Q3 2024 Lincoln National Corp Earnings Call
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Including Adjusted Income from Operations, or Adjusted Operating Income, and Adjusted Income from Operations available to common stockholders to the most comparable gap measures.
Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions.
Trends in our businesses, prospective services or products, future performance or financial results, including those related to deposits, expenses, income from operations, and share purchases, liquidity and capital resources.
Our Forward Looking Statements Under the Private Security's Litigation Reform Act of 1995.
The East Forward Looking Statements involve risks and uncertainties that 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 details in our 2023 Annual Report on Form 10K, most recent quarterly reports on Form 10K, and from time to time in our other filings with CCC.
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: Presenting this morning, our Ellen Cooper, Chairman, President in CEO and Chris Nezapor, Chief Financial Officer.
Speaker Change: After their prepare remarks, we'll address your questions.
Speaker Change: Let me now turn the call over to Ellen.
Ellen Cooper: Thank you, Tina, and good morning, everyone. Thank you for joining our call today. We are pleased with our third quarter adjusted operating income, which was our highest quarterly earnings in over two years, reflecting continued progress in our strategic realignment.
Ellen Cooper: He's results were driven by strong underlying performance in all four businesses as we continue to achieve consistent momentum advancing against the operating initiatives we outlined earlier this year.
Ellen Cooper: We are executing on tangible actions to deliver sustained long-term value creation and support our strategy built upon three objectives.
Ellen Cooper: A strong capital foundation to ensure enterprise stability across market cycles and support investment for future growth.
Ellen Cooper: and optimized operating model to advance a scalable framework to maximize our resources and businesses and products that deliver profitable growth to improve free cash flow and grow the franchise.
Ellen Cooper: This is a multi-year journey, and as with any journey, a strong capital foundation lays the base for sustained long-term success. We continue to build capital with another sequential quarter of RBC in excess of our 420% upper.
Ellen Cooper: We also continue to progress in optimizing our operating model with the focus on expensive efficiencies, investment strategy optimization, and the launch of our Belonutary Insurance subsidiary last quarter to further strengthen our ability to deliver against our priorities.
Ellen Cooper: Lastly, we advance against our objective of delivering profitable growth as we transform Lincoln into an organization characterized by businesses, market 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 and retirement businesses with targeted segment strategies to serve the unique needs of our customers.
Ellen Cooper: Evolve our annuity business with a diversified product mix that includes expansion of spread-based products and realign our life business to emphasize more risk sharing within accumulation and protection products.
Ellen Cooper: Our progress to date has clearly been driven by broad-based execution and sets the stage for continued success as we leverage our competitive advantages, including our powerful franchise distribution leadership, broad product portfolio and trusted brand.
Ellen Cooper: On the topic of brand, I would be remiss if I did not spend a minute mentioning a recent brand refresh.
Ellen Cooper: Collectively, our four businesses deliver financial protection and security to more than 17 million customers today. Customers who rely on us to support their financial futures.
Ellen Cooper: As we look forward, we seek to enable more people to confidently succeed their way.
Ellen Cooper: and we treat every customer's future with care. Our new logo is intended to drive brand recognition and our new tagline, your tomorrow, our priority. Embodies are focused on stewardship and our enduring commitment to being there for our customers today and tomorrow.
Ellen Cooper: Now turning to our third-quarter performance, excluding the impact of our annual assumption review. Key highlights at the segment level included group protection, delivering record third-quarter results with earnings more than doubling year over year.
Ellen Cooper: and Newties earnings increased by 15% for the same period and delivered substantial sales growth. Retirement Plan Services sustained its momentum producing another quarter of sequential earnings growth and first-year sales that more than tripled year over year.
Ellen Cooper: Life Insurance generated sequential sales growth for a second quarter.
Ellen Cooper: We have made significant progress against our objectives and our results have exceeded our expectations.
Ellen Cooper: Now shifting to our businesses and starting with retail solutions, which includes our newities and life businesses.
Ellen Cooper: Our annuity strategy is taking hold as we execute on growing while diversifying our earnings mixed to more spread-based products.
Ellen Cooper: We aim to achieve this with the continued expansion of our addressable market and increasing our competitiveness by enhancing our capabilities, including an optimized investment strategy, capital efficient re-enturance solutions, and increased expense efficiencies.
Ellen Cooper: Total annuity sales for the quarter of 3.4 billion were up nearly 25% from the prior year quarter, with increases in all product categories and double digit growth in spread-based products.
