in disability reserves.

Chris Neczypor: We seeded about $7 billion plus or minus, and fixed annuities, and then a little bit less than that in disability reserve. and really the goal there is to create scale ad inception and a block that will, you know, throw off free cashflow going forward. I will also say that we overcapitalized the entity relative to its long-term target, you know, again with the goal of being able to execute an internal flow deal, you know, in the next couple of quarters. We're not going to get into all the different puts and takes capital for Ellen Elvars Elpine, the capital still in the system, but, you know, you can get a sense for the scale relative to the reserves that we move down there.

Speaker Change: I will also say that we overcapitalized the entity relative to its long-term target, again, with the goal of being able to execute an internal flow deal in the next couple of quarters.

Ryan Joel Krueger: But, you know, you can get a sense for the scale relative to the reserves that we moved down there. At the end of the day, you know, the next step will be to execute on a new business flow reinsurance agreement. We're working through that now.

Chris Neczypor: At the end of the day, you know, the next step will be to execute on a new business flow, green chance agreement. We're working through that now; you know, I think over time there will be a number of different products that look attractive in Bermuda. As an example, you know, fixed annuities, you know, we do have a flow deal in place with an external partner, but we also retain a substantial amount of the sales that we generate there. So one example, you know, I think fixed annuities work very well in the economic frame where that is Bermuda.

Ryan Joel Krueger: You know, I think over time, there will be a number of different products that look attractive in Bermuda. As an example, you know, fixed annuities. You know, we do have a flow deal in place with an external partner, but we also retain a substantial amount of the sales that we generate there. So, as an example, I think fixed annuities work very well in the economic framework that is Bermuda. So, more to come, but you know, it's a good step, and we're really pleased with the progress.

Speaker Change: We're working through that now.

Chris Neczypor: So more to come, but you know, it's a good step and we're really pleased with the progress.

Ryan Krueger: Great. Thank you.

Nick Liu: Your next question comes from a line of Nick Liu from Evercore. Your line is open.

Operator: Your next question comes from a line by Nick Liu from Evercore. Your line is open.

Speaker Change: Great, thanks a lot.

Speaker Change: Your next question comes from a line of Nick Liu from Evercore. Your line is open.

Nick Liu: Thank you.

Nick Liu: Thank you. So for the group protection sales, it was very strong year-over-year. I just wanted to, in line with some recent peer commentary on elevated pricing competition, I just wanted to see how comfortable you guys feel about the pricing adequacy and new sales going forward. Thank you. Sure. So I'm happy to take it.

Nick Liu: So for the group protection filter was very strong year over year. Just wanted to, and live with some recent peer commentary on elevated pricing competition. Just wanted to see how comfortable are you guys feel about the pricing adequacy and new sales going from here.

Ellen Cooper: Thank you. Sure.

Ellen Cooper: So I'm happy to take that good morning. So we, what we have seen is that, first of all, the environment as it relates to group and sales has been and remains competitive. Having said that, we are not seeing any noticeable change in the landscape. We view the market as competitive, and it always has been, but largely rational. We have seen an uptick in some new entrance into the market. Most of those carriers tend to start in the small market segment. And at this point in time, those new entrants, they have not had a material impact on the market to date.

Ellen Cooper: I want to also just mention that success in the group business is very much predicated on really having the proper balance, as we have been messaging, between prioritizing margin over growth. And then importantly, operational and service needs and the capabilities and the infrastructure that are required to really service, serve and grow the group protection business are just critical in terms of how to think about ultimately being successful in this business. So, as we've mentioned, we are very much targeting differentiated strategies across market, and we're also in the process of refreshing all of our product. We very much remain disciplined as it relates to pricing, and that's reflected in the fact that we've got 3% overall premium growth.

Speaker Change: I want to also just mention that success in the group business is very much predicated on really having the proper balance, as we have been messaging, between prioritizing margin over growth, and then importantly, operational and service needs.

Speaker Change: So as we've mentioned, we are very much targeting differentiated strategies across market, and we're also in the process of refreshing all of our product.

