Lincoln National Aktie

Thank you for standing by. At this time, I would like to welcome everyone to the Lincoln Financial First Quarter 2026 Earnings Webcast. [Operator Instructions]

I would now like to turn the call over to John Muething, Head of Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to our first quarter earnings call. We appreciate your interest in Lincoln. 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 reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today.

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

Thank you, John, and good morning, everyone. Thank you for joining our call today. Our first quarter results reflect continued execution with adjusted operating income increasing 16%, marking our seventh consecutive quarter of year-over-year growth. This performance is the cumulative impact of the actions we have taken over the past several years to strengthen our balance sheet, build a more efficient operating model and diversify our business mix. Together, these are building the resilience that positions Lincoln for durable value creation in the years ahead.

Anchoring this performance are 3 priorities that guide our strategy: fortifying our capital foundation, optimizing our operating model and driving profitable growth across our businesses. Our capital foundation remains strong with capital levels well above our established buffer and our leverage ratio at our long-term target. The capital buffer is sized to provide a cushion against adverse economic conditions, allowing us to maintain steady execution as we advance our strategy.

We have also made meaningful progress on our operating model. This includes continuing to leverage our Bermuda affiliate to enhance capital efficiency, optimizing our investment strategy and maintaining expense discipline alongside investments in digital capabilities and automation that improve the customer experience and support the growth of our businesses. We see additional opportunity ahead to drive broader enterprise operating leverage while enhancing how we serve our customers through higher employee productivity, more streamlined processes and unlocking capacity for further innovation. At the same time, we are advancing profitable growth across our businesses, balancing top line momentum with profitability and capital efficiency.

Our focus remains on segments and products where we can compete beyond price, leveraging the depth of our distribution relationships, the breadth of our product suite and our differentiated capabilities to meet our financial objectives with attractive risk-adjusted returns and more predictable, stable cash flows. The mix of business we are writing is increasingly shaped by this approach, providing a foundation for our ability to sustain value creation over time.

Underpinning these priorities, we are growing the core capital generation of the company, deploying that capital to sharpen our competitive advantages, broaden our moat and drive growth in free cash flow over time. Results will not always be linear and the economic backdrop can be uncertain, but our momentum is building. Our track record is increasingly evident and we remain committed to creating long-term value.

Each of our businesses made progress against these priorities in the first quarter. Group Protection had another strong quarter with earnings growth and margin expansion. Life Insurance produced solid earnings with sales up over 30% year-over-year, driven by growth across core Life and executive benefits.

Retirement Plan Services generated earnings growth with the realignment of this business still in its early stages. And in Annuities, we shifted further toward a more balanced, less market-sensitive business mix with sales aligned to our deliberate approach and earnings carrying the known headwinds we previously communicated. Our Annuities business had another solid quarter, supported by diversified sales and strength in our distribution relationships. We offer a broad set of products across RILA fixed and variable annuities with and without living benefits, enabling us to meet customer needs across a range of market environments.

As we discussed last quarter, our new business approach centers on balancing profitability, capital efficiency and lower market sensitivity. Our first quarter results reflect that discipline across each of our product lines.

Total sales were $3.9 billion with spread-based products representing 64% of sales as we evolve toward a more balanced and less market-sensitive business mix. Starting with RILA, as we shared last quarter, we expect sales this year to be in line with the average of the past several years as we emphasize the parts of this segment, where we compete beyond price through our unique product features, crediting strategies and depth of our distribution relationships. A clear signal of that approach is our second-generation RILA launched nearly 2 years ago, which was recognized by SRP in 2025 and as the most innovative annuity product.

First quarter RILA sales were up year-over-year and lower sequentially, consistent with our objective to prioritize profitability over volumes. As we mentioned last quarter, within fixed annuities, we see the most runway to grow over time across our annuity portfolio, particularly in fixed indexed annuities where our crediting strategies and product features allow us to compete beyond price.

First quarter FIA sales increased over 90% year-over-year, supported by differentiated offerings, broader distribution and enhanced digital capabilities. Total fixed annuity sales of $716 million were below the prior year, reflecting lower volumes in the more price-sensitive MYGA products. Total fixed account balances grew as we retained 100% of our fixed sales with new business aligned to areas of the segment where the economics support our return objectives.

Variable annuity sales of $1.4 billion were down year-over-year with the decline most pronounced in variable annuities with living benefits, consistent with our objective to reduce market sensitivity over time and the expectation we shared last quarter that 2026 volumes would move closer to pre-2025 levels. Variable annuities remain an important part of our portfolio, supporting continued free cash flow generation and attractive risk-adjusted returns.

As a holistic annuity provider, the breadth of our franchise, our proven ability to pivot across product lines and our investment in technology modernization to support a more seamless and integrated customer experience position us to deliver on our objectives. Together, these capabilities reinforce our balancing of profitability, capital efficiency and growth while building towards a higher quality earnings profile over time.

Now turning to Life Insurance. Transforming this business has been a significant strategic priority over the past several years. Aligned with our financial objectives, we refocused our new business mix on products with more predictable cash flows, accumulation and limited guarantee solutions such as IUL, accumulation VUL and executive benefits. These are areas where demand is rising and where our product distribution and customer experience capabilities give us a clear advantage. Drawing on insights from our deep relationships with advisers and producers, we launched a new generation of products in these areas, optimized our distribution footprint to align with our product strategy and built the digital capabilities to better serve our producers and their clients.

We have been seeing momentum in our sales growth, although it will take time to meaningfully flow through to earnings and free cash flow. First quarter life sales were $129 million, up over 30% from the prior year, with growth across all product categories. Core Life and MoneyGuard sales were $96 million up 20% year-over-year. Our IUL suite led the growth as our integrated approach to product design and policy servicing is resonating with advisers who want to give their clients both long-term value and a simpler in-force experience.

Accumulation VUL is also gaining traction, supported by broader offerings and self-service capabilities. Executive Benefits had a strong start to the year with sales nearly doubling versus the prior year period. While large case activity can vary from period to period, the pipeline remains active, and we are encouraged by the momentum we are building in this business. Overall, the progress in Life this quarter reinforces the direction we set several years ago. The actions we have taken are building on one another, and we are developing a more diversified and profitable life franchise over time. There is more work ahead, but the path forward is increasingly clear.

Turning to Group Protection, another business where execution is clearly translating into results. Central to our success is our targeted segment strategy. We operate across 3 distinct market segments: local, regional and national with products, capabilities and distribution tailored to the different needs of each.

In local markets, the fastest-growing part of our 3 market segments and where we see the most attractive margin profile, our approach centers on bundled solutions that emphasize ease of doing business, leveraging our local distribution footprint.

In regional markets, we are reinforcing our broker partnerships and expanding the technology integrations and digital capabilities employers depend on to manage their benefits programs. And in national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by integrated technology, streamlined processes and our market-leading leave management expertise.

Across all 3 segments, supplemental health remains a key priority. This strategy is coming through in our results and reflected in year-over-year higher earnings, margin expansion and premium growth. First quarter premiums were up 2% year-over-year, driven by strong prior period sales and in-line persistency, offset by a large case lapse.

Importantly, that premium growth is increasingly concentrated in the priority segments we are most focused on expanding with local market premium increasing by more than 4%, its strongest year-over-year increase in nearly a decade and supplemental health premium up 28% year-over-year.

Sales were roughly in line with the prior year period and consistent with typical sales levels experienced in the first quarter. 74% of sales were from existing customers and a sizable share of that came from expanding additional lines of coverage with our in-force customers, particularly in supplemental health, where employers are responding to rising employee demand. Our pricing remains disciplined. Alongside that, we are making meaningful investments, modernizing our claims platform and expanding digital tools that improve the experience for the brokers and employers we serve.

These investments enhance our offerings, reinforcing persistency while helping us attract new business. Overall, our targeted segment strategy, diversified footprint and disciplined execution are translating into consistent performance with a clear runway ahead. Looking forward, we expect Group Protection to be an increasingly meaningful contributor to Lincoln's higher-quality earnings profile.

Now turning to Retirement Plan Services. First quarter operating income was up 26% year-over-year. First year sales of $1.1 billion were up nearly 3% year-over-year with growth concentrated in the core market segment, a priority area for us. Total deposits were modestly higher at $4.1 billion. As we discussed on our last call, the realignment of this business is in its early stages. Importantly, we are applying a playbook we have run successfully in other parts of our business, which gives us confidence in our ability to execute here.

Three priorities anchor our approach. The first is disciplined growth, enhancing our product and service capabilities while broadening the opportunity to increase revenue. The second is service excellence, modernizing our operations, expanding offerings of digitally enabled tools and capabilities for participants and recalibrating how we meet the needs of plan sponsors. The third is enhancing what we offer, refreshing our value proposition by segment, updating our distribution model and using analytics to deepen engagement with our existing customer base.

Across all 3 priorities, we are modernizing the technology that underpins this business. While this realignment will take time, we are encouraged by the early progress. We will steadily advance these priorities to improve the earnings trajectory of this business in the years ahead. In closing, we are executing, delivering results and making tangible progress on our priorities. There is more to do, and we see significant opportunities ahead. Lincoln has a differentiated set of competitive advantages, a diversified franchise across 4 businesses, each at a different stage of its realignment toward our financial and strategic objectives, a deep distribution platform that we are actively expanding and optimizing and capabilities tailored to each of the markets we serve, giving us the capacity to do more for our customers with greater agility.

We are operating from a position of strength with a balanced and disciplined approach to growth and capital deployment. We remain confident in the actions we are taking, which are building toward a higher quality earnings profile that creates sustainable long-term value for our shareholders. With that, let me now turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our first quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering year-over-year adjusted operating income growth for the seventh consecutive quarter. The result this quarter was supported by favorable underwriting experience in our group and life businesses, continued growth in spread income in annuities and retirement plan services and another strong contribution from our alternative investments portfolio.

Alongside strong earnings, free cash flow and capital generation continued to build, tracking in line with our expectations. Holding company liquidity, excluding prefunding for our December senior note maturity, ended the quarter above $800 million, reinforcing the financial flexibility we have to act on multiple fronts over the next few years.

This morning, I will focus on 3 areas. First, I will walk through our consolidated and segment level performance for the first quarter. Second, I will touch on our investment portfolio. And third, I will provide an update on our capital position.

Let's begin with a recap of the quarter. This morning, we reported first quarter adjusted operating income available to common stockholders of $326 million or $1.66 per diluted share. There were no significant items in the quarter, but there were 2 normalizing items. First, our alternative investments portfolio delivered an annualized return of 12.3% in the quarter or $129 million. On an after-tax basis, this amount was approximately $19 million, above our 10% annualized target or $0.10 per diluted share. And second, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts.

As a result, the annuities effective tax rate this quarter was approximately 200 basis points above recent levels. Ongoing impacts are minimal at approximately $1 million per quarter.

Turning to net income for the quarter. We reported a net loss available to common stockholders of $211 million or $1.10 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the negative movement in market risk benefits amid lower equity markets in the quarter. Importantly, our hedge program, which explicitly targets capital, continued to perform in line with expectations.

Now turning to our segment results, beginning with Group Protection. Group delivered another strong quarter, building on the momentum from 2025. First quarter operating income was $112 million, up 11% from $101 million in the prior year quarter, and the margin was 8%, a 60 basis point improvement.

The year-over-year improvement was driven by the strength of our group life results, partially offset by continued normalization in disability. The group life loss ratio was roughly 67%, an improvement of more than 800 basis points from the first quarter of 2025. Group Life results remained strong this quarter, supported by favorable incidence and severity outcomes. While mortality results can vary from quarter-to-quarter, the result was consistent with the favorable trends we've observed in recent quarters and remains favorable relative to historical experience.

Importantly, we continue to see the benefits of disciplined pricing actions, which have supported a more durable earnings profile in this business. The disability loss ratio was 73.4% compared to 70.1% in the prior year quarter. The elevated loss ratio was driven by 2 primary items. First, our paid family leave product experienced elevated incidence rates with the introduction of 2 newly effective states, consistent with our continued footprint expansion as more states adopt these programs. This is an expected occurrence for new states, and we anticipate it will moderate as we move through the year. Second, within LTD, we experienced unfavorable resolution severity this quarter. As we discussed in the back half of last year, disability results are normalizing from the record low levels we experienced over the last 2 years, including some moderation in the favorable claims dynamics that supported those results.

Even with this normalization, claims management outcomes remain solid and the underlying fundamentals continue to be strong and in line with our expectations. As we look ahead, risk results have historically improved from the first to the second quarter, and we expect that seasonal pattern to repeat this year. As a reminder, however, our second quarter results in 2025 included approximately $15 million associated with the annual experience refund tied to one state's paid family leave program.

As we communicated last year, we have transitioned to accruing this refund on a quarterly basis throughout the year, mitigating the onetime impact experienced in prior years. Overall, group's first quarter results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise.

Now turning to Annuities. Annuities reported first quarter operating income of $275 million compared to $290 million in the prior year quarter. Given a few moving pieces this quarter, let's walk through the result on a sequential basis from the fourth quarter reported earnings of $311 million. As a reminder, fourth quarter results included approximately $8 million of favorable payout annuity mortality experience that we noted at the time.

Excluding that, underlying earnings in the fourth quarter were closer to $303 million. From that level, a few items drove the sequential change to $275 million. First, as we discussed on last quarter's call, beginning in the first quarter and continuing on a go-forward basis, we reallocated net interest income earned on collateral posted in connection with our index credit hedging strategies from annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful.

Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. Relative to the fourth quarter, this reallocation reduced reported annuities operating income by approximately $10 million in the first quarter with no change to the underlying economics or free cash flow.

Second, as I discussed earlier, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts. The remainder of the sequential change relative to the fourth quarter reflects 2 fewer fee days, which drove approximately $10 million of additional pressure and continued traditional variable annuity outflows, partially offset by continued growth in spread income.

Stepping back to a year-over-year view, when normalizing for the NII reallocation and the unfavorable tax-related items in the first quarter of this year, Annuities underlying earnings would have modestly improved relative to the first quarter of 2025. The improvement reflects continued growth in spread income and the benefit of higher equity markets, partially offset by continued traditional variable annuity outflows and higher expenses associated with the full retention of our fixed annuity flows.

Account balances net of reinsurance ended the quarter at $169 billion, 7% above the prior year period, supported by 15% growth in RILA balances and 24% growth in fixed annuity balances. Spread-based products now represent 31% of total annuity account balances net of reinsurance, up from 28% a year ago. On a sequential basis, however, ending account balances were down approximately 4% from the fourth quarter, driven by the equity market decline in the period and continued variable annuity outflows.

We would expect this lower starting balance to be a headwind to fee income beginning in the second quarter. That said, equity markets have recovered meaningfully through the first several weeks of the quarter. And if these levels are sustained, we would expect a reversal of that pressure.

Turning to net flows. Total net outflows for the quarter were approximately $2.2 billion, an increase from the prior year quarter, reflecting higher traditional variable annuity outflows, partially offset by continued positive net flows in spread-based products. Traditional variable annuity net outflows for the quarter were approximately $2.6 billion. While outflows increased relative to the prior year quarter, the outflow rate has remained relatively consistent over the past year with the increase in outflow volume reflecting growth in our underlying account balances driven by favorable equity markets over the last year.

Across spread-based products, both fixed annuities and RILA continued to generate positive net flows in the quarter. Fixed annuity net inflows were approximately $100 million and RILA net inflows were approximately $285 million as continued strong sales were partially offset by higher surrenders from earlier vintages exiting their surrender charge periods.

As we have noted previously, we expect RILA net flows to moderate relative to recent years as additional vintages move out of their surrender charge periods with overall account balance dependent on overall sales. As we look to the second quarter, we anticipate a sequential tailwind from the normalization of the unfavorable tax-related items alongside the benefit of an additional fee day and continued growth in spread income.

Overall, the fundamentals of the business remain solid. Our continued emphasis on diversifying the product mix towards spread-based products, together with the disciplined risk and hedging framework we have built around the business, positions annuities to remain a steady contributor to earnings and free cash flow over the long term.

Now turning to Retirement Plan Services. Retirement Plan Services delivered a strong quarter with operating income of $43 million, up 26% from $34 million in the prior year quarter. The improvement was driven by continued spread expansion alongside the benefit of higher equity markets supporting average account balances. Base spreads were 116 basis points, up 13 basis points from 103 basis points in the prior year quarter.

The expansion is driven by deploying new money at rates above our existing portfolio yield, along with targeted crediting rate actions taken at the start of the year. Average account balances grew approximately 10% year-over-year to $125 billion, supported by equity market performance over the past 12 months. Net outflows for the quarter were approximately $200 million, a meaningful improvement from the prior year quarter.

As we look to the second quarter, however, we expect net outflows to be elevated in the range of $2 billion to $2.5 billion, driven by a small number of known plan terminations, the majority of which did not meet our profitability targets. Consistent with the comments made throughout last year, we are continuing to be deliberate about the business we retain, focusing on the segments and customers that meet our targeted return thresholds even when that means accepting elevated outflows in a given quarter.

The combination of disciplined pricing on retained business, the meaningful spread expansion delivered this quarter and the operating leverage from a higher quality business mix is what positions retirement plan services to deliver durable earnings growth over time. The first quarter result represents an early but tangible proof point that the actions we've been taking in this business are beginning to translate into improved earnings, and we expect to sustain a similar level of year-over-year growth as we look towards the second quarter.

Lastly, turning to Life Insurance. Life delivered first quarter operating earnings of $41 million, our strongest first quarter result in 5 years and a meaningful improvement from an operating loss of $16 million in the prior year quarter. The improvement was driven by higher alternative investment returns and the continued benefit of our captive consolidation, which represents an approximately $10 million year-over-year tailwind. As a reminder, we executed this consolidation in the fourth quarter of last year, so we will continue to see this year-over-year benefit in the second and third quarters of this year, after which the comparisons will normalize.

Mortality this quarter was favorable to our expectations, driven primarily by continued favorable experience within our term business. The result is consistent with the improvement we have seen in recent quarters and with broader U.S. mortality trends, which have continued to move in a favorable direction. While quarterly mortality results will continue to vary, recent experience has been encouraging and remain supportive of the underlying trajectory of the business. Alternative investment returns were also strong, contributing approximately $19 million after tax above our 10% annualized target. Building on this progress, we are also beginning to see early evidence of the impact from the strategic repositioning of our new business franchise contributing to underlying earnings.

While modest in the current earnings profile, the deliberate mix shift over recent years toward products with more favorable risk characteristics and attractive risk-adjusted returns will continue to emerge over time as the in-force grows in size. As we look to the second quarter, we expect a modest improvement in mortality as favorable seasonal trends from the first to second quarter are partly offset by the favorable experience in the first quarter.

Additionally, given the elevated volatility we have seen across markets, alternative investment returns could experience some variability relative to our 10% annual guidance. As a reminder, the second quarter of 2025 also benefited from favorable mortality experience, which could create a less favorable year-over-year earnings comparison for the second quarter even as the underlying trajectory of the business continues to improve.

Beyond near-term seasonality and as demonstrated by the past year of results, we remain focused on building the durable earnings power of this business through disciplined expense management, optimization of the investment portfolio and continued progress on our strategic repositioning toward products that generate more stable cash flows and attractive risk-adjusted returns.