Ellen Cooper: We remain focused on delivering profitable growth over top line growth.
Ellen Cooper: That meets our target at risk adjusted returns in each product segment while leading with our distribution network to provide a broad holistic set of product solutions that address customer preferences in various market environments.
Ellen Cooper: Ryleau continues to be a strategic focus and demonstrated another quarter of solid momentum with sales increasing year over year by 13% and 10% sequentially to the highest sales level in nearly two years.
Ellen Cooper: We successfully launched our second generation Rylea Product Last Quarter and its refreshed features and unique crediting strategies are resonating in the market.
Ellen Cooper: While our fixed-inuity sales increased by more than 30% year over year and we're approximately $1 billion for the quarter sales levels were down sequentially.
Ellen Cooper: As a reminder, we built the capabilities over the course of the last year to sustain a consistent and growing presence in the fixed marketplace and expect to leverage our new Bermuda affiliate for this product in the future.
Ellen Cooper: Spread Based Products, represented two thirds of our total sales in the quarter, as we continue to extend our reach to new segments.
Ellen Cooper: Finally, our traditional variable annuity sales increased 31% year over year as we experienced strong growth in variable products with and without guarantee living benefits. Variable annuities further enhance the diversification of our product suite while delivering strong risk adjusted returns.
Ellen Cooper: As we look ahead to the fourth quarter, while we anticipate sales to be lower than the record 2023-4th quarter, we expect sales growth for the full year.
Ellen Cooper: In summary, with the depth of our distribution leadership and the breath and diversification of our products we, we believe we are uniquely positioned to competitively differentiate. This is and will continue to be reflected in the results that drive the strades of our annuities business.
Ellen Cooper: Now turning to our life business.
Ellen Cooper: Life-a-teaved sequential sales growth of 16% for a second consecutive quarter of double digit growth as our distribution and product actions gained further traction.
Ellen Cooper: We remain focused on realigning our life product portfolio to offer solutions that generate more stable cash flows and higher risk adjusted returns.
Ellen Cooper: Specifically, this means we are targeting growth in accumulation and protection products which have more risk sharing.
Ellen Cooper: As I mentioned last quarter, we are supporting this objective with our repositioned life distribution team to optimize our whole failure footprint. This improves our customer reach and elevates our coverage to better enable and accelerate our product shift.
Ellen Cooper: While realigning our life business will continue to take time and we expect that sales growth may not be linear, we are confident that leveraging our product distribution and underwriting teams will increase our competitive differentiation and drive higher earnings growth over time.
Ellen Cooper: Next, Turning to Workplace Solutions, which includes our group protection and retirement plan services businesses.
Ellen Cooper: As I highlighted earlier, groups earnings more than doubled year over year as we continue to execute on our strategy to grow, profitably, by prioritizing margin expansion over top-line growth.
Ellen Cooper: Year-re year premium growth remained at 3% in the third quarter, reflecting our discipline pricing approach to both new and renewal business.
Ellen Cooper: Where we are achieving consistency in line with our expectations while undertaking a repricing effort.
Ellen Cooper: Re-inporting the strength of our relationships and ability to deliver value to our customers.
Ellen Cooper: In what is typically our lowest sales volume quarter of this year, Group sales increased 18% year over year and supplemental health sales doubled during the same period.
Ellen Cooper: These outcomes reflect the significant progress we have made in executing on our targeted segment strategies, which are key pillars of our margin expansion efforts as we build on the tailored solutions we offer with unique products and services within each segment.
Ellen Cooper: In our local market segment, we are expanding our growth through enhancements to our products and upgrading our operating model to improve access, ease and affordability.
Ellen Cooper: In our regional segment, we are creating a unique value proposition focused on elevating the customer experience and further strengthening key strategic partnerships.
Ellen Cooper: As a Market Leader in our National segment, we are continuing to leverage our consultative approach and expanded product strategy to grow profitably.
Ellen Cooper: We are strategically investing in the capabilities to meet our customers where they want to be met, including talent, technology, and infrastructure to improve the customer experience by expanding our digital and self-surface capabilities.
Ellen Cooper: Upgrading our underrating technology and re-engineering our client service model. These investments, along with our extended product offerings, are driving our growth.
Ellen Cooper: As we look forward to the fourth quarter, which seasonally accounts for the majority of our full year sales, we anticipate year over year sales growth while maintaining our focus on profitability.
Ellen Cooper: In summary, groups performance this year has exceeded our expectations, driven by our strategic actions and supported by a favorable macro backdrop. Our focus remains on delivering a long-term sustainable margin, and we are confident we have the appropriate strategy to do so.