Ellen Cooper: That's a combination of new business and also renewal pricing, and we feel very comfortable in terms of where we are and how, again, we are prioritizing that margin over growth.

Nick Liu: Thank you.

Unknown Executive: Thank you, and the follow-up is on annuities. Sales are also very strong both year-over-year and sequentially, especially on fixed annuities. Was there any particular key driver that you would point to as to what was behind that? Thank you.

Nick Liu: And the follow-up is on annuity sales. It's also very strong, though, to be over your antiquentially, especially on fixed annuities. Is there any particular key driver that you will point to as to what was behind that?

Ellen Cooper: Thank you. Sure. So we are very pleased with our 48% overall year-to-year increase in annuity sales. As we mentioned in our upfront remarks, annuity sales for the quarter came in at 3.8 billion. And we saw a very significant increase in our fixed annuity sales. We spent a better part of last year building a number of the operational capabilities that were required to be able to have a consistent presence in the fixed market. And so examples of that, and Chris mentioned one of them was to put an attractive flow agreement in place with an external provider of that.

Unknown Executive: Sure. We are very pleased with our 48% overall year-over-year increase in annuity sales. As we mentioned in our upfront remarks, annuity sales for the quarter came in at $3.8 billion, and we saw a very significant increase in our fixed annuity sales. We spent the better part of last year building a number of the operational capabilities that were required to be able to have a consistent presence in the fixed market. And so examples of that, and Chris mentioned one of them was to put an attractive flow agreement in place with an external provider of that.

Speaker Change: Sure. So, we are very pleased with our

Speaker Change: 48% overall year-over-year increase in annuity sales.

Speaker Change: As we mentioned in our upfront remarks, annuity sales for the quarter came in at $3.8 billion and we saw a very significant increase in our fixed annuity sales.

Speaker Change: Building a number of the operational capabilities that were required to be able to have a consistent presence in the fixed market. And so examples of that, and Chris mentioned one of them, was

Ellen Cooper: We we also focused on leveraging our distribution relationships, and we established consistent shelf space with some of our key strategic partners. And we also refined and are utilizing our strategic asset allocation.

Unknown Executive: We also focused on leveraging our distribution relationships, and we established consistent shelf space with some of our key strategic partners. We also refined and are utilizing our strategic asset allocation. And going forward, as Chris mentioned, we also have the opportunity now that we have our Bermuda Affiliated Reinsurers set up to leverage that to continue to drive sales and growth in the fixed market. We also, although we saw RILA sales year-over-year relatively flat, down about 2%, we saw a sequential increase there of over 15%.

Chris Neczypor: We also focused on leveraging our distribution relationships, and we established...

Ellen Cooper: And going forward, as Chris mentioned, we also have the opportunity now that we have our Bermuda Affiliated Reinsure setup to leverage that to continue to drive sales and growth in the fixed market. We also, although we saw Ryla sales year-over-year relatively flat, down about 2%, we saw a sequential increase there of over 15%. And Ryla has been an important product segment for us. We were one of the earlier entrants into the Ryla market more than five years ago. We continue to maintain a significant competitive presence there. And in the quarter, we refreshed our Ryla product.

Chris Neczypor: We also, although...

Unknown Executive: And RILA has been an important product segment for us. We were one of the earlier entrants into the RILA market more than five years ago. We continue to maintain a significant competitive presence there. And in the quarter, we refreshed our RILA product, and we have some unique features that we offer in our RILA product that enable us to compete there on product features over price, which we think is very valuable. And then, as you all know, variable annuity has been and continues to be an important part of our overall annuity strategy. VA with Guarantees represents about 16% of our overall annuity sales. We're comfortable with annuities at that level, and we're achieving good target returns, and we feel, again, very good about where we are.

Speaker Change: We saw RILA sales year-over-year relatively flat, down about 2%. We saw a sequential increase there of over 15%.

Chris Neczypor: and Ryla has been an important product segment for us. We were one of the earlier entrants into the Ryla market more than five years ago. We continue to maintain a significant competitive presence there. And in the quarter, we refreshed our Ryla product and we have some unique features that we offer in our Ryla product that enable us to compete there.