Turning briefly to expenses. First quarter G&A expenses, net of amounts capitalized, were $589 million, up modestly year-over-year and down sequentially from a seasonally high fourth quarter. The year-over-year increase reflects continued investments tied to specific business actions, including the ongoing modernization of our claims platform and Group Protection, which is intended to drive efficiency and a simpler experience for our customers as well as the financial impact of supporting the full retention of our fixed annuity flows and annuities.

Expense discipline remains a strategic priority across the organization, and we see continued opportunity to drive efficiency as we advance our transformation with an ongoing focus on leveraging technology to improve productivity and ensuring our expense base is appropriately sized to support our strategic objectives.

Now turning to investments. Our investment portfolio delivered solid results in the first quarter, reflecting our high-quality and well-diversified portfolio and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade, while our below investment-grade exposure remains at historic lows.

Credit performance for the quarter was in line with our expectations. Touching briefly on alternative investments. Our alternatives portfolio delivered another strong quarter with a return of 3.1% or approximately 12% annualized above our 10% annualized return target. While alternative investment returns have been at or above our target over recent quarters, the elevated volatility we have seen across markets could lead to some variability in our alternatives portfolio in the near term. While quarterly results can vary, the breadth and diversification of the portfolio give us confidence in its ability to achieve our return objectives over time.

Lastly, I want to spend a moment on private credit, given the heightened focus on this area across the industry. Our approach across all asset classes is grounded in how we manage the general account, anchored in a robust strategic asset allocation framework that recognizes private assets as a natural fit for the long-duration illiquid nature of our liabilities. Investment-grade private placements, in particular, have been a long-standing core competency of our investment platform and a meaningful source of risk-adjusted yield that supports our liability profile.

As you can see in our investor supplement on Slide 12, our private credit portfolios represent approximately 20% of our general account and are comprised of 3 categories: investment-grade private placements, private structured securities and direct lending. The vast majority of our exposure, approximately 15% of our general account or $19 billion sits in investment-grade private placements. This is a market we have invested in for decades, along with the majority of our long-tenured insurance peers.

These are institutional investment-grade borrowers diversified across industry with sectors like utilities comprising a large portion of the exposure. Historically, the IG private placement market has delivered fewer rating migrations, lower defaults and better recoveries than their public comparables, supported by strong covenant protections and the deeper diligence that comes from having a direct relationship with the issuer. It's also worth noting that this market has been relatively stable in terms of growth over the last decade.

At a smaller scale, we also hold approximately $4 billion or roughly 3.5% of our general account in private structured securities, which is largely an investment-grade strategy. This portfolio is A rated on average, has an average position size of $14 million and is represented by collateral such as equipment financing, solar financing and aircraft leasing. And while our portfolio is smaller than the industry in terms of allocation, we would expect this portfolio to grow over time given its duration profile, consistent with our strategic priority of growing our spread-based earnings and diversifying our annuity mix.

The last and smallest allocation of the portfolio is direct lending, which represents less than 1.5% of our general account. This has been a surplus strategy, which over the last decade has delivered attractive net returns, though it has been a modest overall contributor to our earnings given the small allocation. The portfolio is highly diversified with more than 400 underlying loans, primarily managed by 4 large, well-tenured managers with an average position size of approximately $4 million.

The weighted average life of the portfolio today is under 2 years, and we would expect this exposure to decrease over time, both in terms of absolute dollars and as a percentage of the general account, in line with the strategic priority of growing our spread-based businesses and thus allocating our risk appetite to assets more efficiently supporting our interest-sensitive liabilities.

Stepping back, our portfolio across asset classes is the highest credit quality we've experienced in years. We maintain a robust asset allocation framework with rigorous stress testing and a measured approach toward diversified deployment of new money across asset classes, executed alongside our strategic partners and grounded in a consistent disciplined risk framework. We remain very comfortable with the portfolio.

Turning now to capital, where we continue to operate from a position of strength. I would highlight 3 points. First, our estimated RBC ratio remains well above our 400% target and the 20 percentage point buffer we built on top of that target, now the eighth consecutive quarter that we've ended above the 420% target buffer level.

Second, our leverage ratio improved further during the quarter to 25%, which is now at our long-term target. We've made meaningful progress on this front since the end of 2023, and the lower leverage ratio reinforces the financial flexibility we have built across the enterprise. Third, holding company liquidity ended the quarter at approximately $1.2 billion, an increase of approximately $150 million from year-end. This includes $400 million of prefunding for our senior notes maturing in December of this year. So net of prefunding, holding company liquidity is $805 million, well above our historical operating range. The continued build in holding company liquidity in part reflects the growing dividend capacity from our operating subsidiaries and provides the flexibility to support our broader capital priorities.

Before I conclude, I want to briefly touch on the macro environment. While uncertainty remains with elevated volatility persisting across markets, the work we have done over the past several years to fortify the balance sheet, diversify our sources of earnings and deepen our risk framework leaves Lincoln well positioned to perform through it. In closing, our first quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered the seventh consecutive quarter of year-over-year adjusted operating income growth with continued progress across our underwriting businesses, ongoing spread expansion and another quarter of free cash flow and capital generation tracking in line with our expectations.

The path forward will not always be linear and mortality experience and market conditions will continue to create some variability from quarter-to-quarter, but the trajectory of the business is clear, and we remain focused on disciplined execution, free cash flow generation and the creation of long-term shareholder value. With that, let me turn the call back over to the operator.

[Operator Instructions]

And your first question comes from the line of Wes Carmichael with Wells Fargo.

Just thinking about the holdco liquidity increased about $150 million sequentially. And I think you guided to around, call it, $100 million of holdco expenses on a quarterly basis. So is that a decent proxy for free cash flow? I think last quarter, you had mentioned that kind of any excess generation in subsidiaries would be upstreamed, but any other considerations in the quarter when we think about free cash flow?

Yes, good question. So I would say a couple of things. First of all, you're right, the holding company cash increased to over $800 million, net of the prefunding for the quarter. It's the highest it's been in a long time. We talked about this last quarter where as free cash flow is being generated, you will see an increasing amount of that move to the holding company. I think as it relates to the quarter-to-quarter dynamics, though, just keep in mind that we tend to take dividends from LPine and [ LNCAR ] at least last year in the back half of the year. So we would expect that trend to continue.

And then there's also always going to be some variation quarter-to-quarter as it relates to free cash flow relative to GAAP because of things like taxes or how seasonal expenses might be dealt with between the 2. But at the end of the day, when you step back, the earnings growth came through at 16%. The free cash flow conversion continues to look strong relative to the guidance that we had talked about a quarter ago, and you're starting to see more of that move to the holding company.

Got it. And I guess just the second one, good to see favorable alts returns in the first quarter. Chris, I think in your prepared remarks, you mentioned there could be some variability in 2Q. That makes sense. But do you have any kind of early view on alts returns for the second quarter or how you think that ought to trend through the rest of the year?

It's too early, Wes. But I think the comments that I made in the prepared remarks are just a reminder that the portfolio is on a lag. And so if you think about what happened in first quarter, you would imagine any volatility that would play through would come through next quarter. Obviously, this quarter, in public markets, you're seeing positive performance. And so there's always just that lag.

I do think it's important, though, to step back when you think about our alts portfolio. It really has been a significant contributor over the last few years. And frankly, it's a testament to the way that portfolio has been built. And so when there is volatility in the markets, it can have an impact, but I also wouldn't think of it as S&P beta, if you will. It's about $4.2 billion in size. We've done about 10% returns with relatively minimal volatility over the past couple of years. And the point on the way the portfolio is constructed, and this is true for our general account as a philosophical perspective, but it's extremely diversified, right? And so we get questions about the alts portfolio from time to time. $4.2 billion, you could think of it as 40% in private equity, 20% in growth equity, 20% in real assets. So think of things like infrastructure and energy and then 20% in other strategies, so hybrids or hedge funds.

From a fund perspective, there's over 400 funds. So when you think about the diversification, that's, call it, $10 million per fund. And then if you just think about the way that portfolio construction works, from a position perspective, there's probably over 4,500 portfolio companies, so $1 million average size. So it's an extremely diversified portfolio. And the reason I make this point is because when you look back historically, depending on the macro environment, different parts of the portfolio are going to perform well and some parts of the portfolio are going to underperform. So the diversification is a real point, both from a strategy perspective, an asset class perspective and a size perspective. And frankly, it's been a really strong performer for us over the past couple of years.

Your next question comes from the line of Ryan Krueger with KBW.

My first question was on disability. Could you help us size the PFML impact on either in dollars or on the disability loss ratio? And then if we were to exclude that, like where is disability at this point relative to your longer-term expectations? Have we basically removed all of the favorability you had been mentioning from the macro environment and now we're more at a stable state? Or is there's still some favorability you're seeing?

Yes, good questions. On the first question on PFML, we're not going to size the specific impact. I think it's -- the dynamic there is relatively consistent with what you've heard from others in the industry. Two new states came online that has a near-term impact, but then normalizes throughout the year.

So you will see the normalization of that as you go through the next couple of quarters. The other dynamic, though, if you look at the loss ratio year-over-year, 70% last year, 73% this year. So in addition to the PFML pressure, which again normalizes, the dynamic that we talked about in the second half of last year is continuing, and that's on the claims resolution side. So as you think about as the mix of the block evolves and a greater percentage of the reserves are from more recent years where new claim severities have been favorable, the release of reserves from older high severity claims become less impactful. So that normalization is continuing. It's continuing in line with our expectations. And those expectations were obviously baked into the way we framed the outlook for '26 and '27. That's continuing.

What I would say, though, is that incidence is still really good. And incidence has been normalizing a bit, but relative to the longer-term expectations, both from a frequency and severity perspective for incidents in LTD, in particular, it's still favorable. So to the degree that the macro changes and unemployment becomes more of a dynamic, we would expect to see some change in incidents. But if you think about the 2 main drivers to your disability loss ratio on the LTD side, we are seeing the normalization on the resolution side, while incidence remains strong, but a little bit of a normalization from last year, which were, frankly, record levels.

And then on annuities, if I normalize for the tax item and also the 1Q seasonality, it would seem like you're trending kind of more towards the low end of the 66 to 70 basis point ROA guide you had given last quarter for the medium term. Is there any reason to expect any upward movement there from -- or is that -- or should we think of this more as you're probably running towards that lower end at this point?

Sure, Ryan. So it's 1 quarter. And what I would say is you're right, there's a lot of noise in the numbers. And so there's the tax item, which we mentioned. There's the NII allocation dynamic that we talked about. And then on a year-over-year basis, there is the incremental acquisition expense from retaining the full flow. We've talked about that in the past, and that will be a recurring dynamic. But just when you're looking at the comp year-over-year, keep that in mind.

So if you think about the underlying drivers beyond that, markets were not a tailwind for VA this quarter. When you think about the VA block, call that an 80 basis point ROA block of business, and you have the combination of outflows and fees and assessments and so forth running at about 10% a year. So for that 80 basis point large block to maintain its earnings trajectory, you need a similar level of earnings growth on an annualized basis.

And so this quarter, when you don't have the market tailwind, you see that pressure come through a little bit more. That outflow rate has been relatively consistent the past couple of years. It's in our expectations. And as we talk about all the time, the volatility just comes from what's happening on the account value side for markets.

On the spread side, the good news is we're continuing to see good spread income growth there. You can see some of that flow through in the P&L. I would also mention as a reminder that the NII allocation when you look year-over-year, you have to adjust for that. But as the account value grows for the spread income business, 2 dynamics will happen. One is you'll just get the greater lift of earnings, but from an ROA perspective, as you're building those blocks, the incremental return expansion comes over time because you've got some nondeferrable acquisition expenses. You have the expectation that your spreads expand over time, especially as you get through surrender periods and so forth. So longer term, I think you would expect the ROA of that to -- for the non-VA block to expand as the account balance is growing at the same time. And then you have the VA ROA sort of somewhat dependent on markets, as we've talked about. Very specifically, as you think about 2Q versus 1Q, the tax dynamic goes away and then you do have an extra fee.

Your next question comes from the line of Joel Hurwitz with Dowling & Partners.

Chris, first, can you just break down the loss in other ops. It seemed a bit elevated. Just walk us through the moving pieces of spreads in that legacy business you guys called out and expenses.

Yes. It's relatively straightforward. There is a legacy block that has assets against it. There's some equity sensitivity in the legacy block. And so the assets have some equity component in the account values. And over time, as markets have performed well, the excess on the asset side has grown. And so what happens is in periods of volatility in the markets, you can have a little bit of a drag there, and that's the majority of the difference year-over-year. There was the net investment income allocation change. We talked about that for annuities. We also mentioned at the time that there would be a more minor impact for other operations. It's about $20 million annually in other ops, so about $5 million a quarter. So once you adjust for those 2 things, the other ops income number is pretty straightforward.

Got you. And then just shifting to annuity sales. Can you unpack more what you saw in fixed annuities? It was a step down from prior quarters. It sounds like, right, I think, Ellen, you said FIAs were up 90% year-over-year. But how did that compare to the last couple of quarters as you started to sort of ramp that business up?

That's right. So first of all, if you take a step back and what you see in the first quarter just overall in terms of our annuity business is delivering on the framework that we laid out in our fourth quarter call. So as it relates to fixed annuity in particular, and one of the things that we said is that we see the greatest runway there over time and that we, as we move into 2026, are focusing on FIA over price-sensitive MYGA.

And keep in mind a couple of things here. One is that in fixed annuities, as Chris mentioned, we are now retaining 100% of sales following the exit of our external flow reinsurance treaty. And so while we're doing this, you saw this quarter, even though sales were down, that fixed annuity account value growth was up, and we expect it to continue to be up relative to where we were in 2025. So when we look at overall FIA and we see that we're up 90% year-over-year, we really see that in the fixed segment, importantly, this is where we see the most attractive growth opportunity. And some of the reason why is that we are really leaning into where we have differentiated crediting rate strategies, where we have differentiated product features, and that enables us to compete beyond price. And then at the same time, we have the opportunity in FIA to continue to expand from a distribution perspective where we have strategic partnerships, but we have not traditionally been on the shelf for FIA.

And then additionally, one more thing, which is that we're investing in the customer capabilities around digital and things like statement on demand, et cetera. So all places that support us in terms of continuing to grow here. MYGA, at the moment, we are deliberately stepping back. So we are seeing -- and I believe some of our peers have talked about this as well. We really want to compete on features rather than pure rate. And so we're going to selectively be in the market where the value trade is. We have the ability to pivot, and we're always going to make that trade-off. And if we see market conditions or we see something change here, we will, of course, adjust and pivot the strategy accordingly.

Your next question comes from the line of Suneet Kamath with Jefferies.

I guess for Ellen, we're seeing or witnessing the first merger of equals in the annuity space in probably 20 years, I think your company is probably the last one. Just wondering how you're thinking about that transaction? And does it change the need for scale in the business? And ultimately, does this start a wave of consolidation as people try to kind of catch up to size?

Sure. So I agree with you that we haven't seen an MOE of this size in quite some time. And as you all know, we compete with both of these organizations that are part of the merger announcement. And we also, by the way, compete with organizations that are much larger, too. So we feel really comfortable that we're going to be able to continue to compete well. We feel very well positioned. Just in terms of -- recall that several years ago, when we were initially going through our transformation and realignment, we did a broad strategic review. We looked across every business, every product, every segment. We made the decision at that time to sell our Wealth Management business because that was a business for us that we didn't have scale, and we didn't really feel that we had the right to win and really compete in that business.

And we talked about the fact that we have a commitment to the 4 businesses that we're in, all of which, as we've reinforced, are in different stages of their realignment. So we feel really good about our ability to continue to execute and deliver results. And to your point, scale is clearly a factor, and we have scale in our businesses. And at the same time, there are a number of other factors that we think are just critical in terms of success.

Capabilities, and you hear us, we are investing in unique and differentiated product features. We know that we've got a real competitive advantage as it relates to our distribution and proven track record of pivoting, and we're doing that all across the platform. And then you also hear us over and over again talking about all the investment that we're making in capability in ease of doing business with customer. And really, those things go hand-in-hand in terms of really having the right to win, continuing to gain share, continuing to grow the business. So we feel very good around where we are and our ability to continue to compete and importantly, grow the overall earnings trajectory for Lincoln.

Okay. That's helpful. And then I guess for Chris, I don't know if you can provide this, but in terms of the Bain Capital, is -- can you give us a sense of how much of that has been deployed at this point?

So I don't know that I would add a lot to what we said at the fourth quarter. So if you think about it, when we brought in the $800 million, we said we were going to use it for basically 3 primary strategies: number one, grow the fixed annuity account value and spread earnings over time as we exited the flow deal. Number two, continue to scale the institutional funding agreements; and number three, optimize the legacy Life block.

So as you think about where we were at the end of the year, we had talked about the fact that we exited the flow deal and we had, call it, a quarter and a month worth of flow. that was being capitalized and will produce strong spread earnings over time. As you think about the rest of this year, we'd obviously earmarked for the remainder of that to run through from a comp perspective. And then we've been doing funding agreements when the markets are supportive, as you know.

So from a cadence perspective of deployment, I think the spread income side of things continues at the pace that we had expected. The bigger variable as it relates to the use of proceeds as it relates to optimizing the Life portfolio, we mentioned in the fourth quarter that we restructured a number of the legacy life captives. We used some of the capital for that, really good return, both GAAP and even more so on the free cash flow side. And then we discussed the fact that in 2026 and 2027, we would look at a number of different actions, some external, some internal, to deploy more of that capital towards either repositioning the life portfolio asset base or looking at an external risk transfer deal. And obviously, we're still working through all of that.

So we like the trajectory of the deployment. There's the pace of account value growth that we're seeing on the fixed annuity side. We had the big first step on the life side with the captive. And really from here on out, it's making sure that we're being diligent on how we think about using the proceeds to execute on some of the life actions.

Your next question comes from the line of Tom Gallagher with Evercore.

Just 2 competition questions. The -- so Ellen, I think you were partly referencing the first one in your answer a few minutes ago. But on the Apollo call yesterday, they mentioned irrational competition in the annuity market coming from incumbent insurers, not from the new PE-backed entrants. And I certainly hope it's not you guys they're referencing because you did have good FIA growth, but you were mentioning MYGA is where you're seeing the most competition or at least aggressiveness in the market where you pulled back actually. But what are you seeing competitively that you think might explain this commentary and irrational competition from incumbents?

So I obviously can't speak to the comment of another peer. But having said that, we know that there are certain pockets of the annuity product segments where it's a pure price competition play. And one of those examples at the moment is MYGA. And we see pockets of this, and we've referenced this in previous calls. There are pockets of this on the RILA side as well as we see more competitive entrants. And one of the ways that we are focused on differentiating and ensuring that we are achieving the risk-adjusted returns that are critical for us in terms of growing this business is differentiated product features and really having a deliberate focus on the more profitable segments of this market.

So you're going to hear us over and over again reinforcing this fact that we are not focused on top line growth. We are focused on balancing growth with profitability, with capital efficiency as we continue to grow here, and we're leveraging the strength of our distribution franchise to pivot across products. You've seen us do this many times before, and we're going to stay focused there to make sure that we are ensuring that we're building the durability for this business going forward.

Got you. My follow-up is a question on competition in the Group Protection business. So your large case lapse that you referenced, was that more you needed rate, you were looking to reprice and as a result, you lost it? Or would you say that was more aggressive pricing from competitors or some other reason that you thought you lost that? And I'm just curious if that informed you about where you currently see competition in that market.