Ellen Cooper: Now turning to retirement plan services or RPS.
Ellen Cooper: RPS sustained its momentum producing another quarter of sequential earnings growth and first year sales, which more than tripled over the prior year.
Ellen Cooper: Our strategy to continue growing in our core record keeping an institutional market segments through our differentiated service model and product innovation is resonating with the market.
Ellen Cooper: The robust pipeline we previously communicated materialized into strong sales in the quarter of $1.7 billion and drove positive net flows as our targeted segments strategy and increasing engagement with our distribution partners continued to deliver results.
Ellen Cooper: Our small market sales reflected the strength of our LFT distribution franchise and ongoing product innovation.
Ellen Cooper: In the mid-large segment, we leveraged our service model which drives high client satisfaction to attract new plan sponsors in markets where our value proposition is resonating.
Ellen Cooper: We continue to innovate and build capabilities in our retirement business, improving our products and services, enhancing our customer experience, and increasing operational efficiency as we further optimize our operating model to drive sales and earnings growth.
Ellen Cooper: In closing, our strong performance this quarter reinforces the momentum of our strategic execution as we continue to reposition Lincoln for sustainable growth and value.
Ellen Cooper: We are leveraging our competitive advantages to grow profitably advanced operational efficiency and build the capital flexibility of our franchise.
Ellen Cooper: While our transformation is a multi-year journey, we are building a durable path to deliver lasting value for our shareholders, customers, partners and employees with that. Let me turn the call over to Chris.
Chris Nezapor: Thank you Ellen and good morning everyone. Our third quarter results demonstrate broad-based improvements across all our businesses, highlighting the positive momentum driven by our strategic priorities and disciplined execution.
Chris Nezapor: All the strength we experience across all four businesses may not always occur simultaneously like we saw this quarter. Overall we are pleased with continued progress in our results.
Chris Nezapor: I'm going to focus on three areas this morning. First, I'll recap our third quarter results, including a review of our segment level and our annual review of Reservoirs' functions.
Chris Nezapor: 2nd of touch on capital and third of review our investment portfolio.
Chris Nezapor: So let's start with a recap of the quarter.
Chris Nezapor: This morning, we reported the third quarter adjusted operating income available to common stockholders of $358 million or $2.6 per share.
Chris Nezapor: This includes the impact from this year's assumption review, which increased earnings by $8 million or $5 cents per share.
Chris Nezapor: Additionally, our alternative investments portfolio delivered an 11% annualized return in the quarter, or $100 million.
Chris Nezapor: On an after tax basis, this amount was $7 million of both our return target for 4 cents per share.
Chris Nezapor: Turning to net income for the quarter. We reported a net loss of available to common stockholders of $562 million or $3.29 for the looted share.
Chris Nezapor: The difference between the net loss and adjusted operating income was predominantly driven by two factors.
Chris Nezapor: First, there was a negative change of...
Chris Nezapor: $446 million in the fair value of the gap embedded derivative related to the 42-degree re-insurance transaction.
Chris Nezapor: This change was primarily driven by the impact of lower interest rates on available for sale securities in the funds withheld portfolio backing the agreement with the car responding offset flowing through accumulated other comprehensive income or AOCI.
Chris Nezapor: and Second, there was an unfavorable non-economic impact of $381 million within non-operating income in part driven by the negative movement in market risk benefits as the impact of lower interest rates more than offset the impact from higher equity markets.
Chris Nezapor: of Note, our Head Program continues to perform in line with our expectations. And as a result, we were able to take a $50 million distribution from Lenbar.
Chris Nezapor: Before turning to our segment results, I want to briefly touch on the impacts of our annual review of reserve assumptions.
Chris Nezapor: As I noted earlier, the net operating impacts from the review this quarter were minimal, resulting in an $8 million benefit to adjusted operating income.
Chris Nezapor: The majority of the benefits stemmed from updates made in our life business, which favorably benefited earnings by $8 million.
Chris Nezapor: In our new year's business, we had a small benefit of $1 million, which was offset by an equally small negative impact in our group business of $1 million.
Chris Nezapor: As it relates to our life assumptions, it is important to highlight that both G. Well, policyholder behavior and mortality assumptions continue to be in line with our experience and expectations.
Chris Nezapor: The impacts of our annual assumption review on our second results in the prior year period are detailed in our earnings release issued this morning.
Chris Nezapor: Let's now start with group which had a record third quarter.