Ellen Cooper: And we have some unique features that we offer in our Ryla product that enable us to compete there on product features over price, which we think is very valuable. And then, as you all know, variable annuity has been and continues to be an important part of our overall annuity strategy. VA with guarantees represented about 16% of our overall annuity sales. We were comfortable with annuities at that level.

Ellen Cooper: We're achieving good target returns, and we feel, again, very good about where we are.

Sneak-Commat: Your next question comes from the line of Sneak-Commat from Jeffries.

Sneak-Commat: Your line is open. Thanks, good morning.

Speaker Change: Your next question comes from the line of Suneet Kamath from Jeffries. Your line is open.

Sneak-Commat: I wanted to start on expenses. Obviously, we've talked about expense improvement; it is a pretty important part of the free cash flow improvement story. So, I just want to get a sense of maybe what the sort of target is and what's really the best way to measure it. Because obviously, you're making efficiency moves, but then you're also investing in the business. And so, I think externally, sometimes it's hard to actually see that progress. So, there's some metrics that you would point us to, to kind of track how you're performing against that.

Chris Neczypor: Hey, good morning, Sneak. Thanks for the question. So, I think big picture, one of the framing points that we've made in the past is if you go back a couple of years, G&A expenses and aggregate are up $200 million for the company. And so, it's just as a starting point. Given the environment that we're in, there certainly seems room for optimization. So, that's the first big picture. I think, to your specific question, if you look at a business unit level, that's probably the best way to go about it. Because for each business, there's going to be different metrics and different need for investment versus room for optimization.

Unknown Executive: Hey, good morning, Suneet. Thanks for the question. So I think big picture, one of the framing points that we've made in the past is, if you go back a couple years, G&A expenses in aggregate are up $200 million for the company, right. And so just as a starting point, given the environment that we're in, there certainly seems room for optimization. So that's the first big picture. I think, you know, to your specific question, if you look at it at a business unit level, that's probably the best way to go about it.

Speaker Change: So I think big picture, one of the...

Speaker Change: framing points that we've made in the past is if you go back a couple years, G&A expenses in aggregate are up $200 million for the company.

Speaker Change: Right.

Speaker Change: I think, you know, to your specific question, if you look at a business unit level, that's probably the best way to go about it, because for each business, there's going to be different metrics and different need for investment versus room for optimization. You know, group is a great example where, you know, we're seeing a lot of investment and, you know, it'll come through in higher expenses, but, you know, the offset will be better margins overall.

Unknown Executive: Because for each business, there's going to be different metrics and different needs for investment versus room for optimization. You know, Group is a great example where, you know, we're seeing a lot of investment, and you know, it'll come through in higher expenses, but you know, the offset will be better margins overall. On the life side, you know, I think if you look at the quarter,

Chris Neczypor: Group is a great example, where we're seeing a lot of investment, and it'll come through in higher expenses, but the offset will be better margins overall. On the light side, I think look at the quarter. You know, second quarter net GNA expenses were 125 million, you know, down from 130 million last quarter, and a year ago, 136 million, right? And so, you know, we see opportunity in each of the different businesses that's slightly different. We continue to make investment where we need, but at the end of the day, we just think in aggregate there should be significant expense to come out over the next couple of years.

Speaker Change: On the life side, you know, I think if you look at the quarter

Speaker Change: But at the end of the day, we just think, in aggregate, there should be a significant expense to come out over the next couple of years. We started that this year. We see more room to go. And I think, ultimately, you know, it's incumbent on us to highlight the metrics that we think are critical at a business unit level, and that's something that we continue to look at. You can look at the operating expense ratio for the company, you know, obviously, to the degree that the denominator has some volatility in it, you know, we try to normalize for that.

Chris Neczypor: We started that this year. We see more room to go. And I think ultimately, you know, it's incumbent on us to highlight the metrics that we think are critical at a business unit level, and that's something that we continue to look at. You can look at the operating expense ratio for the company. You know, obviously, to the degree that the denominator has some volatility in it, you know, we try to normalize for that. But generally speaking, I would say when you look at a business unit level, you should see in aggregate, the GNA expenses come down, and then in certain pockets, expenses reflecting investment, but coming through in other ways in terms of margin.