So Tom, you've repeatedly heard us talking about the fact that we are prioritizing margin expansion over top line growth across all of our businesses, but in group in particular. And so with one large customer, you can assume that it holds true here as well. So importantly, our in-line, our persistency was in line ex the one large case.

And while we saw premium growth of 2%, there are a couple of things that I want to emphasize here year-over-year. One is that we feel very comfortable with the medium-term outlook that we laid out for all of you last quarter, expecting premium growth to be in the 3% to 6% range over the medium term. And then you've also heard us talk about the fact that we are leaning into the most attractive margin and fastest-growing segments in our group business, the local markets and also continuing to expand supplemental health. And we saw local market premium growth deliver its strongest growth that we've seen in nearly a decade. And as it relates to supplemental health, that premium grew 28%. So we feel really good about where we are. And again, we'll continue to prioritize margin over top line growth.

Thank you for joining us this morning. We're happy to address any follow-up questions you may have. Please e-mail us at [email protected].

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Lincoln Financial Fourth Quarter 2025 Earnings Webcast. [Operator Instructions] I would now like to turn the conference over to John Muething, Head of Investor Relations. John, go ahead.

Good morning, everyone, and welcome to our fourth quarter earnings call. We appreciate your interest in Lincoln. 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 reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results. including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources as well as any statements regarding our 2026 and medium-term outlook and future strategic initiatives are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause 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 2024 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today.

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

Thank you, John, and good morning, everyone. Thank you for joining our call today. Our fourth quarter performance was strong with adjusted operating income increasing 31% year-over-year and our full year adjusted operating income increasing to its highest level in 4 years, underscoring the progress we have made as we advance our strategy with discipline and focus across Lincoln. .

This was also our sixth consecutive quarter of year-over-year adjusted operating earnings growth with solid performance across the business, aligned with our objective of further diversifying our mix. These results were supported by the continued advancement of our strategic realignment, operational execution and a more resilient capital foundation.

Before I walk through the quarter's highlights, I want to step back and reflect on what we have accomplished since we began this journey at the beginning of 2023. Over the course of the past several years, we remain focused on executing against the strategic priorities we laid out to evolve the direction of the company with a focus on increasing our risk-adjusted return on capital reducing the volatility of our results and growing our franchise.

The fundamental principles of foundational Capital, a more efficient operating model and our efforts to drive profitable growth are coming through in our results with clear evidence of building broad-based momentum balanced against a strategic awareness of where more work needs to be done.

With that context, I'll briefly frame our progress against the three priorities that continue to guide our strategy. Following several years of strengthening the balance sheet, our capital foundation remains durable and resilient. Capital levels remain well above our established buffer, and our leverage ratio has meaningfully improved.

With this foundation firmly in place, we remain focused on continuing to improve returns on capital and to manage capital with greater flexibility over time. We also made meaningful headway in optimizing our operating model, creating a more efficient and scalable organization. We have sustained expense discipline, combining prior firm-wide actions with continued targeted initiatives this year, and we see additional targeted opportunities ahead while continuing to invest strategically to support our long-term priorities. We are also making operational enhancements, streamlining processes to support employee productivity and efficiency enhancing digital and automated capabilities to better serve our customers and evolving our distribution strategy to strengthen our go-to-market approach.

Our investment strategy has been further refined expanding our asset sourcing capabilities and leveraging our external partnerships to enhance ongoing risk-adjusted yields. The role of our Bermuda affiliate expanded over the year and we will continue to leverage it to enhance capital efficiency in support of our broader strategy.

Collectively, these actions build upon the more stable foundation we have established reinforcing more efficiency and sustainability of performance.

Lastly, over the course of the year, we advanced profitable growth across the enterprise with clear progress across each business. Some businesses are further along in their strategic realignment and their performance reflects that while others are at earlier stages.

Across the company, our emphasis is on products and segments with higher risk-adjusted margins more stable cash flows and greater capital efficiency to strengthen the resilience of the business over time. The cumulative impact of these actions is translating into stronger core capital generation for the company which in turn supports capital deployment that sharpens our competitive advantages, reinforces our strategic moat and supports long-term free cash flow generation.

Results may not be linear markets can be volatile and the economic backdrop could change, but we remain steadfast in our commitment to deliver results that drive long-term value. Our momentum continues to build. Our progress is increasingly evident and we remain focused on the path ahead.

Let me turn to our businesses where I will walk through our results and how we are positioning each to continue building on our progress in the years to come.

Starting first with Annuities. We are a leader in this market, offering a broad set of products across RILA, fixed and variable annuities, both with and without living benefits, enabling us to meet customers across different needs and market environments. Our deep, long-standing distribution relationships and consultative approach continue to broaden our reach and strengthen our position.

Over the past 2 years, we have built important infrastructure to support this business, including our Bermuda affiliate, expanded investment platform and enhanced product features. These capabilities support our go-to-market strategy and position our annuities business for sustained success in an evolving market.

In 2025, we delivered strong annuity sales with total volumes up 25%. Approximately 2/3 of those sales came from spread-based products, consistent with our strategy to evolve toward a more balanced and less market-sensitive mix over time.

Full year RILA sales increased 35% in 2025, reflecting our differentiated product features that continue to resonate with customers. Fixed annuity sales increased 11%, underpinned by the capabilities we've built to support a consistent presence. Full year variable annuity sales increased 27% year-over-year as our product offerings, coupled with the favorable market environment, supported sales growth in variable annuity with and without guaranteed living benefits.

2025 sales volumes, in part reflected a strong market environment and customer demand. In 2026, we remain focused on balancing profitability, capital efficiency and lower market sensitivity over time, prioritizing profitable growth over top line sales growth. I'll speak to each of our annuity product segments to provide additional context.

For variable annuities, we expect 2026 volumes to be intentionally lower and more closely aligned with pre 2025 levels as part of our effort to reduce exposure to market sensitivity over time.

In fixed annuities, we are now retaining 100% of sales following the exit of the external flow reinsurance treaty. Looking ahead, sales levels will continue to reflect market dynamics as we advance our profitable growth priorities, and we expect our fixed annuity account values to increase relative to 2025.

Within the fixed annuity category, we see attractive growth opportunities in fixed indexed annuities where differentiated crediting rate strategies and product features support our return objectives and allow us to compete beyond price.

In RILA, customer demand continues to expand alongside increasingly competitive dynamics. Our approach remains anchored in disciplined target return thresholds, differentiated product features and a deliberate focus on more profitable segments of this market factors that directly inform where we choose to compete.

As a result, sales levels may remain broadly consistent with the past 2 to 3 years as we see greater longer-term growth opportunity in fixed annuities relative to RILA. Importantly, our position as a leading annuity provider with a diversified set of product capabilities supported by a broad distribution footprint gives us the flexibility to reallocate capital efficiently toward the opportunity set offering the most attractive returns as market dynamics evolve.

We also remain focused on broadening our distribution partnerships across the annuity market aligned with a disciplined focus on segments that support higher risk-adjusted returns on capital and profitable growth. At the same time, we're expanding our product offerings and continuing to build digital tools and capabilities that enhance the value we deliver to our partners particularly in areas where we see the strongest opportunities and can compete beyond price.

Taken together, these dynamics underscore a disciplined framework for allocating capital across the annuity platform toward higher risk-adjusted return opportunities supported by product breadth, distribution strength and prudent capital deployment.

Earnings to Life. We continue to make meaningful progress repositioning the business over the course of the year. Our efforts have been focused on improving the performance of the in-force block and pivoting the new business franchise toward accumulation and protection products with more balanced risk profiles that support stable cash flows.

At the same time, we have advanced the modernization of our infrastructure and further optimized our distribution footprint to get closer to the point of sale. The strength of our distribution platform has enabled us to deepen relationships with key partners and expand our reach into markets where we see attractive growth opportunities. These actions are supporting both improved financial outcomes and stronger sales momentum.

For the full year, excluding the impact of our annual assumption review, earnings improved meaningfully Sales for the year were up approximately 50% versus the prior year. Full year core Life sales, which exclude executive benefits, increased 4% compared to the prior full year. It is worth noting that fourth quarter's core Life sales included some larger cases, which can vary from period to period. We expect core Life sales to grow in 2026 but from a baseline more in line with the earlier quarters of 2025 as we continue to prioritize profitable growth for the business.

Executive Benefits had a record year with sales of $265 million up from $59 million in 2024, reflecting the foundational investments we have made in this business centered around product capabilities, distribution relationships and our service model. While large case activity will naturally vary, we are encouraged by the trajectory we are building in this segment and expect to have a consistent presence in this market going forward.

From a franchise perspective, we continue to strengthen the new business momentum across our targeted product lines. Execution against our strategy remains focused on repositioning sales towards solutions with more favorable risk characteristics improving the financial professional experience through digital tools and operational excellence and expanding distribution reach through targeted product launches. Together, these efforts are reinforcing the trajectory of the Life business and supporting a more consistent contribution over time. Overall, we are pleased with the progress we made in Life this year and where this business is positioned heading into 2026.

In Group Protection, we continue to execute effectively against a targeted strategy to deliver value across three distinct market segments: local, regional and national with an emphasis on the fastest-growing markets, local markets and supplemental health.

Group delivered another outstanding year with strong earnings and premium growth and full year sales largely in line with the prior year. Full year earnings, excluding the impact of our annual assumption review, increased 16% year-over-year. Full year premium growth of nearly 7% was broad-based, with growth across all products and segments driven by strong sales and persistency along with disciplined pricing. Full year sales, as mentioned previously, were roughly in line with last year's results with growth in local and regional markets and supplemental health sales increasing over 40%, further diversifying the book.

Overall, this strong performance reflects deliberate choices in how we are tailoring products and services by segment, supported by continued investment in the capabilities and infrastructure that support our customers to manage their benefits more effectively.

As we look to 2026, we expect to build on this momentum as we continue to diversify the business with growth increasingly driven by strong persistency and disciplined premium growth.

With that context, I'll walk through how this translates across our local, regional and national segments. In local markets where we see the strongest margin profile, we are focused on accelerating growth by delivering bundled solutions that emphasize ease of doing business, leveraging our focused local distribution footprint.

In regional markets, we are reinforcing stronger strategic broker partnerships and expanding our technology integrations and digital capabilities to better support employers and their benefit decisions.

In national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by our integrated technology and streamlined processes leveraging both our market-leading lead management expertise and deep broker relationships.

And across all of our segments, supplemental health remains a key priority. Across each segment, the focus remains on disciplined execution and serving customers while supporting sustainable growth over time.

Overall, the fundamentals of this business remain strong and group is well positioned as we move forward. Turning to retirement plan services. For the full year, earnings were relatively steady with modest pressure reflecting ongoing headwinds, including participant outflows.

At the same time, we continue to see strong sales and total deposits, underscoring that our value proposition is resonating with customers and that our focus on participant outcomes is gaining traction. As we begin the next phase of our realignment work, our focus is on sharpening where and how we compete. We see opportunity to build on our strength in the more profitable parts of the market, including leveraging our distribution footprint and supporting growth in higher-margin areas such as the small market segment.

Looking ahead, our priorities are centered on improving the earnings profile of the business over time by expanding revenue sources within the existing customer base, broadening products and services where customer demand is strongest and taking targeted actions to improve operating efficiency.

We also see opportunity to further optimize the investment strategy to support our stable value offerings. While this work will take time, the momentum we're seeing with customers reinforces our confidence in the strategic direction and our ability to steadily improve the quality and durability of earnings in this business over time.

Stepping back, we're pleased with the progress we've made. Today's results demonstrate disciplined execution as we continue to shape the enterprise, strengthen the earnings profile and improve the durability of the business.

At the same time, we recognize there is more work ahead. We're operating from a position of strength, which gives us the flexibility to invest where we see the greatest opportunities while remaining disciplined in how we deploy capital across the enterprise.

As we enter 2026, we do so with clarity on our priorities, momentum in our results and confidence in what we're building. We remain focused on delivering against our objectives and continuing to build long-term shareholder value over time. With that, let me turn the call over to Chris to discuss our fourth quarter and full year results and our outlook. Chris?

Thank you, Ellen, and good morning, everyone. Our fourth quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering adjusted operating income growth for the sixth consecutive quarter.

For the full year, 2025 marks our third consecutive year of growth, with each of our businesses contributing to a result that reinforces the broader momentum we have built across the enterprise. Alongside solid earnings, we continued our emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln's ability to deliver attractive risk-adjusted returns and positioning the company for sustained long-term success.

This morning, I'll focus on three areas. First, I'll review our fourth quarter and full year results, including our segment level financial performance. Second, I'll provide an update on our investment portfolio. And third, I'll offer an update on our capital position and our outlook.

Let's begin with a recap of the quarter. This morning, we reported fourth quarter adjusted operating income available to common stockholders of $434 million or $2.21 per diluted share. There were no significant items in the quarter. Our alternative investments portfolio delivered an annualized return of nearly 12% for the quarter or $124 million. On an after-tax basis, this was approximately $16 million above our target or $0.08 per diluted share.

Excluding the impacts of significant items in each year, full year 2025 adjusted income from operations available to common shareholders was over $1.5 billion, a 23% improvement compared to 2024. This result reflects strong execution across our businesses with year-over-year earnings growth driven by favorable underwriting experience in Life and group protection, continued spread expansion and the benefit of higher equity markets.

Turning to net income for the quarter. We reported net income available to common stockholders of $745 million or $3.80 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the positive movement in market risk benefits amidst slightly favorable interest rates and modestly higher equity markets. Our hedge program continues to perform in line with expectations.

Now turning to our segment results, starting with group protection. Group delivered another strong quarter, capping a record year Fourth quarter operating income was $109 million, up from $107 million in the prior year quarter, and the margin was 7.9%. The modest improvement in earnings year-over-year was driven by the Disability loss ratio improving to 73.6% from 75% in the fourth quarter of 2024. This improvement reflected favorable new claim severity, partially offset by lower recoveries and smaller average resolution amounts.

As discussed last quarter, we typically experience seasonal pressure in our Disability loss ratio from the third to fourth quarter and that did materialize within expectations. However, the favorable severity in our new and in-force claims more than offset the seasonal headwinds, ultimately resulting in a decreasing sequential loss ratio.

Partially offsetting the improved Disability result was a normalization in our group Life loss ratio. The fourth quarter Life loss ratio of 67.9% was higher than the record low 64.7% in we delivered a year ago, though it remains favorable compared to historical experience and reflects the continued benefit of our disciplined pricing actions.

Touching briefly on the full year. Excluding the impact of our annual assumption review, Group delivered operating earnings of $493 million, up 16% from $426 million in 2024 and the margin improved to 9% from 8.3%. Improvement was broad-based, driven by premium growth of 7%, continued favorability in both Life and Disability experience and meaningful growth in our supplemental health business.

As we look to 2026, we expect to sustain the momentum we have built. 2 years ago, we outlined an objective of achieving an 8% margin by the end of 2026. We have now achieved that target in each of the last 2 years, our goal remains to continue operating at 8% or above.

External factors may create some variability from quarter-to-quarter, but the fundamentals of this business are strong. We expect continued earnings growth supported by disciplined execution of our strategy, including pricing discipline on new business and renewals and diversification into higher-margin market segments and products.

Overall, group's 2025 results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise.

Now turning to annuities. Annuities delivered operating income of $311 million for the quarter. Normalizing for approximately $8 million of favorable payout annuity mortality experience, Underlying earnings were approximately $303 million, broadly in line with the prior year quarter. The result reflects higher spread income and higher average account balances, partially offset by continued traditional variable annuity outflows and higher expenses associated with retaining 100% of our fixed annuity flows following the exiting of our external flow reinsurance agreement in September. The sequential expense impact of full retention was roughly $5 million in the quarter. Ending account balances net of reinsurance, reached a record $175 billion up 7% from the prior year quarter with growth across all products.

Turning to spreads. Spread income continued to grow, with spread-based products now representing 30% of total annuity account balances net of reinsurance up from 27% a year ago. RILA account balances increased 15% over the prior year quarter, representing 22% of total account balances net of reinsurance. Fixed annuity account balances increased 20% year-over-year, reflecting the first full quarter of retaining 100% of our fixed annuity sales.

From a net flows perspective, net outflows improved year-over-year as net flows into spread-based products exceeded $1 billion for the quarter. Variable annuity net outflows continued at a pace consistent with recent quarters with higher equity markets contributing to higher account balances available for withdrawal.

On a full year basis, Annuities delivered operating earnings of approximately $1.2 billion, modestly higher than the prior year, driven primarily by higher average account balances. This result came despite the ongoing shift in business mix towards spread-based products, which carry a lower ROA, but more stable earnings over time than traditional variable annuities. The continued shift towards spread-based products, combined with the full retention of our fixed annuity economics, builds the in-force base that will support durable earnings and free cash flow generation over time.

As we look to 2026, in the first quarter, we expect sequential pressure on earnings due to 2 fewer fee days and the resetting of favorable mortality experience from this quarter. Additionally, as part of our annual review of allocations, beginning in 2026, we will reallocate net interest income earned on collateral posted in connection with our index credit hedging strategies from Annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful.

Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. While this item can be variable over time given the nature of the underlying collateral balances, as a frame of reference, had this reallocation been in place during 2025, and it would have shifted $50 million of annuities operating income to nonoperating income on an annual basis. Importantly, this is an allocation refinement. There is no change to underlying economics or free cash flow.

Overall, the underlying trajectory of the business remains sound, and we remain confident in our ability to deliver stable, attractive returns over the long term.

Retirement Plan Services reported operating income of $46 million for the quarter, up from $43 million in the prior year quarter. The improvement was driven by favorable equity markets and spread expansion partially offset by pressure from outflows over the past 12 months and higher expenses. Account balances benefited from equity market performance with average balances increasing nearly 9% year-over-year to $124 billion. Base spreads were 110 basis points, up from 101 basis points in the prior year quarter. The expansion reflects the benefit of deploying new money at rates above the existing portfolio yield.

Net outflows totaled approximately $1 billion for the quarter primarily driven by participant withdrawals and pressured by known plan terminations, the majority of which were not meeting our profitability targets. We remain focused on retaining profitable business and maintaining pricing discipline on both new and recurring business.

Turning to full year results. Retirement Plan Services delivered operating earnings of $163 million, flat compared to the prior year. While outflows earlier in the year created headwinds, these were largely offset by favorable equity markets and spread expansion.

As we look to 2026, we expect net flows to remain negative as we continue to prioritize profitability over retention of business that does not meet our return targets. We see opportunity to improve returns through targeted expense efficiency actions and investment portfolio optimization and we remain confident in our ability to deliver sustainable earnings growth in this business over time.

Lastly, turning to Life Insurance. Life delivered operating earnings of $77 million for the quarter, a meaningful improvement compared to an operating loss of $15 million in the prior year quarter. The improvement was broad-based, driven by improved mortality higher alternative investment returns and the execution of our captive consolidation. Mortality results for the quarter were in line with our expectations. You may recall that the fourth quarter of 2024 was pressured by elevated mortality driven by an outsized impact from severity in our universal Life block. We saw that dynamic normalize this quarter, which was the primary driver of the year-over-year improvement.

Turning to expenses. Despite stronger sales and higher variable compensation in the quarter, the actions we have taken over the course of the year allowed us to hold expenses flat year-over-year. Maintaining expense discipline remains critical to supporting earnings improvement in this business.