Chris Nezapor: Excluding the impact of the assumption review, group-apported operating income of $110 million, and a margin of 8.5% compared to $44 million in the prior year quarter, and a margin of 3.5%.
Chris Nezapor: The year of a year improvement was driven by several factors and given the considerable improvement in our results, not only in the third quarter but also year-to-date, I want to provide additional color on the driver's supporting our earnings growth.
Chris Nezapor: First, our strategic focus on diversifying our book of business, discipline in our pricing actions, and strong operational execution within our disability business has led to improvements in the core earnings of the business.
Chris Nezapor: This will continue to be supportive of our results in the quarters to come.
Chris Nezapor: Back in, we continue to experience improving mortality trends, and while there can be some volatility in mortality results in any given quarter, overall we expect that trend to persist as we've become further removed from the pandemic.
Chris Nezapor: and third, the benefits from the favorable macro backdrop persisted supporting the strong results within disability.
Chris Nezapor: However, as the current tailwinds from the macro backdrop are unlikely to persist indefinitely, we anticipate that when these conditions normalize, overall growth could moderate for a period of time, as the benefits from our strategic actions and improving mortality will temporarily be awesome.
Chris Nezapor: Now turning to group product line results for the corner, excluding the impacts of the annual assumption review.
Chris Nezapor: The Disability Laws Ratio was 71% improving by approximately 5% points a year.
Chris Nezapor: The loss ratio remains favorable relative to our longer-term expectations and benefited from low-clane incidents and strong LTD recoveries, enabling positive return to work outcomes for our claimants.
Chris Nezapor: The Group Life Laws ratio was 72% a 9% point improvement versus the prior year quarter.
Chris Nezapor: The Lower Laws ratio was driven by favorable volatility in group life incidents, which more than offset slightly elevated severity.
Chris Nezapor: As we look to the fourth quarter, consistent with historical trends, we expect seasonal headwinds within our disability results to drive a sequential decline in earnings, but continue their improvement year over year.
Chris Nezapor: Overall, with our focused execution against our margin expansion strategy and the benefits from the favorable macro tailwinds, we are positioned to deliver over 200 basis points of margin expansion over our 2023 result.
Chris Nezapor: As we look beyond 2024, while the results of this year are encouraging and reflect our focus on expanding group to become a larger and more profitable part of our overall business. Our priority remains sustaining a margin at more above 7% in the quarters to come.
Chris Nezapor: Now turning to annuities.
Chris Nezapor: Excluding the impact of the assumption review, a newities reported operating income of $300 million compared to $260 million in prior year quarter. The strength we experienced in the first half of the year continued this quarter, resulting in year over year improvement driven by a broad set of factors, including higher account balances.
Chris Nezapor: Increased, Red & Com, and Reduced Expenses.
Chris Nezapor: Turning to account balances.
Chris Nezapor: Ending account balances total $165 billion, a nearly 13% increase versus the prior year quarter. That's higher equity markets more than offset the impact of outflows.
Chris Nezapor: Rylea account balances surpass 20% of total account balances for the first time and we're up 3 percentage points versus the prior year quarter.
Chris Nezapor: As we continue to optimize our investment strategy and leverage our capital, efficient strategies, total spread earnings will continue to grow as Ryle and six products become a larger part of our overall business mix.
Chris Nezapor: Our new disease results to score to reflect the benefits of higher account balances and improving spreading outcome.
Chris Nezapor: While we expect seasonally higher expenses and elevated reinsurance financing charges in the fourth quarter to outweigh the tailwinds we've been experiencing through the first three quarters of the year. Overall, a new one is for continued to be supported by the strong underlying fundamentals of the business.
Chris Nezapor: Now turning to retirement plan services, which reported operating income of $44 million compared to $43 million in the prior year quarter as tailwinds from higher equity markets were offset by elevated participants driven stable value outflows.
Chris Nezapor: Over the last 12 months, driven by the higher interest rate environment.
Chris Nezapor: Our base spread for the quarter was 105 basis points.
Chris Nezapor: and the first, compressing roughly five basis points compared to the prior year quarter. And while we've experienced the modest level of sequential expansion over the last two quarters, as we look ahead, we expect our fourth quarter spread to stabilize at around 100 basis points.
Speaker Change: Turning to Netflix Lowes for the Quarter. Netflix Lowes were $651 million, which were supported by the strong sales that Ellen noted in addition to an improvement in stable value-protest and activity.