Chris Neczypor: Does that help?

Sneak-Commat: Yeah, that's helpful, and obviously any more detail you guys can provide would be helpful as well.

Unknown Executive: Yeah, that's helpful. And obviously, any more detail you guys can provide would be helpful as well. In terms of my follow-up, I wanted to follow up on annuities.

Sneak-Commat: In terms of my follow-up, I wanted to follow up on annuities.

Sneak-Commat: And when it looks like, you know, second quarter here was going to be a record for the industry, and I just wanted to get your thoughts on, you know, what's behind that? How sustainable is that? And, you know, are you seeing any, you know, irrational behavior in terms of your competitors?

Unknown Executive: Ellen, it looks like, you know, the second quarter here will be a record for the industry. And I just wanted to get your thoughts on, you know, what's behind that? How sustainable is that? And, you know, are you seeing any, you know, irrational behavior in terms of your competitors? So maybe a perspective on the industry would be helpful. And then a perspective on Lincoln, if you could, thanks. Sure. So we will continue.

Speaker Change: You know, what's behind that? How sustainable is that? And, you know, are you seeing any, you know, irrational behavior in terms of your competitors? So maybe a perspective on the industry would be helpful. And then a perspective on Lincoln, if you could, thanks.

Ellen Cooper: So maybe a perspective on the industry would be helpful, and then a perspective on Lincoln, if you could, thank.

Ellen Cooper: Sure. So we continue exactly to your point to see, first of all, that there's just significant customer demand, and we think it's a combination of a couple of things. Number one is that we know that there is a demographic trend here where we have more Americans turning 65 this year, and for the next four years, than we ever have in history. And so you really have a need for deferred savings, and for retirement planning. Is one thing. And secondly, we know that interest rates are still at, you know, relatively higher than they certainly had been for the previous decade.

Unknown Executive: Sure. So we continue exactly to your point to see, first of all, that there's just significant customer demand. And we think it's a combination of a couple of things. Number one is that we know that there is a demographic trend here where we have more Americans turning 65 this year and for the next four years than we have ever had in history. And so you really have a need for deferred savings, and retirement planning is one thing.

Speaker Change: We know that there is a demographic trend here where we have

Speaker Change: More Americans turning 65 this year and for the next four years than we ever have in history. And so you really have a need for deferred savings and for retirement planning is one thing. And secondly, we know that interest rates are still at, you know, relatively higher than they certainly had been for the previous decade. So that is another thing that is also driving some of the customer value proposition.

Unknown Executive: And secondly, we know that interest rates are still relatively higher than they certainly have been for the previous decade. So that is another thing that is also driving some of the customer value proposition. And then we also know that some of the operational capabilities that we just talked about that we built last year, a number of competitors have built similar types of capabilities as well that enable them to be in the annuity space as well.

Ellen Cooper: So that is another thing that is also driving some of the customer value proposition. And then we also know that some of the operational capabilities that we just talked about, that we built last year, that a number of competitors have built similar types of capabilities as well, that enable them to be in the immunity space as well. So we think all of that is factoring in.

Speaker Change: And then we also know that some of the operational capabilities that we just talked about that we built last year that a number of competitors have built similar types of capabilities as well.

Ellen Cooper: Similar to what I had said previously about group, is that annuity and the annuity landscape is definitely competitive. We are all from best that we can see being largely rational. And we are ensuring, importantly, that we are achieving our target returns. And we've talked about the fact that capital efficiency is important to us. And ensuring that we've got the appropriate risk-adjusted returns in our annuity products in each of the segments in aggregate and across all of our products. So I hope that helps to me.

Unknown Executive: So we think all of that is factoring in. Similar to what I had said previously about group is that annuities and the annuity landscape are definitely competitive. We are all from the best that we can see being largely rational, and we are ensuring, importantly, that we are achieving our target returns. And we've talked about the fact that capital efficiency is important to us and ensuring that we've got the appropriate risk-adjusted returns on our annuity products in each of the segments in aggregate and across all of our products. So I hope that helps.