Touching briefly on the full year. Excluding the impact of our annual assumption review, Life delivered operating earnings of $146 million compared to an operating loss of $71 million in the prior year an improvement of over $200 million. The improvement was driven primarily by favorable mortality compared to unfavorable mortality in 2024, higher alternative investment returns and the expense discipline we have maintained throughout the year. These results reflect the ongoing progress we have made in stabilizing and improving the trajectory of this business. As we look to 2026, we expect continued progress.

As a reminder, the first quarter is typically our lowest earnings quarter for Life, reflecting unfavorable mortality seasonality and a step down from the higher fee income we earn in the fourth quarter. You'll see these seasonal patterns outlined in our earnings supplement.

Beyond those near-term dynamics, we are focused on rebuilding sales momentum with an emphasis on products that generate more stable cash flows and attractive risk-adjusted returns. And we will continue to optimize the free cash flow profile of this business by remaining disciplined on expenses, optimizing the investment portfolio and the potential for external risk transfer. We are confident in the trajectory of this business as we continue working towards positive underlying free cash flow.

Turning now to expenses. As we signaled last quarter, fourth quarter G&A expenses increased both sequentially and year-over-year. The sequential increase was primarily driven by higher variable compensation reflecting the strong sales volumes we achieved during the quarter.

On a year-over-year basis, the increase also reflects continued investments in our businesses, including in annuities where we are now fully retaining our fixed annuity flows and in Group Protection, where we continue to execute on our technology road map, including modernizing our claims platform.

Looking ahead, expense discipline remains a strategic priority across the organization. We have made meaningful progress over the past 2 years, and we see continued opportunity to drive efficiency as we advance our transformation. This includes ongoing focus on organizational simplification, leveraging technology to improve productivity and ensuring our expense base is appropriately sized to support our strategic objectives. We are committed to maintaining a disciplined approach to expenses, balancing the investments needed to drive growth with a relentless focus on operational efficiency. This will remain a critical area of focus in 2026 and beyond.

Turning to investments. Our investment portfolio delivered solid results in the fourth quarter reflecting disciplined management and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade and below investment grade exposure near historic lows.

Overall, credit performance for the full year was solid. New money was invested at a yield of 5.3% for the quarter, approximately 65 basis points above the portfolio yield. For the full year, new money yields averaged 5.7%, approximately 110 basis points of the portfolio yield. Alternative investments generated a return of 3% for the quarter were 12% annualized, above our target of 10%. For the full year, alternative returns of approximately 10% were in line with our annual return target.

We continue to make progress on our general account optimization efforts executing on new money strategies across a variety of asset classes to support our spread-based growth initiatives. These efforts remain an important component of our broader strategy to enhance investment returns and support product competitiveness.

Before turning to the outlook, I wanted to highlight three capital actions that occurred in the fourth quarter. First, we completed the consolidation of several Life insurance captive entities. This simplifies our legal entity structure reduces reserve financing costs and supports improved free cash flow within the Life business.

Second, we received a $75 million dividend from Alpine, our Bermuda-based affiliated reinsurance entity demonstrating its strong capitalization and profitability. We expect Alpine's contribution to grow as we expand its role across additional products.

Third, holding company liquidity ended the year at approximately $1.1 billion, which includes $400 million of prefunding for our senior notes maturing in December 2026.

Net of prefunding, holding company liquidity is approximately $655 million above our historical $400 million to $500 million operating range. With the debt maturity later this year, the preferred securities becoming redeemable in 2027 and as we move closer to increasing capital return to shareholders, this increased liquidity provides the financial flexibility to act on multiple fronts over the next few years, reflecting the progress we've made in strengthening cash flow to the holding company and positioning us well to execute on the capital priorities ahead.

Lastly, I'd like to provide an update on our financial outlook. We began this journey in 2023 with a focus on fortifying the balance sheet, transforming the company to one with a more balanced mix of earnings and profitably growing.

Over the past few years, we have made considerable progress on these efforts, building momentum that positions us well against the goals we set out at the end of 2023. We have provided a number of updates in the outlook section of the investor supplement released this morning that help to frame the progress we've made as well as some goals over the medium term, which we define in the supplement as potential ranges over the next 2 years.

Stepping back, what is clear is that our business mix is evolving with Group Protection now approximately 25% of business unit earnings, up from 18% in 2023. Spread-based annuity account balances net of reinsurance are now 30%, up from 25% in 2023, and our Life business is showing considerable momentum in pivoting their franchise to a product set with more stable cash flows and increased risk sharing.

Additionally, as you can see on Slide 14, we're ahead of schedule on delivering on our financial commitments. From a balance sheet perspective, we restored capital to levels above our 400% target, built a 20-point risk buffer on top of that target and ended last year well in excess of that buffer.

With that growth in capital, our leverage ratio has declined 500 basis points since the end of 2023 and is now back at our long-term target, providing greater financial flexibility and capital support for the future.

At the same time that we've been pivoting our mix and strengthening our balance sheet, we've been growing both our earnings base as well as our ability to convert those earnings into free cash flow.

In 2023, our adjusted operating income was $908 million, and we converted 35% of those earnings into free cash flow. Last year, our adjusted operating income grew to over $1.5 billion or 69% higher than in 2023. Importantly, at the same time as our earnings base was growing, so is our ability to convert those earnings into free cash flow with a 2025 conversion ratio of 45% or 10 points higher than 2023.

So over the last few years, we've made progress on shifting our mix to more capital efficient and less volatile businesses. We've rebuilt our capital to levels well in excess of our targets and we've grown both our earnings base and importantly, our ability to convert those earnings into free cash flow.

As we think about the next few years, we would expect the momentum to continue as we leverage our foundation to profitably grow our franchise maximize value and increase free cash flow. We have a number of levers available to support us on this journey, as shown on Slide 15. For example, we'll continue to focus on our operating model, with targeted actions on expense efficiency and continued optimization of our investment strategies.

We'll also continue to evaluate the potential for external and affiliate reinsurance transactions with a diligent focus on reducing risk and generating economic value. And lastly, we'll continue to strategically grow in products and businesses where we can achieve attractive risk-adjusted returns while shifting our capital allocation should market or competitive dynamics change.

When we look out over the next 2 years, the culmination of these efforts should translate into continued growth in capital generation and free cash flow, which should in turn lead to higher dividends from the operating entities to the holding company as shown on Slide 18.

As this excess capital builds at the holding company, we would eventually then be in a position to increase capital return to shareholders. We continue to see a clear path of opportunity ahead with a leverageable foundation in place an increasingly optimized operating model and disciplined strategic capital allocation we are positioning Lincoln for durable value creation in the years ahead. We thank everyone for listening.

And with that, I'll turn it back to the operator.

[Operator Instructions] And your first question comes from the line of Joel Hurwitz with Dowling & Partners.

So Chris, first want to touch on capital return. If I look at your medium-term guidance, it's for $400 million to $600 million plus of capital return to shareholders, just given the dividend should be around $350 million this year. Is that implying at least $50 million of buyback in '26? Just want to make sure I'm thinking about that correctly.

So thanks for the question. I think what I would say is when you look at the way that we've presented the information and the outlook, we're really talking about a potential range over the next 2 years.

And so if you think about our capital deployment priorities, the first priority hasn't changed. And frankly, we're going to continue to hold a buffer capital in our operating entities, and we'll continue to invest incremental free cash flow that we generate, where we see opportunities. That said, our free cash flow continues to improve. You can see that we've moved more of the free cash flow that we generated this year to the holding company. That's a good sign. It's something you would expect, but the point is the first priority will continue to be to maintain an access within our operating companies and invest where we see attractive returns.

The second priority continues also to be the same, which is we're preparing for the optimal way to deal with the preferred when it's redeemable next year. as you move more capital to the holding company, that gives you more flexibility.

And at the same time, with our leverage ratio back toward is we've got some more flexibility as to how we think about it. So we're still working through what the optimal way to handle the preferred will be. I would imagine we would continue to study that over the course of this year. And then when you think about the fact that even on top of that, we've built the excess capital in the buffer in L&L and Alpine and so forth, we're moving more capital to the holding company. As we deal with the preferred, we will still be in a position where we're generating significant free cash flow and excess capital and our priority would then be to increase the capital return to shareholders. So we're not going to give you a 2026 versus 2027. But the good news is all of the signs that would support increasing capital return to shareholders continued to move in the right direction.

Got it. That's helpful. I guess just sticking on capital. If I take the remittances in that medium-term outlook less the holding company expenses, right, that's that implies like $800 million to $900 million of excess cash. Should I just take that versus the capital return is sort of largely for the -- to manage the preferreds in the calls next year? Or is there any other potential uses of that capital at the holding company?

No, I think that's right. If your free cash flow at its simplest form, assuming that you're moving all of the excess capital that you're generating in the year up to the holding company, that would be the difference between those two items, your remittances and your expenses at the holdco, which you could think about as your debt interest, your preferred coupon, plus or minus any NII might earn. But the sum of those two, you should think about under those constraints as being your free cash flow. And then as we build cash and think about deploying it for the preferred in 2027, the other usage of it would be increasing capital return to shareholders.

Our next question comes from the line of Tom Gallagher with Evercore ISI.

Yes, I appreciate Slide 18. I think that clarifies a lot in terms of where the cash flow is going in terms of the components. So Chris, is the best way to think about this I heard what you're saying about the press, and that makes a lot of sense over the next few years. But if the $1.2 billion of sub remittances, is a number that's probably going to grow somewhat. And then assuming you either refinance or pay down the press, then we'd be looking at a lower holdco interest expense bogey heading into, call it, 28%, 29%.

So we're looking at -- when I think about where this is going, and I'm not asking for specific numbers, I want to make sure I'm understanding conceptually where this is going. You probably have something better than $1.25 billion coming in for remittances and you'll have a lower holdco bogey, assuming your interest expenses go down. And then we could be talking about something north of $1 billion of the amount that's available annually for shareholders, unless there's some other component to it that I'm missing? Does that all line up? Or are there other pieces here to consider?

Tom, if you're looking for 2028 and 2029 guidance, I'll have to get back to you. But that being said, yes, I mean, if you think about the fact that you redeem and whether you redeem with all capital or you refinance a piece of it, et cetera, et cetera. That will be a 2027 event, which exactly to your point, there's a $90 million coupon associated with that. So then starting in 2028 your holding company net expense would come down. I would expect over time, as we continue to execute on all the things we've been talking about really thinking about the longer term after the 2-year sort of range that we give here, you would expect remittances to grow. But we're focused right now on '26 and '27, but I think the way conceptually you're thinking about over the long term are the right drivers.

Okay. And then my follow-up, I guess just a question on this redefinition of NII. I heard what you said about the hedging what kind of prompted that change? Is it just that RILA becoming larger and it's like a materiality issue, and you looked at the way peers are treating this. And I presume also since you're redefining earnings a bit lower on an apples-to-apples basis, that would, at the margin make your free cash flow conversion better, all things equal?

So on that last point, yes, but I think that's just definitional, right? I mean we're focused on the absolute dollars of free cash flow when you're comparing it to the GAAP number, yes, that would have a slight positive to it, but that's just, call it, optics I think at the end of the day, every year, we look at allocations, there's another component, which we show in the back where you look at your operating expenses and depending on how some of the drivers move, there's corporate overhead allocations and things like that, where the allocated expenses to the businesses might move around, but that will net to 0 for an operating income perspective.

On this specific issue, Yes, that's exactly right. As RILA has grown over time, there is a component, the majority of the investment income and/or expense related to the collateral is in nonoperating and there was a piece of it that we had looked at that was more specific when we went through how to think about 2026. And as we've committed to, we're trying to be transparent and give all of the clarity as it relates to how we think about the operating income, and this was just a natural part of that.

But you do this every year, you look at the different pieces -- what I would tell you is it wasn't a big driver year-over-year as it relates to growth for '25. So I think the annuities growth number wasn't significantly impacted. But as you look out over the longer term and you think about some of the things that we've talked about wanting to do around giving more explicit spread margin information for annuities. You want to be able to provide the cleanest view possible as it relates to NII and interest credit and so forth.

Your next question comes from the line of Wes Carmichael with Wells Fargo.

My first question was on the Life insurance business. Chris, I think you mentioned some captive consolidation and reducing reserve financing costs. Just wondering if you could talk a little bit more about those actions you've taken, if there's more to do there and the impact on earnings and free cash flow.

Sure. So we alluded to this last year. But if you step back, the other -- the bigger picture comment here is we've been doing a lot over the past couple of years to improve the free cash flow profile of the legacy Life block. And so we've taken out expenses. We did the [indiscernible] transaction, and we've alluded to a number of other projects that we're looking at with the idea of being internal from an internal perspective on an organic basis, we do think that there's a lot we can do to improve the profile there.

The captive consolidation was one of those projects. We completed the in the fourth quarter of this year. And essentially, what it is, is historically, you have a number of legacy Life captives and they can be product specific, you might have some term captives. You might have some well captives and so forth. And so we've seen this across the industry.

But as you think about consolidating those captives, there's a financial benefit given the high financing fees relative to the years ago, contracts that were signed. So by consolidating and restructuring the way those captives work, you're able to save on the financing piece of it.

As specifically for gap in fourth quarter, it was about a $10 million benefit to Life. So if you think about 20 you should get, call it, another $25 million to $30 million in improvement to the Life GAAP earnings. And then I would tell you that on a free cash flow perspective, it will be an incremental benefit on top of that $40 million, call it, GAAP run rate given the fact that you do have some capital optimization when you combine some of those blocks. So I hope that helps. It's in line with the sort of bigger picture projects we've talked about. And as it relates to going forward, we think that there's more that we can do.

And Wes, just to add, in addition to all of the in-force actions that Chris just mentioned, I also want to reiterate some of the comments that we made earlier around all that we've done to completely revamp the new business franchise so that as we think about the ongoing trajectory of the Life business over time, we also firmly believe that we'll continue to see profitable growth there.

So just as a reminder, across the products, we have significantly revamped as we've shifted into, for example, accumulation and more limited guarantee products. And you really start to see that coming through. If you look year-over-year, for example, at our IUL and also at our accumulation VUL from a sales perspective. talked quite a bit about executive benefits. That's another example.

And part of that success is also really leveraging our distribution. So we have -- we talked about getting closer to the point of sale. We are targeting new channels there, such as the producer group and the agency channel. And then additionally, as we think about this business going forward, we've also done a lot as it relates to technology, automation, supporting our producers around e-delivery, pre and post sales, et cetera. So we're excited about what we see. We've made significant improvements to the in-force, and we also see some bright spots over time as it relates to Life new business going forward.

That's all very helpful. My second question, I guess, was just about dynamics in the annuities market. It sounded like, Ellen, from your comments that RILA is maybe is becoming more competitive and maybe pushing you towards fixed and indexed annuities a bit more. So just curious what you're seeing there and maybe the outlook for 2026.

Absolutely. So I'm going to step back for a moment, and I'll talk about all three segments. So first of all, as you know, we're a leader in the annuity market. We've got a broad product portfolio. We're across all the major segments. And we very much leverage the overall product portfolio and our distribution footprint.

So some of what we have been talking about, it's a couple of things. Number one is that we have been focused on lowering our market sensitivity over time. And I'll get to the VA point in a moment. And at the same time, we're focused on balancing profitability, capital and capital efficiency and really -- and growth as well and really thinking about those three components. So what we've seen -- and you see this coming through in our sales. And I have to say that our sales in 2025 were strong. We were very happy with the overall volumes. We're very happy with the returns across each of the product segments. And we also are continuing to just evaluate market dynamics as we go forward as well.

So specifically in RILA, as you know, we have -- we were one of the earlier entrants into the RILA product. We have now significant experience overall in RILA. About 18 months ago, we revamped and refreshed our product. It was very much needed. And you've seen increasing sales there over time.

The addressable market has grown but the competitive landscape has also grown, and we see that increasingly growing as it relates to its competitive nature.

For us, given our strong overall annuity platform, part of what we're focused on there, and we talked about the fact that we can expect in 2026 to see sales growth that would be in line with what we've seen over the last, call it, 2 to 3 years. What we're doing is we're really leaning into places where we have differentiated products, where we have -- whether it's features, whether it's unique crediting features as well.

And then additionally, in our -- along our distribution platform, which is so broad, we also have some places where we have select channels where our product, in particular, is differentiated there. And so these are ways that we're competing beyond price, really focused again on this idea of balancing profitability growth and overall capital efficiency.

And I'll just make a mention for a moment on some of the comments that we made around VA. So VA is a good product. This is another area where market dynamics last year, in particular, the entire industry grew we very much have been focused on continuing to shift the mix, and you've seen our mix shift. And part of that is that we've continued to experience strong outflows and so that the higher sales that we saw this year didn't deviate from our goal of diversifying the mix.

But as -- and in addition, some of the new product features that we launched about a year ago, really supported some of the sales momentum that we saw in 2025. And then, of course, we saw this higher demand. So as we look at 2026, we're going to expect to see that growth moderate as I mentioned, so that our sales will look more similar to pre 2025 levels.

And then the last point that I'll make is as it relates to fixed annuity. Fixed annuity is the one place where we really believe that we have runway to continue to grow. We're going to leverage everything that we've talked about, Bermuda, investment strategy, expanding our overall opportunity there as we continue to have unique sourcing and also expanding both our product capabilities and also distribution as well.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to go back to Slide 18. If I look at the medium-term subsidiary remittances, if I take the midpoint, it's a pretty big jump from the $845 million you did in 2025. And I know that the range is over a 2-year period. But can you unpack what would lead to close to a 50% jump, if I'm thinking about it right?

Yes. I think the central premise there -- I think the central premise there is for the past let's call it, 3 years. As we have grown our free cash flow, we've maintained the vast majority of it in the operating entities, right? And so for all the reasons we've talked about. But going forward, the expectation is, a, that the underlying free cash flow is growing. We've shown the ability to do that. We've talked about the levers that will continue to drive that, but also with where we are from a capitalization perspective, L&L and [ Alpine ] and so forth, we would -- you would expect us to move that to the holding company.

So I think that it's somewhat of a -- we've done what we've said we were going to do in terms of building back capital at the opcos, we're maintaining a buffer. You can see from the RBC slide upfront that we ended the year at [ 439% ]. And by the way, that excludes the remaining Bain proceeds that are earmarked for deployment next year. So you can just think about the fact that as we've been generating incremental free cash flow, you're seeing it come through from an RBC perspective, and there's a similar dynamic in Alpine. So going forward, as the free cash flow continues to be robust, you would expect us to move that to the holding company.

Okay. That makes sense. And I guess, I know you're not going to get too specific on it. But as we think about this $1.2 billion to $1.3 billion, does that have any of the levers in it that you guys have talked about in terms of reinsurance or anything like that? Or is it more sort of normal course? And should we expect there to be a big difference between '27 and '26?

So I think on the first question, what I would say is all of the things that we've been doing over the past couple of years to increase free cash flow, right? And we've talked about the big buckets there dealing with the legacy Life Block optimizing the operating model, being more thoughtful around capital allocation they've been big drivers and the vast majority of them should continue to be drivers to the growth in free cash flow over the medium term. We'll continue to look at our operating model and optimize the strategic asset allocation. We'll continue to look at expenses. We think there's more we can do with Bermuda from a capital allocation perspective, as we've talked about, that's both at a business unit level, if you think about how much group has grown as well as with inside the business units. So if you think about the repositioning in Life. So those dynamics should continue to be tailwinds to free cash flow.