Speaker Change: While we are pleased with the moderating levels of stable value outflows and the overall level of net inflows during the quarter. As we look ahead, it is important to remember that fourth quarter sales and terminations can be lumpy as plans typically change providers.
Speaker Change: As a result, we anticipate that Netflix flows will be impacted by the timing of known planned terminations, challenging positive nets flows from fourth quarter.
Speaker Change: Now turning to account balances.
Speaker Change: Average account balances for the quarter increased 15% year over year, and end of period account balances were nearly $114 billion. Of 21% versus the prior year quarter.
Speaker Change: Overall, earnings continued to trend in a positive direction, as a number of the headwinds that pressure the business over the last year of dissipate. While spreads will be a slight headwind as we look towards the fourth quarter, overall higher account balances, increased sales, and our ongoing focus on expenses will continue to be supportive of retirement earnings.
Speaker Change: Lastly, turning to life insurance. Life reported operating income of $14 million, compared to operating income of $23 million in the prior year quarter, excluding assumption review impacts in both periods, and $40 million of significant items in the prior year quarter.
Speaker Change: The Run Rate Impact of the Fortitude Retransaction and slightly elevated mortality in the quarter, were partly offset by both target alternative investment income and lower expenses.
Speaker Change: Expanding on mortality results for the quarter, the slightly elevated mortality we experienced was primarily due to an increased severity from a small number of large claims in our universal lifetime products. Our term experience for the quarter was in line with expectations.
Speaker Change: NetGNA expenses were down $12 million versus the prior year quarter. The improvements in the expense space highlight our ongoing focus on targeted expense reductions. And over time, we continue to see an opportunity to further increase operating leverage in the life business.
Speaker Change: As we look towards the fourth quarter, we currently expect elevated mortality, driven by a small number of large claims that have occurred this month. While this could create quarter-over-quarter pressure on life results, this type of volatility is within the range of our long-term expectations.
Speaker Change: Let me now touch briefly on company-wide expenses.
Speaker Change: Experances continued to trend favorably relative to the prior year, driven by the broad-based actions we took in the first half of the year, focused on reducing organizational complexity.
Speaker Change: Although seasonal items that typically contribute to sequential expense growth throughout the year resulted in slightly higher expenses compared to the previous quarter, we also took further actions during the quarter to continue streamlining the expense base.
Speaker Change: This quarter, our efforts have been centered on identifying specific actionable opportunities to reduce our expense space, particularly where ongoing expenses or misaligned with ongoing free cash flow.
Speaker Change: Well, the benefits from the actions we took in the third quarter will begin to materialize in 2025. In the fourth quarter, we will have a seasonal increase in expenses.
Speaker Change: Our focus on expensive management will continue to be targeted as we seek opportunities for efficiency in a limo thar earnings that will manifest both reductions and investments of our businesses to take.
Speaker Change: Chifting the Capitol. We ended the quarter with an estimated RBC ratio above 420% as our capital position continues to strengthen.
Speaker Change: The RBC Ratio Improvement this year has been driven by free cash flow, tracking above expectations, and the execution of strategic initiatives such as the sale of our wealth management business.
Speaker Change: D-Levaring remains a strategic priority for the organization, and sequentially the leverage ratio improved 50 basis points driven by organic equity growth.
Speaker Change: Lastly, as we announced last quarter, with the creation of Elpine, our affiliate re-insure in Bermuda, we continue to work towards establishing an increased re-insurance capacity centered around the affiliate flow re-insurance.
Speaker Change: We remain on track to achieve the initial phase of this new business flow support starting in 2025.
Speaker Change: Now Moving to Investments.
Speaker Change: Over all performance was solid as we continue to focus on maintaining a high quality and well-diverse fight portfolio while capitalizing on less liquid assets and structured asset class premiums.
Speaker Change: The portfolio remained high quality at 97% investment grade.
Speaker Change: Starting with an update on our General Account Optimization efforts where we continue to leverage our multiply manager platform to drive increased value to the organization.
Speaker Change: We continue to source incremental yield driven by a target shift in our asset mix toward investment grade private assets and high quality structured products.
Speaker Change: As a result, despite declines in market interest rates during the quarter, we experienced year-of-year improvement in our new money yield with new money invested at a 6.4% yield, approximately 160 basis points above the yield on comparably rated public bonds during the quarter.
Speaker Change: While the prevailing interest rate environment will influence our overall new money yield, the execution of our optimization strategy will continue to generate an increased level of incremental spread.
Speaker Change: Turning to a brief update on our commercial mortgage loan portfolio.