Speaker Change: Similar to what I had said previously about GRU.

Speaker Change: We are all, from best that we can see, being largely rational.

Speaker Change: And we are ensuring, importantly, that we are achieving our target returns. And we've talked about the fact that capital efficiency is important to us.

Speaker Change: and ensuring that we've got the appropriate risk adjusted returns in our annuity products in each of the segments in aggregate and across all of our products. So I hope that helps Suneet.

Sneak-Commat: Yeah, that's helpful.

Sneak-Commat: Thanks.

West Carmichael: Your next question comes from a line of West Carmichael from Autonomous Research. Your line is open.

Speaker Change: Yeah, that's helpful. Thanks.

Unknown Executive: Hey, good morning. Thanks for taking my question. My first question was on leverage, and now that, you know, RBC is above your buffer, you mentioned deleveraging as a priority, but the ratio did come down a bit under 29%. I think there's roughly $300 million of pre-funded debt for March of next year. So, given that, I mean, do you think there's more work to do after that maturity, or are there other pieces I'm missing?

West Carmichael: Thank you. Good morning. Thanks for taking my question. My first question was on leverage, and now that, you know, RBC is above your buffer. You mentioned leveraging as a priority, but the ratio did come down a bit under 29%. I think there's roughly, you know, $300 million of a pre-funded debt from March and next year.

Chris Neczypor: So, to get them out, I mean, do you think there's more work to do after that maturity, or are there other pieces I'm missing? So, what's your right? The leverage ratio came down. I think it's peak. Last year at around, you know, 30.7, 30.8, some around there. We're now down to 28.9. You know, as a reminder, what we said is the long term goal is closer to 25. So, you know, we certainly still think there's room to go. There's work to be done. I think you can accomplish that in a couple of different ways. You can continue to build equity, which obviously we did this quarter partly, you know, just from the natural earnings of the company, but also from the gain on sale from LFN.

Speaker Change: $300 million of pre-funded debt for March of next year. So given that, I mean, do you think there's more work to do after that maturity or are there other pieces I'm missing?

Unknown Executive: So Wes, you're right, the leverage ratio came down. I think it peaked last year at around, you know, 30.7, 30.8, somewhere around there. We're now down to 28.9.

Unknown Executive: You know, as a reminder, what we said was the long-term goal is closer to 25. So, you know, we certainly still think there's room to go, there's work to be done. You can continue to look at proactively buying in debt. We did some of that this quarter as well.

Speaker Change: So, you know, we certainly still think there's room to go, there's work to be done.

Unknown Executive: We repaid $50 million of our term loan. And then, you know, there's the combination of looking longer term at attractive liability management tools, all of which are on the table. So at the end of the day, you know, we also have the preferred that'll come due, or we'll have the opportunity to buy it in in a couple of years. That's a priority, as we've talked about at length. So I think if you put all that together, you would say we're not done.

Chris Neczypor: You know, you can continue to look at proactively buying in debt. We did some of that this quarter as well. We repaid $50 million of our term loan. And then, you know, there's the combination of looking longer term at attractive liability management tools, all of which are on the table. So, at the end of the day, you know, we also have the preferred that'll come due or have the opportunity to buy in in a couple of years. That's a priority, as we've talked about at length.

Speaker Change: And then, you know, there's the combination of looking longer term at attractive liability management tools, all of which are on the table.

Chris Neczypor: So, I think if you put all that together, you would say we're not done. We think that the end goal for leverage is, you know, lower than where it is today. And at the moment, we're balancing deploying capital into areas that achieve our goals and get the best return for the dollar invested, at the same time that we're looking to bring leverage down. Yeah, thanks, Chris.

Unknown Executive: We think that the end goal for leverage is, you know, lower than where it is today. And at the moment, we're balancing deploying capital into areas that achieve our goals and get the best return for the dollar invested at the same time that we're looking to bring leverage down.

Chris Neczypor: And I guess my follow-up would be on the group business again. And, you know, results across the industry have been very strong. And I know you expect a little moderation, maybe in disability, in the second half of the year. But do you think, you know, given the environment we're in, we're probably above, you know, the top end year, five to seven percent margin target. I think you're kind of targeting seven. But do you think there's a little bit of, you know, room to run above that in the near term. So, I think that, you know, the range that we provided in terms of improvement this year still holds.