What we're not including, Suneet your specific question, are any other sort of big external things that we've done in the past. And so to the degree that we, for example, look at another external risk transfer deal, that would not be what's implied in the remittances. So it is the natural evolution of the things that we've talked about. We continue to see runway to obviously both grow earnings but then more importantly, grow the ability to convert those earnings into free cash flow. And then if we were to do something else, that would be sort of incremental to these numbers.

And that concludes our question-and-answer session. I will now turn it back over to John Muething for closing comments.

Thank you for joining us this morning. We're happy to discuss any follow-up questions you have. Please e-mail us at [email protected].

Ladies and gentlemen, this does conclude today's call. Thank you for joining, and you may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time I would like to welcome everyone to the Lincoln Financial Third Quarter 2025 Earnings Webcast. [Operator Instructions]

I would now like to turn the call over to Tina Maddon, Head of Investor Relations. Tina, please go ahead.

Good morning, everyone, and welcome to our third quarter earnings call. We appreciate your interest in Lincoln. 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 reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to the most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions.

Let me now turn the call over to Ellen.

Thank you, Tina, and good morning, everyone. We appreciate you joining us. We delivered strong financial results in the third quarter, marking our fifth consecutive quarter of year-over-year growth in adjusted operating income and underscoring the broad-based momentum and disciplined execution as we accelerate our strategic priorities. We have remained focused and consistent in advancing our vision for Lincoln, and this quarter is another proof point. Each of our 4 businesses continued to make measurable progress against our transformation road map, translating strategy into results and contributing to the strong fundamentals that are reshaping the company into a more agile, scalable and growth-focused enterprise with durable earnings power and a clear path to building long-term shareholder value.

The core tenets of foundational capital enhanced operational efficiency and a strategy for profitable growth are increasingly evident in our results. We're evolving the direction of the organization with a clear focus on increasing our risk-adjusted return on capital, reducing the volatility of our results and growing our franchise. And we're starting to see the benefits of those actions. Our capital position remains well in excess of our 20 percentage point RBC buffer, and we have made significant enhancements to optimize our operating model, creating a more efficient and nimble organization.

Our businesses have made notable progress on strategies to shift to products and segments with higher margins, more stable cash flow profiles and greater capital efficiency. We see meaningful opportunity ahead and are continuing to invest for future growth. Our businesses operate in attractive, expanding markets where we compete from a position of strength grounded in our trusted brand, leading franchise and clear competitive advantages in distribution, product manufacturing and customer service. Our trajectory continues to accelerate our track record is increasingly clear. And while our progress won't always be linear, we're confident in the direction we're heading and excited about the path forward.

I'd like to briefly comment on our annual assumption review, which continues to be a rigorous and comprehensive process encompassing all key assumptions. The outcome this year reflected some puts and takes, resulting in a small favorable impact to adjusted operating income in the quarter, highlighting the continued alignment between our underlying experience and our go-forward expectations. The process provides a strong foundation for disciplined evaluation and well-structured governance of assumptions.

Now turning to our third quarter performance excluding the impact of our annual assumption review. Each of our businesses generated robust year-over-year results, reflecting continued momentum and execution against our strategic priorities. Key highlights included annuities recording earnings growth driven by higher account balances and strong and diversified sales. Life insurance posted improved earnings supported by stable mortality and operational efficiencies while achieving higher sales driven by executive benefits. Group Protection delivered earnings that were in line with its prior year record third quarter, healthy premium growth and broad-based sales growth across market segments and products.

Retirement Plan Services delivered higher earnings attributable to increased account balances and produced positive net flows in the quarter.

Now turning to our business results, starting with Annuities. Our annuities business continued to deliver excellent year-over-year and sequential sales growth, reflecting sustained progress in our strategy to diversify our new business mix. Reported sales reached $4.5 billion, our fourth consecutive quarter of increased sales with our spread-based products, including fixed annuities and RILA, representing 63% of the new business total. Each of our 3 core product categories, fixed Rila and variable annuities exceeded $1 billion in sales, supporting our focus on building and sustaining a more balanced product mix supporting our strategic and financial goals with strong profitability and capital efficiency and underscoring our differentiated ability to capture customer demand.

Our go-to-market strategy, combined with our breadth of products, deep, long-standing distribution relationships and consultative wholesaler model enables us to broaden our addressable markets and reach more customers seeking to retire with confidence and financial security. Our distribution partners value our customer-centric approach, which equips producers with the insights, tools and capabilities to deliver the right solutions while enhancing their productivity and ease of doing business. As a holistic solutions provider with a product suite that continues to expand, we are positioning our annuities business for further growth. As a leading product manufacturer, we are delivering innovative new features that are meeting evolving customer needs across various environments further distinguishing us in the marketplace.

Our fixed annuity sales increased by 36% year-over-year as we leveraged the foundational product and distribution capabilities we built to sustain a consistent and growing presence in the fixed segment. We also continue to invest in our service model to deliver more seamless value-add capabilities to support our customers. Additionally, during the quarter, we transitioned to fully retaining the flows from our fixed sales, which will enhance the growth of our spread-based earnings over time. Our RILA sales increased 21% year-over-year, a sixth consecutive quarter of sequential growth that reflects our ability to differentiate through distinctive and expanded product features and crediting strategies that resonate with customers. Sales volumes of our traditional variable annuities were also up year-over-year. Our variable product suite offers a broad array of features and benefits that meet customer needs and remain integral to our overall offering.

VAs remain a valuable contributor to our overall product mix, generating strong free cash flow and attractive risk-adjusted returns.

In summary, these results demonstrate the success we are achieving in delivering a diversified product mix that meets customers where they are across different life stages, risk tolerances and economic environments. The strategy to increase the proportion of our spread-based earnings through profitable new business generation translates into more resilient and predictable cash flows over time, while meeting our risk-adjusted return targets and balancing the financial contribution across products. We remain confident in the strategic trajectory within our Annuities business and our ability to leverage our competitive strengths to achieve our profitability objectives.

Now turning to Life Insurance. As I've mentioned on prior calls, we have taken decisive steps to reposition this business for long-term value creation. We have strategically shifted our new business mix to emphasize products that support our strategic objectives, those with growing addressable markets that offer compelling value propositions for our customers enable efficient capital deployment and position us for durable profitable growth. This quarter's results reflect the progress we are making as our strategic realignment continues to gain traction. Excluding the impact of our annual assumption review, Life earnings reached $54 million, marking a significant year-over-year improvement. Sales totaled nearly $300 million with executive benefits accounting for 2/3 of that volume driven by a couple of large cases.

In this product category, we have enhanced our competitiveness through targeted product additions and by strengthening our distribution relationships and expanding our service model, enabling us to deliver a strong quarter for executive benefit sales. While we don't expect this level of sales to repeat in the fourth quarter, given the natural variability in large-case activity, we have built the foundational capabilities to support a growing presence in this segment. We are continuing to invest to ensure a long-term growth path and are encouraged by the results we're seeing. Our other life sales were a well-balanced product mix aligned to our targeted strategy.

The momentum this quarter reflects the effect of the deliberate actions we've taken over the past several years, optimizing our wholesaler footprint emphasizing products with more stable cash flows and enhancing the customer experience. We are continuing to invest in modernizing our service model and advancing our digital offerings to deliver a more integrated customer experience. Through expanded technology, we are differentiating our capabilities to provide real-time insights to support faster, data-driven decisions and position us for sustained growth. In the Life business, we are seeing the early impact of our repositioning efforts and remain steadfast in our commitment to enhance and grow this business and realize its full long-term potential.

Next, turning to our Group Protection business. As mentioned earlier, group's earnings were in line with its prior year record third quarter, although modestly below our expectations. Importantly, the core fundamentals of this business remain strong. We continue to execute on our targeted strategy of delivering value across 3 unique market segments: local, regional and national with an ongoing strategic focus on repositioning this business for sustainable profitable growth, transforming how we operate and delivering reliable quality customer service. We're seeing tangible results from our actions as reflected in our year-over-year 5% premium growth driven by robust sales, strong persistency and pricing discipline across both new and renewal business. Our premium expansion was broad-based with increasing results across all market segments and product categories with supplemental health, a strategic area of focus, increasing 33% year-over-year.

This growth underscores the execution of our strategy to diversify across market segments, expand and deepen the product portfolio and invest in the people, process and technology to create differentiated capabilities that deliver a simpler, faster and more connected customer experience. While the third quarter is typically a seasonally lighter sales period, group delivered year-over-year sales growth of nearly 40% and broadly diversified across market segments and products. In this business, servicing our customers with excellence is a strategic differentiator as we look ahead, we will continue to drive our segment strategy in a profitable and sustainable way by broadening our distribution relationships, expanding our product suite and continuing to expand our digital tools and technology to drive more productivity, efficiency and effectiveness grounded in a strong foundation and disciplined execution from pricing to expansion in growing addressable markets, our group business is well positioned to drive sustainable growth and profitability.

While we expect some variability in results from quarter-to-quarter, the fundamentals are strong, and the long-term trajectory is positive. Now turning to Retirement Plan Services, or RPS. RPS delivered a strong quarter, achieving 5% year-over-year earnings growth and first year sales of $2.4 billion as the robust new business pipeline we previously communicated materialized this quarter. Additionally, total deposits increased 20% year-over-year and net flows were positive, driven by the strong sales momentum in the quarter. Our offerings and our core recordkeeping and institutional markets continue to drive meaningful customer engagement reinforcing our long-term growth potential.

Looking ahead, we will continue to focus on initiatives that will enhance our operational and service capabilities, broaden our product offerings and drive greater efficiency as we pursue sustainable and profitable growth.

In closing, we are moving forward with conviction, intention and collective determination. The progress we have made is evident not only in our financial results, but in the precision of our execution and operating model, we are continuing to refine and fortify and the durability of our capital position. We are expanding our strategic advantage by pivoting toward higher-margin, capital-efficient growth, investing in the foundational core that sharpens our competitive edge and evolving into a more agile, scalable and forward-looking enterprise. Through disciplined transformation, we are building a market-leading franchise equipped to thrive in a dynamic environment align capital with strategic priorities and capture value where we have built scale and momentum. In summary, we are delivering today while advancing the capabilities that will drive tomorrow.

With that, I will turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our third quarter results represent another quarter of strong execution and meaningful progress on our strategic initiatives delivering year-over-year adjusted operating income growth for the fifth consecutive quarter. This continued broadening momentum underscores the effectiveness of our strategy and a disciplined approach consistently demonstrated across our businesses. Importantly, each of our businesses delivered stable or improved year-over-year earnings. Alongside this, we maintain a strong emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln's ability to deliver attractive risk-adjusted returns and positioning the enterprise for durable long-term success.

This morning, I'll focus on 3 primary areas: First, I'll discuss our consolidated results for the third quarter, including the outcome of our annual review of reserve assumptions. Second, I'll provide insights into our segment level performance. And third, I'll offer a brief update on our capital position and investment portfolio.

Let's begin with a recap of the quarter. This morning, we reported third quarter adjusted operating income available to common stockholders of $397 million or $2.04 per share. This includes the impact of this year's assumption review which increased adjusted operating income by $2 million or $0.01 per share. Additionally, our alternative investment returns were largely in line with expectations, delivering an annualized return of just under 10% or $101 million. After tax, this was $2 million below our target or $0.01 per diluted share.

Turning to net income. We reported net income available to common stockholders of $411 million or $2.12 per diluted share. The difference between the net income and adjusted operating income was predominantly driven by 2 main factors. First, there was a negative after-tax change of $151 million in the fair value of the GAAP embedded derivatives related to the Fortitude Re reinsurance transaction. 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 corresponding offset flowing through accumulated other comprehensive income or AOCI.

Second, more than offsetting this negative was a favorable after-tax impact of $324 million within nonoperating income, driven primarily by the positive movement in market risk benefits amid a stable interest rate environment and higher equity markets. Of note, our hedge program continues to perform well, in line with expectations. As in prior years, the effectiveness of our hedging strategy allowed us to take a $50 million distribution from Linbar this quarter.

Before turning to our segment results, I want to briefly touch on the impacts of our annual review of reserve assumptions on adjusted operating income. As I noted earlier, the overall impact from the assumption review this quarter was minimal, resulting in a $2 million net benefit to adjusted operating income. While there were some positive and some negative adjustments none were material relative to the scope of our reserves. Group Protection earnings benefited from a positive adjustment of $39 million this quarter, driven mainly by updated assumptions in our LTD and Lifelines, reflecting favorable trends we've seen over the past few years. This was offset by modest negative impacts in both our Life and Annuities operating income of $29 million and $8 million, respectively.

As it relates to our life assumptions, the impact this quarter stems from slightly elevated mortality experience within our Universal Life block which was primarily offset by more favorable mortality experience in our term block, consistent with the drivers of our recent results. Importantly, policyholder behavior remains broadly in line with our expectations. The impacts of our annual assumption review on our segment results for this period and the prior year period are detailed in our earnings release issued this morning.

Now turning to our segment results. Excluding the impact of the assumption review, Group Protection operating earnings were $110 million, consistent with the prior year record third quarter, and the margin for the quarter was 8.1%, reflecting a modest decline of 40 basis points year-over-year. The main driver of our results was a moderation in our disability loss ratio, which increased to 76.7% compared to 70.5% in the third quarter of 2024, excluding the impacts of the assumption review. This increase reflected both volatility, specifically 1 month of unfavorable severity in our LTD experience as well as lower LTD recoveries. While we've seen the volatility in severity normalize, the lower LTV recovery rate will likely continue. Over recent years, enhancements in our claims management practices have significantly improved early-stage resolutions.

But as these practices mature, incremental benefits naturally moderate. Offsetting this unfavorability during the quarter was continued favorability in LTD incidents and continued favorability in life results. Group Life results in particular, remained strong year-over-year, delivering the second lowest loss ratio post the pandemic, supported by lower incidents and favorable severity outcomes. Excluding the impact of the assumption review, our life loss ratio improved relative to the favorable prior year quarter, declining to 65.3% compared with 71.8% in the third quarter of 2024. Although quarterly fluctuations in mortality outcomes are expected, this continued strength underscores the effectiveness of our disciplined pricing.

As a reminder, we typically experience seasonal pressure from the third to fourth quarter. Looking ahead and incorporating the third quarter trends and these seasonal factors, we expect to end the full year with a margin in the range of mid- to upper 8%, representing a roughly 50 basis point improvement year-over-year. We remain confident in our strategy, disciplined execution and ability to deliver attractive and resilient long-term performance.

Now turning to annuities. Excluding the impact of the assumption review, Annuities delivered operating earnings of $318 million, up $18 million year-over-year driven by higher average account balances net of reinsurance and continued growth in spread income. Additionally, this quarter's earnings included a benefit of approximately $10 million from favorable expense dynamics, primarily related to expense timing and certain tax items that were partially offset within other operations.

Turning to spreads. Spread income continued to grow, with spread-based products representing 29% of total annuity account balances net of reinsurance, reflecting our commitment to diversifying our annuity business. RILA account balances increased 16% over the prior year quarter, representing 22% of total balances net of reinsurance. Fixed annuity account balances were 11% higher year-over-year as we began retaining all of the fixed business we sold during the quarter. From a net flows perspective, VA net outflows continued at a similar pace as in recent quarters, reflecting the maturity of the block while net flows into spread-based products exceeded $1 billion, further underscoring the success of our strategic diversification efforts.

Overall, our annuities business delivered strong earnings growth reflecting our ongoing efforts to diversify and strengthen the stability of our earnings base in this business. We remain confident that our disciplined approach positions us well to deliver stable, attractive returns over the long term.

Retirement Plan Services reported operating income of $46 million, up slightly from $44 million in the prior year quarter driven by higher account balances amid a favorable equity market backdrop and spread expansion. This was partially offset by pressure from stable value outflows over the past 12 months, although the level of stable value outflows has stabilized in recent quarters. Sequentially, earnings improved by $9 million, the result of favorable equity markets and improved spreads. It's worth noting that this quarter benefited from approximately $2 million of nonrecurring items, primarily driven by net investment income favorability, which had an offset in other operations.

Base spreads were 107 basis points, up from the prior quarter and prior year. The sequential increase reflects normalization following last quarter's onetime administrative adjustment as well as about 2 basis points of benefit from the nonrecurring net investment income dynamic just discussed. On a normalized basis, spreads are broadly consistent with last year's third quarter.

Net inflows totaled $755 million, reflecting strong sales momentum and a robust pipeline noted last quarter. As we look ahead to the fourth quarter, we expect flows to be pressured by a few known plan terminations, the majority of which were not meeting our profitability targets. Account balances benefited from equity market performance with average balances increasing nearly 8% year-over-year. End-of-period balances reached $123 billion, up 5% sequentially. Overall, our third quarter results highlight steady improvement and positive momentum within retirement plan services. While we remain focused on disciplined expense management and continue to target efficiencies aligned with our long-term earnings objectives, it's important to remember that the fourth quarter typically brings a seasonal increase in expenses which we expect to be a modest sequential headwind.

Beyond expense discipline, we remain focused on initiatives aimed at delivering underlying growth and enhancing the long-term profitability of retirement plan services.

Now turning to Life. Excluding the impact of the assumption review, Life delivered operating earnings of $54 million for the third quarter compared to $14 million in the prior year quarter. The increase was driven by stabilization of our mortality experience, increased investment income and continued expense discipline. Mortality results for the quarter improved compared to the prior year quarter, driven by lower incidents while severity was slightly higher, overall experience was consistent with our expectations.

Turning to expenses. We continue to see year-over-year improvement, driven by disciplined expense management. Net G&A expenses declined 4% compared to the prior year quarter, reflecting continued underlying efficiency. Annualized alternative investment returns for the quarter were roughly 10%, essentially in line with our target but below the 11% return we achieved in the prior year quarter. More broadly, we are beginning to realize the benefits of increased investment income, driven in part by continued growth in alternative investments which remain well aligned with our life liabilities as well as ongoing enhancements to our overall investment profile, all of which should continue to support earnings going forward.

Overall, the strong results this quarter highlight the ongoing progress that we have made in our life business, further validating the strategic initiatives we've implemented to position this business for sustained profitability.

Turning now to expenses. As we've discussed, expense management remains a strategic priority across the organization, and we've made meaningful progress year-to-date. Through the first 3 quarters, we achieved significant improvements in operational efficiency with expenses tracking favorably compared to the prior year. This disciplined approach has been driven both from a total company perspective, and through targeted actions such as within our Life business. However, as is typical, we anticipate that expenses will rise substantially in the fourth quarter in certain areas, largely attributable to higher variable compensation, including the impact of anticipated growth in sales volumes during the quarter. Additionally, certain strategic investments intended to enhance the long-term profitability of our businesses will have a slightly greater impact in the fourth quarter compared to earlier quarters.

Despite this expected sequential increase, our full year expenses will reflect the disciplined actions we've executed this year which we expect will result in relatively flat expenses compared to the prior year despite higher sales and increased volumes. We remain committed to disciplined expense management, ensuring we maintain and build upon our progress in managing the expense base effectively.