Speaker Change: The portfolio remains high quality and represents 15% of total invested assets, with office representing only 3% of total invested assets.
Speaker Change: Despite near-term headwinds in the office sector, the broader office portfolio remains conservatively positioned from a deaf service coverage and loaned value perspective.
Speaker Change: A dissonal information can be found at our Quarterly Burning Summerment.
Speaker Change: Lastly, our alternative investments generated in quarterly return of 2.7% this quarter, above our quarterly expectation of 2.5%.
Speaker Change: Our return story in the quarter were brought based with positive contributions from all underlying acid categories.
Speaker Change: In closing, I want to reiterate three points. First, our strong results of the squater reflect our stained momentum supported by strong underlying fundamentals and continued progress towards strategic objectives.
Speaker Change: Second, our capital position continues to strengthen, supported by our free cash flow generation, and we are tracking well towards our 2026 outlook target.
Speaker Change: and third, as I said in recent quarters, while we remain pleased with the progress we've made thus far. Our broader focus remains unchanged, as we continue to execute against our longer-term strategic objectives to maintain a strong balance sheet, improve free cash flow and grow the franchise.
Speaker Change: with that. Let me turn the call back over to Tina.
Tina: Thank you Chris. Let me turn the call over to the operator to begin the Q&A.
Speaker Change: Thank you, Tina. We will now open for Q&A. If you wish to ask a question, press star, then the number one on your telephone keypad to raise your hand and join the queue.
Speaker Change: When called upon to ask your question, please remember to unreach your device, and for optimal sound quality we do ask you not to use a speaker phone, but please speak directly into your receiver or use a wired headset with a microphone. Again, that is star one to ask a question.
Speaker Change: and your first question comes from the line of synic command from Jeffree's, please go ahead.
Speaker Change: Thanks for that. Good morning everyone. I wanted to start with a free cash flow. Chris, you gave us a couple of coven, I think he said.
Speaker Change: Above expectations and you took a dividend out of Lindbarer. So can you just maybe give us a sense of where you are kind of year to date in terms of your free cash flow? And maybe how you still feel about that 2026 guy that you gave us previously?
Speaker Change: Yeah, thanks for the question, Tina. So first of all, you're right, we feel really good about the year so far and we're tracking well relative to the 2026 targets that we have put out.
Speaker Change: I think if you step back to level set, we had talked about 2020-23 having a 35% free cash flow conversion ratio and then in the outlook we gave earlier this year for 2020-26 we had talked about improving to 45% the 55%.
Speaker Change: and by the way, that's a long side growth and operating earnings at the same time. One of the things we had said at the time was it won't be linear, but broadly, if you thought about 35, 40, 45, 50, the question then is how are we tracking along that?
Speaker Change: You know, I think this year as we've talked about.
Speaker Change: We've been generating free cast loads above what we had thought. We also had the sale of LSM.
Speaker Change: and at the same time, we're putting the building blocks in place to make sure that we get to that more sustained level of free cash flow.
Speaker Change: and we're just to reiterate some of the actions we took this year.
Speaker Change: and we took action on expenses in the first half that was broad-based.
Speaker Change: That was the use of some of that free cash flow. We took more targeted actions in the second half.
Speaker Change: But at the same time, we grew our BC from, you know, called the Low 400s to, you know, a level that's in excess of our buffer and, you know, continue to grow this quarter. We also established and capitalized the premier sub.
Speaker Change: So at the end of the day, we're generating free cash flow and slightly above our expectations, and we're also using it to build capital, optimize our operating model and invest for the business.
Speaker Change: has relates to numbers, you know, you can back into...
Speaker Change: You know, some broad strokes if you think about the growth in RBC, if you think about the debt paydown that we did, we repaid about $100 million this year. You know, we spent all at $140, $150 million in combination of several and some legal charges.
Speaker Change: and then we obviously are all interactive paid 300 million of a dividend. So we're not going to give 2024, 2025 guidance, but you know, I would just pre-emphasize that we feel really good about where we are. We feel good about the year and we've remained well-entarded to hit the 2026 numbers.
Speaker Change: Okay, that sounds good. And then I guess maybe for Ellen on a newbies, you know, sales were still pretty strong in the third quarter, even with the pull back and race. And so I guess my question is...
Speaker Change: Do you think that there was any kind of pull forward if advisors were expecting that rate?
Speaker Change: You know, Mike B. Lower in 25, you know, try to sell the annuities now. And somewhat relatedly, if you can just give some comments on where the growth is coming from, is it, but a new money entering the industry or is it, you know, exchanges like we've seen in the past, just any color on those two things would be helpful. Thanks.