Speaker Change: Got it. Thanks, Chris. And I guess my follow-up would be on the group business again.

Unknown Executive: So I think that, you know, the range that we provided in terms of improvement this year still holds. We communicated a 50 to 100 basis point improvement for 2024. And as a reminder, we ended last year at five and a half percent. So if you look at the, and there's noise, right, but if you look at the first half of 2024 versus the first half of 2023, you're basically tracking at the high end of that range, right? So we're still within the range, but we're at the high end.

Speaker Change: So, I think that, you know, the range that we provided in terms of improvement this year still holds. So, we communicated a 50 to 100 basis point improvement for 2024. And as a reminder, we ended last year at 5.5%.

Chris Neczypor: So we communicated a 50 to 100 basis point improvement for 2024. And as a reminder, we ended last year at five and a half percent. So if you look at these and there's noise, right, but if you look at the first half of 2024 or the first half of 2023, you're basically tracking at the high end of that range. Right. So we're still within the range, but we're at the high end. And then, as a reminder, as I said in the prepared remarks, there's seasonality in our group business. Right. So if you look at last year's second half, you know, I think broad strokes, the number would be somewhere around a 4 percent margin, you know, 3.8, 3.9, somewhere around there, relative to the 7.1 in the first half, gets you to the 5 and a half.

Speaker Change: So if you look at the, and there's noise, right? But if you look at the first half.

Speaker Change: of 2024 versus the first half of 2023, you're basically tracking at the high end of that range, right? So we're still within the range, but we're at the high end. And then as a reminder, as I said, in the prepared remarks, there's seasonality in our group business, right? So if you look at last year's second half,

Unknown Executive: And then, as I said in the prepared remarks, there's seasonality in our group business, right? So if you look at last year's second half, you know, I think, in broad strokes, the number would be somewhere around a 4% margin, you know, 3.8, 3.9, somewhere around there relative to the 7.1 in the first half gets you to the five and a half, right? So it is important to just understand that the seasonality of our group results will bring earnings down relative to the second quarter and first quarter, but year over year, you'll continue to see that improvement.

Chris Neczypor: Right. So it is important to just understand that our seasonality of our group results will bring earnings down relative to the second quarter and first quarter. But you'll continue to see that improvement.

Unknown Executive: The last thing just to, I mean, like we said in the prepared remarks, but just to reiterate, the benefit that we received this quarter from the experience refund, which we normally get in the third quarter, we got it in the second quarter this year. So when you think about your estimates, just, you know, just make sure that you're factoring that in. At the end of the day, you know, relative to the first half and what we see at the moment, we still think the prior guidance holds, and it's probably at the higher end of that range, to your point.

Chris Neczypor: The last thing, just to, I mean, we said in the prepared remarks, just to reiterate the benefits that we received this quarter from the experience refund. You know, we normally get in third quarter; we got it in second quarter this year. So when you think about your estimates, just, you know, just make sure that you're factoring that in at the end of the day. You know, we relative to the first half and what we see at the moment. We still think the prior guidance holds, and it's probably at the higher end of that range, to your point.

West Carmichael: Thank you.

Brian Meredith: Your next question comes from a line up, Brian Meredith from UBS.

Brian Meredith: Your line is open. Hi, I was with some cucker on for Brian.

Speaker Change: Your next question comes from a line of Brian Meredith from UBS. Your line is open.

Brian Meredith: My first question is on group. You mentioned higher mortality amongst the younger age group. Could you kind of unpack that a little more and what's kind of driving that trend and how you see it going forward, and additionally, are there any other age groups that you're seeing higher mortality in.

Ellen Cooper: Thank you.

Brian Meredith: And additionally, are there any other age groups that you're seeing higher mortality in? Thank you.

Ellen Cooper: Thanks for the question. Look, I would say that it's, you know, you get volatility in any even quarter-hour in our group life business. So I wouldn't read too much into it.