Now for an update on capital. We again ended the quarter with an estimated RBC ratio well above our 420% buffer continuing to maintain a strong excess capital position above our target due to the Bain proceeds and growth in retained free cash flow during the year. As we've indicated previously, we expect to deploy this excess capital over the next year as we execute against our strategic objectives. This quarter, we made meaningful progress on 3 specific initiatives: First, we fully transitioned to retaining all of the fixed annuity business we originate with the exiting of our external flow reinsurance agreement. The strategic objective of achieving a more balanced mix of variable and spread annuity earnings will come through various actions with the full retention of existing sales the important first step. Leveraging our Bermuda-based affiliate and a more fully optimized asset allocation framework will allow us to expand profitability while a portion of the proceeds from the Bain transaction currently sitting in excess capital will be deployed to support this retention.

It's worth noting from a GAAP perspective, you'll see slightly higher retained acquisition expenses in the near term which should translate to higher spread income and profitability over time.

Second, we continue to scale our institutional funding agreement program with $1.9 billion in issuance completed year-to-date. As we've discussed previously, FABN and other similar programs are an important growth engine for our spread earnings and will utilize some of our excess capital over the next year or 2. Over the next year, we plan to begin disclosing the specific earnings metrics as we scale the program.

Lastly, optimizing our legacy Life block has been a critical objective that we've been working on for the last 3 years. And as we discussed post the Bain transaction, we are evaluating a number of actions that should enhance the long-term free cash flow from this block. We'll have more to say on this in our outlook discussion next quarter. Looking ahead, we remain committed to a disciplined and balanced approach to deploying our excess capital aimed at enhancing our risk-adjusted returns and positioning Lincoln for sustainable long-term success.

Turning to investments. Our investment portfolio delivered solid results in the third quarter, reflecting disciplined management, effective diversification and ongoing execution. Portfolio credit quality remained strong, with 97% of investments rated investment grade and below investment grade exposure near historic lows. Our partnership with Bain Capital continues to enhance our investment capabilities, and we are already benefiting from increased sourcing flexibility and execution efficiency. Within private credit, we remain comfortable and confident in our long-standing disciplined approach and continue to lean into investment-grade private and structured strategies as we further optimize our investment portfolio while supporting objectives around sales growth, earnings potential and capital generation.

Lastly, alternative investments generated roughly a 2.5% return for the quarter, generally consistent with our long-term expectations and reflecting continued strength across strategies.

In closing, our third quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered strong earnings across all businesses, advanced initiatives to diversify and enhance our earnings base and maintained a healthy capital position. These outcomes underscore the effectiveness of our strategy and the disciplined approach we've taken to enhance capital efficiency, free cash flow generation and long-term profitability. While our results will not always be linear, the broader momentum across the enterprise remains clear. The actions we've taken this year position Lincoln for a strong 2025 and we remain focused and on track to achieve the objectives outlined in our 2026 outlook. Our commitment to disciplined execution and balanced capital deployment continues to reinforce our ability to deliver durable, attractive risk-adjusted returns and long-term shareholder value.

With that, let me turn the call back over to Tina.

Thank you, Chris. Let me turn the call over to the operator to begin Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Joel Hurwitz with Dowling & Partners.

Wanted to start on life. So good to see another quarter of improved earnings. Can you unpack the drivers there anything unusual in the quarter? And then there's been volatility over the past several quarters with Life earnings. I believe your 26 guide that you provided a couple of quarters ago suggested earnings may even be above the level we saw in Q3. Any way you could help us understand the earnings power of this business in the near to intermediate term?

Sure, Joel. It's Chris. What I would say is that this quarter was really a reflection of a stable quarter for the life insurance block. If you think about it, there's drivers of volatility that are probably more outsized for that business. As you're well aware, mortality and alternative investment returns as the 2 big ones. And as I said in my prepared remarks, both mortality and all returns came in basically as expected for this quarter. And so it's actually a really nice quarter because you can see it in a stable environment for the big drivers of volatility, what the third quarter earnings power would look like. The reason I emphasize third quarter is because I'm sure you know, there is seasonality in that business. And so third quarter and fourth quarter tend to be, call it, $20 million higher than the average second quarter tends to -- would represent a flat quarter and then first quarter the $40 million worth just given the drivers of mortality.

So you could look at the third quarter as a good run rate once you normalize for seasonality. What I would say as it relates to the drivers because when you do that for this year and last year, you are seeing growth year-over-year, which is positive. It's in line with the expectations that we had set out. And it's driven by the things that we said it would be driven by its increased net investment income Part of that is the growth in the alternative investment income portfolio, not necessarily the rate which has stabilized, but the growth in the balances we've discussed how they are a good long-term fit for the long-duration nature of the liabilities.

And most importantly, you continue to see the expense discipline that we've talked about and that's starting to come through in a more fulsome way. So at the end of the day, a number of those drivers should continue as we look out over the next couple of years. We're excited about the growth potential as it relates to the earnings power of that business. And it's just nice to have a really clean quarter so you can see what the underlying earnings power looks like for a third quarter.

Got it. That's helpful. And then just on capital, with leverage essentially back to your 25% target and a much improved capital position. Where do you guys stand on resuming a share repurchase program?

Yes, Joel, thanks for the question. I think, as you know, we tend to talk in more detail about our capital plans and free cash flow outlook and so forth as part of our fourth quarter earnings call when we give the outlook, what I would say is that relative to the guidance that we put out 2 years ago and then reiterated at the beginning of this year, we are tracking at expectations, if not better, across almost all the metrics. So we feel really good about the direction of the company, both from a GAAP earnings perspective, sales, free cash flow RBC we're obviously working through the deployment of the Bain proceeds over the next year.

And at the end of the day, as we've talked about before, when we get the fourth quarter and give a more detailed look as it relates to how we're thinking about capital and deployment, both internally and for return to shareholders. We'll go through that in more detail.

Your next question comes from the line of Brian Kruger with KBW.

I had a question to start on group with this year's margin expected to come in at the mid- to upper 8% range, is that a good starting point when thinking about going forward? Or -- I mean, because I think you probably still had pretty favorable mortality this year. And it sounds like disability maybe is reverting more to a bit of a lower level. So just trying to think through if that's a good starting point or if we should actually normalize a bit lower going forward, at least in the near term?

Sure. I'll answer your question, and I'll give you more detail maybe than you had asked. But if you step back, let's just start by saying that we're -- we feel really good about the trajectory of group. right? I mean, the business there was a 1% to 3% margin business a couple of years ago. We've improved to over 8% last year. We're going to see another 50 basis points improvement this year. You're seeing premium growth 4% to 5% on average. So the outlook for group hasn't changed. What's happening this quarter is that some of the normalization that we had expected maybe more in 2026, it's just happening a little bit earlier. And I'll unpack all of that. But I just want to reiterate by saying we feel really strong about the trajectory for group and at the end of the day, our outlook has not changed.

So if you step back and sort of unpack this quarter and I'll hit on both disability and life to your question, disability loss ratio is up, call it, 6 points. As you know, disability loss ratios are driven by 2 primary things: the incidents, so the new claims being filed and then the resolutions obviously, the reserves released is claimants return to work. Incidence continues to be very positive. The trend there has been good for a number of years, and we haven't seen any signs of that reverting. It's a positive trend that will revert at some point to a more normalized level. But the incidence trends remain very strong. We would expect that trend to continue into the fourth quarter. Resolutions is where we saw less favorability this quarter, and it's really just -- it's driven by 2 things. So if you think about the 6-point change in the display loss ratio, Half of that, we would say, was driven by severity volatility. And so all that means is that during the month of August, the average size of the claim as it relates to resolutions was lower than we would expect.

That's volatility that happens. We've already seen that revert in September and October. The other half, though, is a normalization of the resolution rate. And it's still really good compared to historical levels, but it is normalizing off of what was an extremely strong 2024 number. And we would expect that trend to continue. As I mentioned, part of the dynamic that's occurred over the past couple of years is we've invested in our systems and our processes. You were seeing resolutions trend lower than we would expect over the long term, the rate being higher. And so what -- when we think about our outlook, 2026, 2027 and beyond, we'd always expected that normalization. So at the end of the day, what I would say is third quarter results had a little bit less favorability as it relates to the resolution rate. That was to be expected at some point. We're seeing it start a little bit earlier.

But then as you look into next year, our expectation hasn't really changed. On the life side, I would say 2 things. One, the results have been pretty good over the past 2 years. Part of that, as we emerge further and further away from the pandemic, you're just seeing mortality improvement, and that's reaching a decent steady state.

But the other thing that's happened, and we've talked a lot about this is that a good portion of our rate increases or the rate actions in general that we've taken over the past 2 or 3 years have really been executed through the life block. So in 2025, we've seen mortality improvement, and we've seen the impact of the rate actions come through. That's contributing to improved loss ratios year-to-date, I think our life loss ratio has improved around 5%. And so that's going to have the favorable mortality in there, the pricing actions. And keep in mind, we also include sub-health in the life loss ratio. We'll look to think about incremental disclosures there over time. But at the end of the day, going forward, while we know there will be some volatility quarter-to-quarter, the results this year have been relatively within our expected range. I would say third quarter was probably at the low end of that range. And as we think about fourth quarter, we are continuing to see some of those positive trends.

And Ryan, I'll also add that as we think about future growth, that we also, as Chris alluded to, and also as you heard in our remarks, continue to also see premium growth. Now we will always continue to prioritize profitable growth over pure top line growth. But if you look at our overall premium growth, and we talked about the fact that we grew 5% year-over-year. And importantly, we are continuing to lean in and we see more opportunity in local markets, which is a higher-margin part of this overall business. We've done an awful lot in the last couple of years to invest in the capabilities there to be able to strengthen our overall relationships with brokers that are also leaning in there and then we see this broadening, expanding opportunity as it relates to supplemental health.

And just to give you a sense, when we look at the overall premium growth year-over-year of 5%, 33% growth year-over-year in supplemental health. And in all cases, we see opportunity to just continue to expand lines of coverage in our regional and in national in that space. So we see that there continues to just be future opportunity to grow as it relates to the group business.

So when you put all that together, Ryan, to answer your question specifically, Yes, there will be some normalization of some of the LTD trends that we've talked about. But offsetting that will be the positive impact from the dynamics Alan just walked through the growth in supplemental health continued repricing -- so I wouldn't say that we're expecting deterioration in our margin. I think that this quarter, we just saw a little bit of that normalization happened earlier.

Great. And I appreciate all those details. One just quick follow-up on disability resolutions. Do you think that -- I mean, do you think it has anything to do with the economy? Or do you think it's more just company specific, given how favorable it had been and just normalizing to a more sustainable level? So I don't know that it really is anything to do with the economy, but I would also say it's more than just company specific, right, Ryan, because there's really 2 dynamics. One has been the increased processes and overall investments in our claims management process. That's certainly I can't speak for our peers. That is a very much Lincoln-specific strategic initiative we've talked about but also as you just think about the fact that incidence rates have been very low over the past 2 years, the composition of your claim inventory has been shifting.

And so as you know, late-stage late duration claims have a lower probability as it relates to being resolved and you work that down -- so as the mix of your inventory changes, just to keep it simple, your rate -- the rate itself will normalize over time. And that's not a Lincoln specific thing, that's an industry thing.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to start with the assumption review. I'm acknowledging that it was fairly minor. Are there any statutory impacts that we should think about and is there any kind of ongoing earnings GAAP impacts that we should think about as well?

Net nothing material. We would spike it out if there was anything to note there.

Got it. And then I guess on the retention of the fixed annuity business, is that something that we're going to actually see in the earnings in the near term here? Or is that it takes some time to sort of develop? Just curious about the cadence of that.

Yes. Good question. So -- and the answer is both, but for different reasons. So what happens is you'll see the account -- the net retained account balances grow, and you will see increase in investment income and increase in interest credited grow. I will say that 1 of the things we're looking at is a spread-based account values become a bigger part of the annuities block. We're going to look to get better disclosure next year to more explicitly spike out some of the individual drivers there. But that aside, what you will see is growth in spread income but that comes in as the assets and liabilities are emerging over the life of the policy.

In the near term, what happens is you actually have slightly higher retained acquisition expenses. So this is 1 of the things that I spiked out in my commentary where because we don't have the flow deal anymore, you don't see the offset as it relates to some of the acquisition expenses. And so that's a slight near-term or headwind to annuities. But then over time, you'll see growth in spread income.

Got it. Is there any way to size that drag?

We'll look to give you more color there as it relates to the fourth quarter outlook. I think we've said before that we were seeing 60% to 70% depending on what time period you're looking at as it relates to fixed annuity flow if you have an estimate for what acquisition expenses are, you could see that. I think in this quarter, we had 1 month of retained actually, I think it was 2 months of retained fixed annuity flow on a 100% basis. So you can look at some of the expense line items there, but we'll get to something more detailed as it relates to the 2026 outlook.

Your next question comes from the line of Alex Scott with Barclays.

First 1 I've got for you is just on the topic of private credit. I'd be interested in what your take is on some of the, I guess, one-offs that have kind of popped up recently. And maybe just out on to that, just your views of potentially growing into private credit as we're looking at the growth in your business, retaining more? I assume that comes with a little more private credit allocation to the Bain partnership -- what is your comfort with the stability of that business and the quality of the assets you're putting on?

Yes. Alex. So as it relates to the one-offs, we don't have a view, we don't really have exposure or an impact from some of the names in the headlines. What I would say is big picture I think when you look at our portfolio relative to others, especially relative to others in the annuity space, we've been somewhat under allocated to different parts of the private credit and structured securities asset classes. We certainly have a good healthy allocation over the past 10 years, but we -- it hasn't been a focus of growth the way that it has for others just given the fact that we haven't been as big in some of the retained spread business historically. So my point is we feel really comfortable with our portfolio. You can look at the investment details that we give each quarter the credit quality is very stable. Our credit losses this quarter, you can see in the investor sub where I think 1 of the lowest quarters with Pasco?

I mean they're very, very de minimis and in line with the past 2 years, let's say. So we don't see any issues as it relates to the existing portfolio as it relates to growing. Look, we're going to be thoughtful about it, right? We're going to apply the same discipline around portfolio construction and risk management that we've done before. And it's something that we think will be a driver, but it doesn't necessarily mean that we're going to be taking outsized risk.

Got it. Helpful. Second 1 I had is on the you mentioned optimizing that block further. And I just wanted to see if you could provide any extra color around some of the things you're considering? Are we talking about things that are more internal or external reinsurance. Any way you can help dimension that for us?

Sure. And again, I think we'll have more to say next quarter when we give our outlook as we do every year. But Alex, what I would do is probably reiterate what we've said in the past. We think there's a number of ways to continue to optimize that block, some external, some internal, We think that the options as it relates to repositioning the asset portfolio would be a driver to free cash flow and NII over time. We've talked a lot about looking at our historical captive framework and looking for efficiencies there. We've talked about the potential to explore another external deal. So I think we went through this when we announced the Bain transaction, but all of those projects are in the work from an exploration perspective, some we think will have real meaningful impact. Some we're still studying. But at the end of the day, part of the capital as it relates to the Bain equity will be deployed to execute on a number of the things that we've discussed.

Your next question comes from the line of Wes Carmichael with Autonomous Research.

I had a question on Alan, your comments just thinking about increasing the risk-adjusted ROE of the company and reducing volatility. Just wondering if there's any kind of new developments in terms of products that you want to lean into there? And I understand you've been growing group protection, but are there other kind of product areas you'd point to where ROE and cash flow are more attractive now?

So we really -- when we think about overall product, first of all, and expansion of product, everything that we're doing inside of each of our businesses is really to support our overall strategic and financial objectives. So the idea of continuing to really lean into places where we see, first of all, growing expandable markets and also additionally stable cash flow and higher risk-adjusted returns. So we really can take it case by case. So for example, we talked about really strong sales in the quarter in life insurance. And 1 of the places there was related to executive benefits. So I want to call out just a couple of things there. We had historically had a presence in executive benefits. But in the last year or so, as we really have been focusing on pivoting the entire life franchise.

We really strengthened our overall offering. We broadened our capabilities there. We continue to deepen our relationships on the distribution side. And we also built some necessary capabilities dedicated resources, and you see that we put up a couple of large cases in the quarter. And at the same time, all of the sales that you see in the in the life portfolio as we continue to build momentum there are all products that we've leaned into, they're really emphasizing more accumulation and more limited guarantees that also will produce stable cash flows. So we have repriced and put up completely new products in the IOL space as an example, accumulation DOL is another example. And we also have a risk-sharing product in our MoneyGuard space. And at the same time, we're building tools that differentiate us for presale and post sale. We've completely optimized the distribution footprint. In our annuity business, 1 of the places where we believe that we're winning.

And 1 of the reasons why we continue to see strong sales, 32% year-over-year sales growth is that in each of our product categories, we're continuing to expand. And there -- we've got unique crediting strategies. We have unique index features. We commented already on Group Protection and really leaning into as an example, supplemental health. And then I'll just call out in Retirement Plan Services. One of the things that is driving our strong sales in the quarter. Our small market sales were up 24%. And there, we're leaning into pooled employer plans, and that has also that some of the higher-margin parts of the Retirement business and our stable value investment only was up more than 2x. And there, we developed a new product as well that was shorter duration. So -- and we will continue because it's part of our competitive advantage to really lean into new product, product expansion, very much listening to the voice of our customer and what the compelling value propositions are and then testing that alongside what meets our strategic and financial objectives.

Got it. And maybe a more detailed question. But I think, Chris, you mentioned a $50 million dividend out of Len bar. I think it's been a little while since you executed on taking money from that. subsidiary, and I appreciate you may want to share more next quarter with the outlook. But is there an annual expected level of dividends out of that sub? And how much, I guess, do you think it might fluctuate if we get a little more volatility with the macro?

So what I would say is the $50 million dividend is consistent with what we took last year. And frankly, to your specific question, we saw a lot of volatility in April and May. And so it's actually a good testament to the effectiveness of the hedge strategy. And the overall dynamics as it relates to the way that we operate our variable annuity risk that we were able to take another $50 million dividend this year. I think longer term, as we build excess capital in different parts of the organization, you would expect to see some growth in dividends. As a reminder, we also have our Bermuda affiliate, which is now over a year in the operational phase. So I would say, over time, I would expect growth in dividends from all of our entities, but the fact is that this year was very in line with last year as it relates to the Lunar dividend.

Your next question comes from the line of Tom Gallagher with Evercore.

Just a few questions on Group Protection. Chris, if I follow what you were saying, it sounds like you think the higher severity trends in disability should improve. But the lower claim recoveries is probably going to continue. And I think you said it was 50-50 in terms of the impact on the loss ratio between those 2 things. So having said all that, is it reasonable to assume the trend into Q4 that's embedded in your guidance should be improvement in the group disability loss ratio by -- if we had to pick a number, something like 3 points, but then partly offset by higher group life loss ratio just because that was so favorable.

Yes. So Tom, what I would say is First point, this is just a nit, but I wouldn't really call the severity impact the trend. It was 1 month, and that can happen from time to time. So for what it's worth, I mean, it was more volatility than the trend. But that's right. I mean you have the math right, it was about half of the disability loss ratio growth due to that dynamic and the other half due to trend. So if you move from third quarter to fourth quarter, as I mentioned in the prepared remarks, we would normalize for that volatility but then you also have seasonality that happens in the fourth quarter relative to third quarter for disability. So just keep that in mind. I would say that a loss ratio that's slightly in line with third quarter to maybe up a little bit, depending on the degree of seasonality would be a decent expectation for the disability loss ratio consistent with what we've seen in the past.