Speaker Change: for sure. So, um...
Speaker Change: So first of all, thanks for the question. We feel first of all really good about
Speaker Change: the Broad-based overall annuity sales that we are seeing.
Speaker Change: and we also very much believe that we've got a unique holistic capability in that we are really strong in all three product categories that are of interest to customers and also to advisors.
Speaker Change: Overall with rates being higher, coupled with the fact that
Speaker Change: We've got demographics now where we just have more individuals that are approaching retirement and our ability to be able to provide both accumulation and income solutions in the annuity business are definitely important customer value proposition.
Speaker Change: So while it's true that we saw a blip of rates coming down in the third quarter
Speaker Change: We see the backup again now and we know that generally speaking even as we look into 2025 that we also from just an Interfaite environment perspective that we continue to see interest rates that are certainly at higher levels than they were previously.
Speaker Change: Coupled with the demographics.
Speaker Change: We expect to see continued strong demand, additionally what we have seen in the last couple of years is...
Speaker Change: More advisors in the overall shops that we have been in for some significant period of time. Be focused on a newbies as a solution for their overall customers. And again, we think that that's going to continue.
Speaker Change: and as we move forward. What we've also seen by the way, so you need is that...
Speaker Change: We recognize that very much advisors are seeing that inewities are overall providing a solution.
Speaker Change: and with having multiple chances and multiple products segments.
Speaker Change: We're able to do that. So we feel good about the levels. We believe that we will continue to be focused on profitable growth over top line growth. That is really what's most important for us because at the end of the day, we're looking to continue as Chris mentioned to accelerate and to increase our free cash flow. And we're going to be less concerned with the overall absolute volume in our new edy business and in all of our businesses.
Speaker Change: Okay, that's that helpful. Thanks for the color.
Speaker Change: You're an excretion comes from the line of a least green span from Wells Fargo, please go ahead.
Speaker Change: Hi, thanks. Good morning. My first question was to something as assumption review in regards to your life business, recognized like there was a modest favorable impact. I know a couple years ago right when Lincoln took a charge, there was an industry study that kind of drove that passion.
Speaker Change: and I believe that that study was updated this year. So is this hoping you can just kind of walk us through your assumptions and, you know, why you feel confident and didn't feel like you needed to change anything significantly this year?
Speaker Change: So at least what I would say is a couple things. One, you're right, we had a positive $8 million impact for operating and comfort, a company that was largely in the life block. We had a small $1 million benefit in a newty and then a small $1 million negative in group. But you know the the $8 million in life.
Speaker Change: and just remind you, I mean this is an end to end process.
Speaker Change: Across, you know, for the company really over 100 billion in gap reserves, we look at industry studies, we look at our experience.
Speaker Change: It's a very, very rigorous.
Speaker Change: Process. And so, you know what I would say is at the end of the day, you know, this is another year under the management team, you know, from the past two years we've.
Speaker Change: You know, had a extensive level of analysis over the past couple years to your point we took a...
Speaker Change: and a charge of size a couple years ago. And this year, obviously, we look at the assumptions the same way that we do every year. And it's only so good about where we are. Do you have a specific question I would say that importantly?
Speaker Change: from the SUL perspective. Both policyholder behavior and mortality functions are continuing to now be in line with our experience and expectations.
Speaker Change: So, you know, there's always going to be some noise in any individual assumption. We look at policy order behavior, we look at expenses, we look at yields.
Speaker Change: We look at ranch-orns, we look at mortality, but even on an individual basis, the individual items weren't nearly as significant as they've been in their space. So we feel good about the assumption review. Obviously, this is a very rigorous process, as we've talked about.
Speaker Change: and so were were pleased with the outcome as soon.
Speaker Change: Thanks, and then my second question, you know, given, you know, you were talking earlier right about improved free cash flow conversion, you know, relative to, you know, how you guys at kind of.
Speaker Change: Lately, things out earlier, and then, obviously, you guys have spoken about in the past about a desire to pay down the press when they come due. So how do we think about just improve free cash, your conversion, balance, and playing down the press?
Speaker Change: We did take the Lindlar dividend in the quarter. We put it all together. Do you have any updated thoughts on when we perhaps could see, you know, return to buying back your shares?