Speaker Change: You know, you get volatility in any given quarter in our group life business, so I wouldn't read too much into it. I think the point was explaining the year-over-year increase in the loss ratio. When you have a handful of claims that come through in the younger age cohorts that can just have higher mortality attached to it because the expected earnings from those folks are higher, all else being equal. At the end of the day, there's volatility in the severity in the life business, in the group life business. I just, you know, I wouldn't read too much into it from a trend, but it helps to explain what happened this quarter.

Ellen Cooper: I think the point was explaining the year-to-year increase in the loss ratio when you have a handful of claims that come through in the younger age cohorts that can just have higher mortality patch to it because the expected earnings from those folks are higher, all else being equal. But at the end of the day, there's volatility in the severity in the life business and in the group life business, and I just, you know, I wouldn't read too much into it from a trend, but it helps to explain what happened this quarter. Got it.

Chris Neczypor: And then my second question is, so now that you have that RBC ratio at the 420 mark and the flexibility that permute it gives you, how do you kind of think about capital return going forward, and are there any opportunities for M&A that you're kind of focused on, or are you more focused on organic growth? Thank you. Yeah, thanks for the question. Look, so I think I would reiterate what we, you know, discussed as part of the investor outlook. We are thinking on capital return hasn't changed. I think there are a number of steps that we need to take over the next couple of years to get to the, you know, run rate free cash flow that we've been describing.

Speaker Change: Are there any opportunities for M&A that you're kind of focused on or are you more focused on organic growth? Thank you.

Unknown Executive: Yeah, thanks for the question. Look, so I

Speaker Change: Yeah, thanks for the question. Look, so I think I would reiterate what we...

Speaker Change: Discussed as part of the Investor Outlook, we are thinking on

Speaker Change: Capital Return hasn't changed.

Speaker Change: I think there are a number of steps that we need to take over the next couple of years to get to the...

Chris Neczypor: All right, so moving from that 35% in 23 free cash flow conversion to the 45 to 55%. If you go back to what we talked about earlier this year, there are uses of capital that are required in order to get there. So part of it as an example is, you know, being using capital to fund the establishment of Alpine, thinking about, you know, using capital to deal with the expense associated with optimizing our infrastructure. So if you think about severance relative to the payback, if you think about the use of capital from a deleveraging perspective and to prefer there's a good example which is expensive from a coupon perspective.

Speaker Change: you know, run rate free cash flow that we've been describing, right. So moving from that 35% and 23% free cash flow conversion to the 45% to 55%. If we go back to what we talked about earlier this year, there are uses of capital that are required in order to get there. So part of it, as an example, is, you know, being using capital to fund the establishment of Alpine thinking about, you know, using capital to

Speaker Change: If you think about the use of capital from a deleveraging perspective, and the preferred there is a good example, which is expensive from a coupon perspective. So at the end of the day, our thinking hasn't changed. We think that there's a lot of opportunity for us to use capital to, you know, get to a run rate.

Chris Neczypor: So, at the end of the day, our thinking hasn't changed. We think that there's a lot of opportunity for us to use capital to, you know, get to a run rate.

Chris Neczypor: And in fact, probably higher than what we had in 2026 over the longer term, but we are very focused on using the free cash flow that we're generating to improve the operating efficiency of the company and to make the investments that's needed for the long term.

Speaker Change: and in fact probably higher than what we had in 2026 over the longer term. But we are very focused on using the free cash flow that we're generating to improve the operating efficiency of the company and to make the investments that's needed for the long term.

Chris Neczypor: Great, thank you.

Tina Madon: There are no more questions at this time.

Tina Madon: I will now turn the call over to Tina Madden for closing. Thank you for joining us this morning. We're happy to address any follow-up questions you have.

Speaker Change: There are no more questions at this time. I will now turn the call over to Tina Madon for closing remarks.

Tina Madon: Please email us at investorrelations@lfg.com.

Tina Madon: Thank you for joining us this morning. We're happy to address any follow-up questions you have. Please email us at InvestorRelations at LFG.com.

Unknown Executive: It concludes today's conference call. Thank you for your participation.

You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.