Got you. That's a good point on the seasonality. The -- and then I guess, just a follow-up, what are you guys seeing in pricing now? You've clearly had pretty good growth in Group Protection. What are you seeing on 26 renewals for rate? Are things softening a bit? Are they stable firming?

So Tom, we will continue to message what we've said in the past, which is it is very competitive out there. It always has been, and it's also rational at the same time. We are continuing to see a strong cycle as it relates to going into the fourth quarter. We are going to continue to lean into prioritizing profitable growth over top line growth. And so you'll see us really focusing on leaning into the places, in particular, where we see further opportunity in local markets, as an example, supplemental health, as we called out, earlier. And just in general, we would expect that you may recall that last year's annual cycle was particularly strong and active across the entire industry.

So I think it's fair to expect that you will likely see less activity as we move into the fourth quarter.

Got you. And Ellen, sorry, 1 quick follow-up on that. So you would expect maybe not as strong as sales but then better retention. Is that a way to think about the trade-off of that?

So we have seen much improved persistency, while putting rate increases through at the same time. And I think a lot of this really speaks to all of the infrastructure, technology and customer service capabilities that we have invested in along the way. Just to give you an example, if -- when we create the infrastructure so that we are -- we have technology that is now connecting directly into our customers. And we build an infrastructure with them, and we're supporting them in terms of ease and access. We just become much more of a long-term partner. And so we've invested in that it's supporting us in terms of really being able to have more persistent client base and continuing to build on additional digital tools to enable us to just have longer relationships with our customers.

That concludes our question-and-answer session. I will now turn the call back over to Tina for closing remarks.

Thank you, everyone, for joining our call today. If you have any follow-up questions, please don't hesitate to reach out at [email protected]. Thank you for your time.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, and thank you for joining Lincoln Financial's 2025 Second Quarter Earnings Call.

[Operator Instructions]

Now I would like to turn the call over to the Senior Vice President, Head of Investor Relations, Tina Madon. Please go ahead.

Thank you. Good morning, everyone, and welcome to our second quarter earnings call. We appreciate your interest in Lincoln. Our quarterly 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 reconciliations of the non-GAAP measures used in today's call, including adjusted income from operations or adjusted operating income and adjusted income from operations available to common stockholders to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources, are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions.

Let me now turn the call over to Ellen. Ellen?

Thank you, Tina, and good morning, everyone. We appreciate you joining our call today. Our second quarter performance was strong with adjusted operating income increasing 32% year-over-year, underscoring the progress we have made as we advance our growth strategy with discipline and focus across Lincoln.

Before I walk through the quarter's highlights, I wanted to step back and reflect on what we have accomplished since we began this journey at the beginning of 2023. The fundamental principles of foundational capital, an optimized operating model and a strategy for profitable growth are coming through in our results. With clear evidence of building momentum balanced against a strategic awareness of where more work needs to be done.

We have evolved the direction of the company with a focus on increasing our risk-adjusted return on capital, reducing the volatility of our results and growing our franchise, and we're starting to see the benefit of those actions.

A few highlights worth noting. This marks the fourth consecutive quarter of year-over-year adjusted operating income growth. It's the seventh consecutive quarter with an estimated RBC ratio in excess of our target of 400% and the fifth quarter in a row with an estimated RBC ratio exceeding our 20 percentage point buffer. Over the past several years, we have also made significant progress in optimizing our operating model, creating a more efficient and scalable organization. We have reduced expenses, streamlined processes and enhanced our digital capabilities, while strategically investing in talent and infrastructure in each of our businesses. We have also advanced our investment strategy and launched our Bermuda-based reinsurance subsidiary.

Becoming a leaner, more efficient organization strengthens our ability to deploy capital more effectively, elevate the customer experience and respond to market opportunities with greater agility. At the same time, each of our businesses has made progress on strategies to shift to products and segments with higher margins, more stable cash flow profiles and greater capital efficiency. The first half of this year saw all 4 businesses deliver double-digit sales growth, a portion of which came from products that have historically not been key drivers for Lincoln.

Underneath the surface, we continue to increase the core capital generation of the company, investing that capital in areas that are expected to sharpen our competitive advantages, broaden our strategic moat and drive growth in our free cash flow over the longer term. Results will not be linear. Markets can be volatile and the economic backdrop could change, but we remain steadfast in our commitment to deliver results that drive long-term value. Our momentum is building. Our track record is increasingly evident and we're excited about the path forward.

Now turning to the highlights for the quarter. Our results this quarter demonstrate that the strategic repositioning of each of our businesses is beginning to translate into improved fundamentals, supported by a more diverse and profitable business mix. Key highlights at the segment level included our Group Protection business, which delivered a record quarter for earnings and its highest-ever margin. Annuities generated its third highest sales quarter, supported by a more diverse and balanced product mix. Retirement Plan Services saw a year-over-year increase in total deposits resulting from strong first year sales growth. Life insurance achieved positive earnings driven by favorable mortality and improved expenses.

Now turning to our business results, starting with retail solutions, which includes annuities and life insurance. Annuities produced robust sales of $4 billion, a 6% sequential increase supported by our ongoing focus on building and sustaining a diversified product mix. Spread-based products comprised 2/3 of the overall mix with fixed annuity sequential growth of 41% and RILA's sequential growth of 12%. Each of our 3 major product categories exceeded $1 billion in sales. And additionally, all sales in the quarter supported our strategic and financial goals with strong profitability and capital efficiency.

We continue to lean into our distribution leadership where we have the reach and scale to leverage our long-standing relationships, offer a compelling value proposition and broaden our addressable markets enabling us to reach more customers seeking to retire with confidence and financial security. Our distribution partners deeply appreciate our customer-centric approach which is designed to equip producers with the insights, tools and capabilities to enhance productivity and ease of doing business.

Our scalable support model helps partners grow their businesses through marketing and training assistance, a smooth and automated sales process and ongoing high-quality customer service. The breadth of products we offer in fixed RILA and variable annuities is also a key competitive strength, reinforcing Lincoln as a holistic solutions provider that can adapt to customer preferences in various market environments.

As I previously mentioned, our fixed annuity sales increased by 41% sequentially as we continue to leverage the foundational capabilities we built to sustain a consistent and growing presence in the fixed marketplace, including investment strategy enhancements, distribution expansion and capital efficient reinsurance, optimizing our mix of internal and external reinsurance and retaining a greater portion of our spread-based earnings will further accelerate the profitability and risk-adjusted returns of our overall annuities business.

RILA generated a fifth consecutive quarter of sales in excess of $1 billion and the fifth consecutive quarter of sequential growth as we maintained momentum with a strong competitive position in this market. The continued growth in sales was driven by our ability to differentiate through unique features and crediting rate strategies as our second-generation RILA product continues to resonate with customers. We also benefited from further leveraging our distribution leadership to expand in targeted channels to drive additional market penetration and growth.

Finally, traditional variable annuities remain integral to the diversification of our product suite, producing strong free cash flows and risk-adjusted returns, while delivering a compelling customer value proposition.

In summary, these results reflect the success we are achieving in delivering a diversified product mix that meets customers where they are across different life stages, risk tolerances and economic environments. This strategy to diversify our mix to more spread-based earnings translates into more predictable and resilient cash flows over time, while meeting our risk-adjusted return targets and balancing the financial contribution across products. We remain confident in our strategic trajectory and our ability to leverage our competitive strengths to achieve our profitability and return objectives.

Now turning to Life Insurance. In our retail life business, we've taken decisive steps to reposition the franchise for long-term value creation. We have intentionally been pivoting towards accumulation and protection products with more risk sharing and have been building out product features to expand our solution set, positioning us for future growth.

A key part of this transformation is our distribution evolution. We focused on building a distribution footprint that sits closer to the financial professional. This proximity better positions us to provide support to our customers by giving us sharper insights, more streamlined connectivity and enhanced efficiency in reaching our target segments, which is expected to support durable growth.

Sales increased 15% year-over-year and 25% sequentially with broad-based momentum across our products as our actions over the last several years begin to take hold. On a year-over-year basis, we saw executive benefits, which can vary from period to period, continued to gain traction with sales in this segment tripling. We value this business as a product category where we have strong competitive positioning and one that also generates more predictable cash flows.

We're also seeing continued momentum in IUL where we're growing our addressable market through enhanced products, expanded distribution access and new digital tools to enhance the client experience. It's another area where we're leaning in to capture future growth while staying disciplined on achieving risk-adjusted returns.

Overall, our retail life strategy is grounded in a clear focus shift our mix towards products and channels that support our long-term enterprise objectives, including compelling value propositions for our customers, efficient capital deployment and focused future growth. As I have previously highlighted, the repositioning of our life business will continue to take time. However, we are confident that leveraging our strengths in product, distribution and underwriting to support our customers will increase our competitive differentiation and drive higher earnings growth.

Next, turning to Workplace Solutions, which includes our Group Protection and Retirement Plan Services businesses. As I mentioned earlier, Group delivered another record quarter, and we are very pleased with the strategic momentum of this business. Earnings grew by 33% year-over-year and the margin increased by 250 basis points to 12.5%. These results highlight our disciplined execution in diversifying this business through targeted segment and product strategies, while prioritizing profitable growth as we position Group to become a sustained, larger portion of Lincoln's overall earnings mix.

Premiums grew 7% year-over-year, supported by robust sales and continued strong persistency. These outcomes reflect our disciplined approach to pricing, which is a cornerstone of our strategy for growth in competitive markets both for new business and renewals. They also reflect the benefits of the investments we have made in our operating service and claims models as well as the execution of our segment level strategy which has resulted in an expanded market presence.

Sales increased by 16% year-over-year. At a segment level, local markets drove most of this growth as our momentum in the space continues to accelerate. Building a consistent presence in this market represents significant growth opportunity while supporting our profitability objectives.

Central to the success we are achieving are the targeted investments we have made over the last 2 years to grow this segment and deepen our ability to deliver on what customers consider most important, integrated solutions that emphasize ease, access and efficiency. We have also invested in a broader, more comprehensive product suite that deepens our value proposition to local market employers.

Additionally, we continue to make consistent progress in our other segments growing and retaining our customers, which reinforces the durability of the strategy that we have been implementing over the last few years.

In our Regional segment, we are sustaining a strong position by deepening strategic broker partnerships to better support employers and their benefit decisions. We are making ongoing investments in an improved customer experience through expanded digital capabilities and a deeper product portfolio with a focus on supplemental health and leave management.

In our National segment, we are leveraging our expertise in combining product breadth, including supplemental health products, consultative guidance and more digital engagement tools to provide high-quality customer service, strengthen our competitive differentiation and drive sustained and profitable growth.

On a product basis, sales of supplemental health products to both new and existing customers increased meaningfully this quarter, supported by the investments in our distribution and service models as well as enhancements to our product features.

Our suite of supplemental health products is a key focus given its strong customer value proposition, attractive margins and significant growth potential compared to our traditional offerings. This quarter's results reinforce our confidence in the sustained growth and earnings potential of our group business with a strong foundation, disciplined execution, including pricing, and meaningful opportunities to further expand in its addressable markets, group is positioned to continue to be an increasingly meaningful driver of our earnings and free cash flow growth.

Now turning to Retirement Plan Services, or RPS. RPS' first year sales increased by nearly 50% year-over-year, driven by stable value sales and total deposits increased by 10%. As we look ahead, we have a strong pipeline of known wins, which we anticipate will materialize in the second half of this year. This sales momentum demonstrates that the offerings in our core recordkeeping and institutional market segments are resonating with customers. We remain focused on initiatives to strengthen our operational and service capabilities in RPS as we advance our objective to build sustainable and profitable growth in this business over the long term.

In closing, we remain steadfast in our commitment to deliver sustainable long-term value for our shareholders. The progress we've made is not only reflected in our financial performance, but also in the strategic clarity with which we are executing. The strength of our operating model and the resilience of our capital position. We are deepening our strategic moat, shifting to higher-margin, capital-efficient growth, investing in areas that sharpen our competitive edge and evolving into a more agile, scalable organization. We are building a stronger Lincoln grounded in a more resilient foundation and positioned to realize greater potential, a market-leading franchise shaped by disciplined transformation. We are better positioned to operate in a dynamic environment, align capital deployment with strategic priorities and unlock value where we've built momentum and scale. We are energized by our strong trajectory and confident in our path forward.

And with that, I will turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our second quarter results reflect another period of strong performance, locking our fourth consecutive quarter of year-over-year adjusted operating income growth. This consistent progress demonstrates the effectiveness of our strategy, the disciplined execution across our businesses and the sustained momentum we're generating throughout the enterprise. Collectively, our businesses made meaningful advancements on their strategic initiatives, further strengthening Lincoln's foundation to deliver increasingly stable cash flows and attractive risk-adjusted returns. We remain confident and encouraged by our trajectory as we continue positioning Lincoln for durable long-term success.

This morning, I'll focus on 3 areas. First, I'll walk through our consolidated results for the second quarter. Second, I'll go through the details of our segment level performance. And third, I'll provide a brief update on our capital position and investment portfolio.

Let's begin with a recap of the quarter. This morning, we reported second quarter adjusted operating income available to common stockholders of $427 million or $2.36 per diluted share. There were no significant items in the quarter. Additionally, our alternative investment returns were in line with expectations, delivering a 10% annualized return or $101 million.

Turning to net income. We reported net income available to common stockholders of $688 million or $3.80 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the positive movement in market risk benefits amid a stable interest rate environment and higher equity markets, partially offset by a decline in the value of our related hedge instruments. Importantly, our hedge program explicitly targets capital. While the heightened equity market volatility in the early part of the quarter contributed to some variability in hedge items, performance was within the range of expectations given that level of volatility.

Now turning to our segment results. Let's start with Group, which delivered a record quarter with operating earnings of $173 million, up 33% from $130 million in the prior year second quarter. And the margin was 12.5%, up 250 basis points for the same period. This record performance was driven by 3 primary factors: First, life results improved meaningfully year-over-year, driven by lower incidents and improved severity. While mortality outcomes can exhibit quarter-to-quarter volatility, we continue to see broad-based improvement consistent with our expectations.

Second, disability results remained favorable, supported by an ongoing tight labor market, a still supportive interest rate environment and incidence levels that remain near historic lows. At the start of this year, we indicated that if LTD incidence rates reverted towards our longer-term expectations, it would represent roughly a 100 basis point margin headwind in 2025. However, based on what we are currently observing, incidence rates continue to track favorably compared to quarterly expectations, and we anticipate maintaining a level of favorability in the third quarter. Should incidence rates revert towards historical levels, the anticipated margin headwind would remain. But as of now, these positive trends are persisting.

And third, our strategic shift toward higher-margin business is driving sustained margin expansion. By broadening our customer base, diversifying our product portfolio and maintaining disciplined pricing, we continue to realize the anticipated benefits of these strategic actions. As we noted coming into the year, we anticipated this strategy alone would drive roughly 100 basis points of year-over-year margin improvement, and our results have been exceeding this expectation.

Now turning to Group product line results for the quarter. Our life loss ratio improved considerably with the loss ratio declining to 67.2% compared to 75.6% in the second quarter of 2024, reflecting favorable incidents and favorable volatility with life severity. As we look ahead to the second half of the year, it's worth noting that our strong performance in the comparable period last year benefited from particularly favorable life experience and could result in a higher life loss ratio year-over-year, assuming a more normal mortality backdrop. The disability loss ratio also improved year-over-year, coming in at 64.2% compared with 65.9% in the prior year quarter. This was driven by lower-than-anticipated incidence rates and strong claims management outcomes.

Taking a step back and looking at the overall group business, we expect our margin for the second half of 2025 to be broadly in line with the margin achieved during the second half of 2024. Lastly, I'd like to briefly address the annual experience refund associated with one state's Paid Family leave program. In the past, this refund was recognized in the quarter it was received. For example, this quarter, we recorded a refund of $15 million compared to $23 million in the prior year period. Prior to these 2 years, recognition often occurred in the third quarter.

To better align recognition of this annual refund with the full year operations to which it relates and consistent with practices observed in the industry, we will accrue the refund on a quarterly basis going forward. This approach provides improved matching between the refund and our underlying business activity during the year. The quarterly accrual amounts will represent our best estimates and remains subject to annual adjustments.

Overall, our focused, disciplined execution and ongoing efforts to grow group protection into a larger and increasingly profitable segment within Lincoln's overall earnings mix remains a top priority. This quarter's record results further reinforce our conviction in the long-term growth potential, sustainability and strategic importance of the group business as we look ahead.

Now turning to annuities. Annuities generated second quarter operating income of $287 million compared to operating income of $297 million in the prior year quarter. The decline was primarily driven by traditional variable annuity outflows, partially offset by ongoing growth in our spread income, which enhances our long-term earnings stability.

Sequentially, earnings declined modestly from $290 million in the first quarter, reflecting lower average account balances. In the second quarter, average account balances net of reinsurance were roughly flat compared to the prior year quarter as strength in RILA where balances grew 13% was offset by traditional variable annuity net outflows.

Turning to spreads. Spread income continues to grow with spread-based products representing 28% of total annuity account balances net of reinsurance, a 2 percentage point increase from a year ago. RILA account balances increased 15% over the prior year quarter and now represent 22% of total balances, also net of reinsurance. Net flows for spread-based products remained strong in the quarter, nearing $1 billion, underscoring steady progress in our strategic diversification.

Lastly, ending account balances net of reinsurance, increased sequentially across all product lines and finished the quarter approximately 5% higher than the average balances during the period. This positions us favorably and provides a tailwind as we look toward the third quarter.

Overall, we remain confident in the strategic trajectory of our annuities business, supported by our strong capital position and our ability to drive sustainable quality earnings over the long term.

Retirement Plan Services reported second quarter operating earnings of $37 million compared to $40 million in the prior year quarter, but sequentially up from $34 million in the first quarter. Year-over-year results remained pressured from stable value outflows experienced over the past 12 months, partially offset by equity market favorability. Our base spread was 99 basis points in the quarter down 4 basis points sequentially and year-over-year, in part due to a onetime administrative adjustment impacting interest credited. As we look ahead to the second half of the year, we expect spreads to move back toward first quarter levels.

Net outflows totaled $585 million for the quarter, showing sequential improvement from $2.2 billion in outflows in the first quarter but remaining elevated year-over-year. With ongoing strength in sales momentum and pipeline activity, we anticipate overall net flows will turn positive in the third quarter.

Account balances benefited from equity market performance with average account balances increasing 5% year-over-year. End-of-period balances reached $116 billion, up 7% sequentially and were 4% above the quarter's average account balance, providing a tailwind for earnings as we enter the third quarter. While the recent headwinds to stable value flows have more than offset the positive impacts of equity market-driven growth and expense discipline, we remain confident in the underlying growth of retirement plan services over the long term.

Lastly, turning to Life Insurance. Life reported operating earnings of $32 million for the second quarter reflecting substantial improvement compared to an operating loss of $35 million in the prior year quarter and sequential improvement from the operating loss of $16 million reported last quarter. The year-over-year and sequential improvements were broad-based driven by higher alternative investment returns, improved mortality and expense discipline.

Mortality results for the quarter improved modestly, driven by lower claim incidents, while severity remained broadly in line with expectations. As previously noted, mortality can fluctuate quarter-to-quarter.

Turning to expenses. We continue to see year-over-year improvement, driven by disciplined expense management. Net G&A expenses declined 2% compared to the prior year quarter, reflecting sustained underlying efficiency. Maintaining expense discipline remains critical to supporting earnings improvement and profitable growth in Life.