Speaker Change: Thanks for the question. I would point you to the outlook that we gave earlier this year and just reiterate that, you know, we are, we're tracking well to achieving those targets, you know, to your point, repang that preferred and bringing down the expensive cost of that security is a priority as is overall delivering. Our leverage ratio came down, I think it was number 50 basis points in the quarter, you know, for the year we've repaid a hundred nine dollars of debt. Thank you.
Speaker Change: So, you know what I would say is as you look out over the next year or two, the priorities are the same. We're going to invest in our business, we're going to deliver, we're going to focus on fully leveraging Alpine, which is the permutus subsidiary as we think about establishing flow agreements for next year, and we'll continue to take targeted action around our expense initiative. So, no update relative to the guidance that we gave earlier this year, but we do feel like we're tracking well relative to the building blocks that we had laid out.
Speaker Change: Thank you.
Speaker Change: Before we continue on to the next question, I remind you if you would like to join the Q to please press star 1 on your telephone keypad if you have any additional questions or any questions at all. Good next question is from the line of Dan Bergman from TD Cohen, please go ahead.
Speaker Change: Thanks for your morning
Dan Bergman: with one of your competitors announcing a follow-on re-interference transaction for guaranteed universal life blocks last quarter. I just wanted to get an update on how you're thinking about your remaining ULSG exposure.
Dan Bergman: and just given the seeming continued interest in these blocks from acquires and any updated thoughts on the possibility for a deal and kind of what the key considerations are from your standpoint.
Speaker Change: Thanks for the question Dan, so I would say that we are always looking at what is the right thing to do for Lincoln. Obviously, we did a large deal at the end of last year as it relates to the legacy life block.
Speaker Change: What I would say is the...
Speaker Change: Outlook Guidance that we've given does not.
Speaker Change: and we think that there's a lot of ways to improve the ongoing free cash flow from the legacy life block in the geo blocking particular without having to do a deal. But to your point, there's certainly an attractive market from a bitters and folks that have appetite for those liabilities. So we will look at all the different options. I would say that our priorities at the moment are as I just laid out, you know, getting the permutative affiliate up and running from a flow perspective. Continuing to execute on our initiatives to drive profitable growth in our businesses and delivering. But at the end of the day, you know, rest assured, we're always looking at what makes most sense.
Speaker Change: and I think that's a great question. And maybe just following up on the earlier question on a new D-Sales, Rylosales in particular, will be a strong following the launch of their fresh product in the prior quarter. So, I just wanted to see if you could give any more detail on how that second generation product is being received in the market and how sales have compared to your expectations.
Speaker Change: and just any general update on that market and competitive conditions with another large, new de-writer entering the Rylell market earlier this month.
Speaker Change: Absolutely.
Speaker Change: So, Rylea and exactly as you know that we had 1.2 billion of sales in the quarter. This is our strongest sales quarter for Rylea in nearly two years first of all.
Speaker Change: As we step back a couple of points to make about Rila first of all.
Speaker Change: We have been in the Ryleum Market since 2018. So we've got a pretty broad understanding. We've been in the market for a significant period of time. We've got very strong overall relationships as it relates to distribution in the Ryleum space.
Speaker Change: We have continued to see a number of new entrants into this market. There's no question. It's clearly a competitive market and at the same time we've seen the overall addressable market grow as the customer value proposition as I was talking about earlier just becomes stronger.
Speaker Change: We definitely felt the need to refresh our product and the launch that we did in the middle of last quarter of Lincoln level advantage to point out. Part of what it did is it introduced a number of new features and it's one of the things that we also have done quite a bit of which is to offer unique.
Speaker Change: Product Features in the Market.
Speaker Change: and that enables us to compete against features not fully against price as well.
Speaker Change: and so we definitely saw some really nice traction encouraging in the quarter and we just look forward to the continuation of that going forward.
Speaker Change: I think to your point around additional competitors entering, we do expect that we're going to continue to see the addressable market grow along with that. So, yes, more competition, but yes, larger market to go get.
Speaker Change: God of the, that's really helpful. Thank you.
Speaker Change: And a final call for any questions or follow-up questions, please press star 1 on your telephone keypad now to raise your hand and join the queue. I will pause for a moment for any final questions.
Speaker Change: The
Speaker Change: There are no further questions at this time I would like to turn the call back over to Tina Madon for closing remarks.
Tina Madon: So, thank you for joining us this morning. We're happy to address any follow-up questions you have. Please email us at investorrelationsatlfg.com
Speaker Change: This concludes today's conference call, enjoy the rest of your day. You may now disconnect.
Speaker Change: [inaudible]
Speaker Change: The New York Times,