Annualized alternative investment returns for the quarter were 10%. As a reminder, alternative assets are a good fit for our life liabilities, and these assets provide important earnings support for the business. Overall, our second quarter performance was aligned with our expectations and reflects ongoing progress across key areas of the life business, improving mortality trends, higher alternative investment returns and effective expense management. While quarterly variability can occur, we remain confident in the underlying trajectory of our life business as we look towards the next few years.

Now for a brief update on capital. We again ended the quarter with an estimated RBC ratio well above 420%, consistent with our strategy of maintaining a capital buffer above our 400% target. With our transaction with Bain Capital now closed, we have further strengthened our deployable excess capital position, enhancing our flexibility to strategically execute and invest across several priority areas.

As always, our disciplined approach will guide our deployment decisions. Given our strengthened position, I wanted to provide clarity on how to think about the deployment of this excess capital. If you think about some of the larger strategic objectives in transforming Lincoln, big picture, they can be categorized as one, growing group benefits to become a much larger piece of the overall Lincoln model. We've been deploying excess capital into this business over the past 2 years to invest in our capabilities and profitably grow and that trajectory will continue, but largely self-funded from the capital being generated from that business today.

The second priority we've discussed is diversifying our annuity mix to be less dependent on variable and equity market risks and more leverage to growth in spread-based products. Here, as we've mentioned, deploying excess capital can accelerate our goals, and it will come in 2 forms. The first is retaining more of the fixed business we sell today, and you'll start to see that in the fourth quarter. Reducing our reliance on flow reinsurance requires capital and a portion of the deployable excess capital we have today will be set aside to support this initiative. At the same time, growing the top line in RILA and fixed in a capital-efficient manner by leveraging LPine and with an increased competitive advantages as we onboard the Bain asset sourcing will also require capital, and we plan for that over the next few years.

The third priority we've talked about is continuing to optimize our legacy life portfolio. This block remains the biggest drag on our overall free cash flow, though has improved considerably over the past 2 years, post the reinsurance deal and expense actions taken. Deploying excess capital towards this objective can take a number of different forms, rotating the asset mix, restructuring existing captives and lowering run rate operating costs we're exploring external reinsurance solutions. And the team is actively working across all these fronts to assess the best return on capital.

From a timing perspective, some of this excess capital will be deployed in third quarter and fourth quarter, while some may take through the end of next year. We're excited about the opportunity ahead of us and the ability to grow our free cash flow and deliver a more diversified higher risk-adjusted return set of earnings as a result.

Now turning to our investment performance. Overall, we delivered solid performance again in the second quarter, reflecting the ongoing high quality and diversification of our portfolio. Our results underscore our continued strategic emphasis on investment optimization. We remain focused on executing strategic actions aligned with our enterprise priorities, particularly the growth of spread-based earnings.

The onboarding of Bain Capital will enable us over time to deploy additional capital into structured and private strategies. These efforts complement broader initiatives to further optimize our investment portfolio while supporting objectives around sales growth, earnings potential and capital generation, including initiatives designed to enhance overall capital efficiency.

Lastly, our alternative investment portfolio achieved a 2.5% return this quarter, meeting our targeted level, driven by strong performance across all underlying strategies.

In closing, our strong second quarter results reinforce Lincoln's accelerating momentum, highlighting continued earnings strength, disciplined capital management and focused execution on our strategic objectives. We've advanced our operating model to emphasize higher-margin, capital-efficient growth, enabling sustainable free cash flow generation and attractive risk-adjusted returns.

Our strong capital position provides flexibility to strategically allocate resources not only to areas of established scale and profitability, but also to emerging opportunities that offer compelling prospects for profitable growth. We remain confident in our trajectory and our ability to deliver enduring shareholder value.

With that, let me turn the call back over to Tina.

Thank you, Chris. Let me turn the call over to the operator to begin Q&A. Operator?

[Operator Instructions] Your first question comes from Ryan Krueger with KBW.

My first question was on Group and thinking more about the shift into smaller local markets and supplemental health products. I know you had cited 100 basis points of margin expansion from that this year, and I think you said you're running ahead of that. Is that something that you expect to continue to cause margin expansion beyond this year? And can you maybe help think about where the margin in the Group business may ultimately get to over time from these changes?

So Ryan, I'm going to start with just and overall around the Group business, and then I'll hand it over to Chris to specifically address the margin.

So first of all, as you heard from our remarks, we are extremely pleased with the execution across our Group business. As you know, and exactly as you asked, we have a targeted segment strategy. And from a segment perspective, the place that we have been the most focused in terms of growing has been in the local market. The local market, first of all, we've been building out all the capabilities there that are required from an overall digital and technological perspective. And we've also been expanding our products because in the local market the expectation is that you will have a bundled set of overall products. And it happens to be the highest margin and fastest-growing part of group as well.

In addition to that, we also have been diversifying our products and a place where we have been doing that is in supplemental health. Supplemental health is also higher margin product. And we've been seeing really nice growth in both of those areas. And so we saw that come through again this quarter. We saw it. If you look at our overall sales, you'll see that the sales increase of 16% year-over-year is fully, for the most part, attributed to growth in local markets, and that growth is also attributed to supplemental health.

And I think the other thing that's worth pointing out is that about 2/3 of the sales that came through in this particular quarter were employee paid, so voluntary benefits and also from existing customers where we are growing lines of coverage.

And Ryan, let's just talk about the margin for a second. You're right. We said that we expected 100 basis points of margin improvement in 2025 from our strategic efforts. I would say though that, that was a broader comment than just growing [supp health] and local markets. I think those are 2 big examples, but the other is repricing the business. So specifically to your question, we're probably further along in repricing the business relative to some of the other strategic initiatives, but we see a lot of runway in growing the supplemental health product portfolio and the local market from a segment perspective.

I think if you step back, though, to your general question, as Ellen said, it was a great quarter for Group. If you think about the drivers, disability continue to see loss ratio improvement there. That's really being driven by the incidence levels continuing to be favorable. Recoveries are relatively flattish from a metric perspective year-over-year. 2024 was exceptionally strong for us, as we had mentioned due to a lot of the process and operational improvements that we've made. So the dynamic that is occurring in the industry with lower incidence rates is certainly helping us as well. And frankly, at the moment, we don't see that reverting. It certainly could. We've talked about some of the drivers from a macro perspective. But it's -- the positive trend there continues.

The second thing that really benefited the quarter was the life loss ratio, which can be volatile quarter-to-quarter. I think the improvement year-over-year was north of 8 points. We wouldn't expect that necessarily to occur. We don't see anything that it's problematic. But when you look at our quarterly results from a loss ratio perspective, specifically for Group Life, you can see that there's volatility.

And then the third thing really for the quarter is just the fact, as we said, we continue to execute on the strategic initiatives and that flows through in a lot of the different dimensions.

So then if you step back and you think about the back half of the year, I would just point you to a few things. First, as I said, we don't really see any sign of deterioration in incidence rates. It could. But at the moment, we continue to see the trends there being positive. And in Life, in particular, as a reminder, we had a very strong fourth quarter last year. So when you think about your margin, you put all that together for the back half of the year, I think as I mentioned in the prepared remarks, we would expect a similar margin for the second half of '25 to the second half of '24. So then you put that together with the first half. So the first half, we were around 10% plus the back half, somewhere around 8%. We would expect just from the way that, that math works a 9% plus margin for the year, which is 100 basis points of improvement relative to last year.

So to the very beginning part of your question, the outlook that we had given at the beginning of the year where we said we would expect margins to be flat year-over-year given the fact that we had a 100 basis points of macro tailwinds that we didn't know if it would persist. Well, the reality is, is that things continue to be favorable from a macro perspective. But more important, the 100 basis points plus of Lincoln specific, if you will, strategic execution on growing the margin remains. So long answer to your question, but I think it's important because at the end of the day, the macro could change, but the underlying momentum we have, we think will continue.

That was really helpful. And then a follow-up was just on the restructuring of the life captives. Can you give any perspective on how meaningful that could be to earnings and free cash flow? And is that something that could be more of a second half of this year event or more likely in '26?

So I don't think we're going to get into the numbers right now, Ryan. We need to go through the work. It's something we've been working on for a while. It's an example of a number of the different ways that we've looked at optimizing the Life portfolio. Once we have something more concrete, we'll give you some ways to think about the return on capital.

But as we talked about with the deployable excess capital, everything we're doing is geared towards maximizing the return we're going to get on that relative to the opportunities that we have in front of us. As it relates to timing, it's hard to say, but the actual execution of something like that is one dynamic, but then the impact on earnings and free cash flow at a minimum would be next year, not this year.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to start with the RILA product. It looked like your sales were quite strong, I think, plus 32%. And I think the industry was maybe plus 20%, so you're gaining share. There was another company that sort of talked about some increased competition in RILA. So I just wanted to get a sense of what you're seeing in the market? And then relatedly, it looked like the flows may have been down a decent amount year-over-year. So can you just talk about that? And again, the flows I'm specifically talking about is RILA.

Great. So thanks. So yes, we saw year-over-year as it relates to RILA, we saw about a 32% increase in overall sales. Having said that, if you recall, we introduced our second-generation RILA product in the third quarter of last year. And that was when we started to really see our sales accelerate. So you saw in the third quarter about $1.2 billion. And then relative sequentially, if you just look at where we were first quarter compared to where we are in second quarter, we're up about 12% sequentially as the industry continues to grow.

Importantly for us, and we've continued to highlight the fact that we are focused on profitable growth as opposed to top line sales growth. So it's really critical to us that as we're thinking about overall product sales, that we are also thinking about capital efficiency. We're thinking about ensuring that we are maintaining our profitability targets, et cetera.

The second-generation RILA product has some unique features associated with it, crediting rate strategies, indices, et cetera, that are extremely popular and they are resonating, and that's part of what is supporting us.

And then additionally, and I also mentioned this in remarks, we're expanding some of our distribution segments as well. So we're seeing some new segments that are also seeing the RILA product attractive and we're on those shelves, and we're seeing some success there. So more to come as we continue to grow out the RILA product. As we mentioned, it's an important part of our overall spread-based business strategy as is continuing to grow the overall fixed segment as well.

And I'll hand it over to Chris for the second part of the question.

Right. So Suneet, I think the flows question is relatively straightforward. This is a block that is still relatively new, right? If you think about when we in the industry really started growing RILA for us who is probably about 5 or 6 years ago, maybe 7. But if you just think about the natural trajectory as those products come out of surrender period, you will see more outflows. The goal is to retain those policyholders into new RILA products. But at the end of the day, as that block ages, you would expect to see, and you're seeing it with some of our peers as well, the outflows increase, but the goal obviously is then to have sales increase more than that to continue to grow the block.

Okay. That makes sense. And then I guess my second question, I guess, for Chris. Just wondering how you're feeling about that 45% to 60% free cash flow conversion guide that you gave us for '26. And I just want to understand, like it seems to me that, that guidance was given pre-Bain. And so if one of the objectives here of the Bain Capital is to improve risk-adjusted returns and free cash flow conversion, it would seem that with the Bain Capital, you should be perhaps above the target that you gave pre-Bain, but I just wanted to make sure I'm thinking about it right.

So I would say we're feeling good about the outlook that we provided, although obviously, we give more of a concrete view at the end of the year, Suneet, as you know. I think the point on Bain is a nuanced one because as we just talked about, we're going to deploy that capital over the next 18 months. So we're not anchoring to a 2026 number as it relates to the returns that we'll get on that capital.

But I agree, longer term, if you think about both Lincoln is a product mix, the industry, the businesses that we're growing and now the ability to deploy Bain into maximizing some of the areas that can be maximized, of course, the longer-term free cash flow conversion should be north of where it is.

And even if you go back 2 years to the outlook that we gave, we talked about the 2026 guide and then we also gave some thoughts on what the longer term would look like. So yes, at the end of the day, I would say, because we're going to deploy the Bain Capital, capital over the next 18 months. I wouldn't change your thinking as it relates to the trajectory that we're on relative to what we talked about before. But absolutely, longer term, as we grow Group, as we're more efficient with Bermuda, as we're more efficient from an operating model, all of those things. And frankly, dealing with the legacy life block, all of those things would suggest a higher free cash flow conversion rate, but over time.

Your next question comes from the line of Alex Scott with Barclays.

I wanted to see if you could give us a little more color on some of the things you're doing on distribution and group in particular. I mean it sounds like you're pretty optimistic on the growth profile of that business. And just interested in what will be the drivers of that growth? Is it the capabilities and the platform? Is it the distribution and some of the things you're doing there? I just want to get a better feel for how you're going to grow.

Absolutely. Alex. As it relates to group and how we're thinking about distribution or really how we're thinking about competitive differentiation, it's all of the above. So starting with the fact that a targeted segment strategy enables our team to really be focused at the segment level, starting with distribution where we have dedicated teams that are focused on the local, the regional and the national market and really strengthening relationships from that level. We very much have been focused on what we think of as strategic broker relationships, which are really critical.

And again, dedicating people at the different market segments to be able to build and enhance those overall relationships. But while we're doing that, we also very much have been investing in really building the capabilities, the digital capabilities, the technology capabilities. And I would say that they're really across a couple of different areas.

First is, for example, thinking about InsurTech. And so thinking about our ability to connect into the benefits, administrative systems and to be able to provide more ease of use and more access. That's important across all segments. It's even more important in the local market where they just tend to be smaller businesses. And so that's really critical. Having more digital tools. Those digital tools are, they're for the brokers, they're for the employers and they're for the employees, and we've done a lot there.

We've invested quite a bit in lead management, and that's been an important part, particularly upmarket of what differentiates us there as employers and employees are trying to navigate between paid family leave, short-term disability, long-term disability, supplemental health, how all of that integrates. And so that's been an important part of the overall capability as well.

I'm not sure if your question also extends over into our LFD, but let me just spend a minute on there. So as you know, we are really known for our distribution leadership. And so it gives us the ability to lean in as we continue to build out our products and also our capabilities both on the retail life side and also on the retail annuity side. So on the annuity side, for example, where we're really leaning into having consistent presence, for example, in the fixed annuity markets, some of what we're doing there is really deepening our partnerships. We are working directly with some of our distribution partners to have unique features that are specifically for their shelves that also will support our capabilities going forward.

And same thing on the life side, and I addressed that in our remarks as well, really working much more closely with the financial professional, providing them with digital tools, which has been critical, automated sales processes for new business, both on the life and annuity side. So all of the ease of use of working with us and providing tools and support are supporting us to be able to continue to grow the business.

That's really helpful. The second question I had is just on the external reinsurance solution potential. And you mentioned that as one of the things you may use capital for. Could you just talk about the environment there and just appetite from the reinsurers and what you could potentially try to do? Like are we talking more of a shedding risk type transaction or something that could actually provide you some kind of capital associated with blocks that do have significant value? Like how should we think about potential external?

Yes. Alex, I guess I would say a couple of things. One, it's too early for us to really talk about anything we're focused on there with real detail. We're studying all of the possibilities. I think at the end of the day, though, we're focused as it relates to external reinsurance on the legacy life block. And so we obviously did a very large deal, a very complicated deal 2 years ago. It's been a good deal for Lincoln, if you think about the growth and improvement in some of the free cash flow and the derisking that we were able to do there.

So I think as we've talked about the focus as it relates to the potential to do another reinsurance deal would really be focused on that. I think how we do it is something that we're looking at today. But obviously, if you have deployable excess capital, it would lessen the need to include -- you wouldn't necessarily structure it the way that the previous deal for us was structured, right? You have a lot more options. And then at the end of the day, to your question about the environment, the environment is robust. It seems like every other week, there's a new large complicated insurance transaction that's out there. So we've done a lot of transactions over the past 5 years. We know all of the interested parties and to the degree that we decide there is something to do there. We'll talk to you all about it, but it's just one of the things that we're studying today.

Your next question comes from the line of Wes Carmichael with Autonomous Research.

I had a question, maybe a follow-up to Ryan's on the Group. But in terms of GAAP profitability, I think remeasurement gains in the period were $104 million. And I know you had a significant benefit last year. But is there any help on how to think about what produced that gain this quarter? And as you headed into the assumption review, if you think there's going to be any run rate impact from potential unlocking?

So Wes, it's a good question. Let's just talk about what the line item is because I saw your note. I think it's very straightforward, right? If you think about the results that we are delivering and the favorability that's happening specifically in disability, you would expect that favorability to then flow through into that policyholder remeasurement line, right? Because ultimately, what it is, is you set reserves at the beginning of the year and included in those reserves that's going to be the active claim -- or the claims which have been reported and you have assumptions around that. And then there's also an assumption for claims that have been incurred but not reported yet.

And so when you have the reserve for that portion, you are making assumptions for how things are going to progress throughout the year, what the incidence rates will be, what the recovery rates will be, et cetera. And so if you think about the fact that what we've been saying is that our recent results are tracking better than what the long-term averages would look like.

Mechanically, you would expect to see this come through assuming that the favorability continues. So it is very much a by-product of the way the reserves work. It's to be expected. In second quarter, as we've talked about, big picture, we have favorable seasonality in disability, and so that's why you see both on the loss ratio. And then as a result, within the remeasurement line be a little bit bigger. You saw it last year as well. And so I wouldn't -- I would just think of it as the favorability in trends go relative to what we've talked about as the longer-term assumptions, you would expect to see that line item produce these types of results.

That's helpful, Chris. I guess just switching to RPS. You mentioned that a strong pipeline in the second half of the year. And just a little bit more color there, if you could. And I know there's a planned termination in the first quarter, but any help on how you're thinking about run rate earnings in that segment would be great?

Sure. So first of all, we -- while we, first of all, messaged that our first year sales, we saw some really healthy sales in this particular quarter. They were up about 50% year-over-year. And importantly, because we've been talking to you about pressures around stable value outflows, a meaningful portion of those sales were in stable value.

And one of the drivers of that is a new product that we believe can support us as we continue to go forward. As we -- we often have a lot of insight into future pipeline as well. And so as we look at the go-forward sales that we expect in the back half of the year, we can see that they actually are quite healthy. So we feel good about the momentum. We've seen some really nice first year of sales momentum and also recurring deposits as well. So total deposits have been healthy. And at the same time, we also acknowledged some pressure as it relates to earnings that has been mostly driven by stable value outflows, and we have a number of actions in place to continue to improve that.

Yes. And I would just add, I think that's well said. At the end of the day, the dynamics that we've been experiencing in RPS have been good underlying growth, but offset by stable value outflows. We actually saw moderation there this quarter. And so to the degree that stable value moves around, that's going to have an outsized impact, just given the ROA on that business. But underneath the surface, we continue to grow the important parts of the business, we continue to have expense discipline. We do think that there's more we can do there. And sequentially, earnings were up for RPS, which I think is a good sign relative to the past couple of quarters. But at the end of the day, this is still a business where we have to execute on our strategic priorities. It is still somewhat dependent on markets. And to the degree that stable value flows turned from negative to positive, that will provide a tailwind over time.

That's all the time we had for questions today. If you did queue up to ask a question and your question hasn't been answered, Lincoln Financial will reach out after the conclusion of today's call.

And I would like to turn the call back over to Tina Madon for closing remarks.

So thank you for joining us this morning. And as the operator said, we're happy to address any follow-up questions you may have. And please e-mail us at [email protected].

And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.