Lincoln says its repositioning is over
Lincoln Financial held its second-quarter 2026 earnings call on July 30. Here are the key takeaways.
Lincoln says its repositioning is over
After several years spent rebuilding capital, reducing balance-sheet risk and changing its business mix, Lincoln believes it has reached an inflection point. Management says the company can now concentrate on growth, free cash flow and shareholder returns.
“The next chapter is no longer about repositioning Lincoln. It is about building on what we have created.”
Lincoln is transferring another $5.8 billion of legacy life reserves
Lincoln agreed to reinsure approximately $5.8 billion of guaranteed universal life reserves and $500 million of funding agreement business with a Talcott Financial subsidiary. Combined with its 2023 Fortitude Re transaction, approximately 60% of Lincoln’s guaranteed universal life block will be reinsured.
“Together with our 2023 transaction with Fortitude Re, approximately 60% of our total in-force guaranteed universal life will now be reinsured upon the closing of the transaction.”
The transaction removes long-term risks
Guaranteed universal life is one of Lincoln’s most capital-intensive legacy businesses. The Talcott transaction reduces its exposure to policyholders living longer than expected, policies remaining in force longer than expected and changes in interest rates.
“Guaranteed Universal Life is among the most capital-intensive long-tailed parts of our in-force and this transaction meaningfully reduces our exposure to long-term mortality, lapse and interest rate risk.”
Lincoln will continue servicing the policies
Although Talcott will assume the financial risk, Lincoln will continue handling administration, recordkeeping and claims. Policyholders and distribution partners should see no change in Lincoln’s obligations or service.
“We will retain administration, recordkeeping and claims management for these policies and there is no change to our commitments to policyholders or distribution partners.”
Lincoln is spending $200 million to gain up to $40 million annually
The reinsurance transaction will consume approximately $200 million in statutory capital but is expected to increase annual free cash flow by $30 million to $40 million. Lincoln plans to fund the transaction with proceeds from its 2025 Bain Capital deal.
“We’re spending $200 million of capital, and we’re getting $30 million to $40 million. That’s a pretty good return.”
Share repurchases are back on the table
Lincoln has not announced when it will resume buying shares, but its board recently reconfirmed a repurchase program that has been dormant since 2022. More than $700 million remains available under the $1.5 billion authorization.
Lincoln has about $400 million in excess holding-company capital
After accounting for debt repayment, preferred stock funding and its normal liquidity buffer, Lincoln estimates that it currently has approximately $400 million in excess capital. Management described share repurchases as its most accretive deployment option, although it made no commitment.
“There is the other $500 million of the preferred and then most accretively would be share repurchases.”
Lincoln is shifting annuity sales toward spread-based products
Spread-based products represented 63% of second-quarter annuity sales and 31% of account balances, up from 28% a year earlier. Lincoln is emphasizing fixed and registered index-linked annuities to reduce its sensitivity to equity markets and generate more predictable earnings.
“As spreadbased products scale, we expect them to contribute a larger share of earnings and free cash flow.”
Variable annuities without living benefits passed those with guarantees
Sales of variable annuities without living benefit guarantees increased more than 60% and exceeded sales of guaranteed products for the first time. These products require less capital and expose Lincoln to less guarantee risk.
“This is a capital efficient part of our business that generates attractive earnings and cash flow without the guarantee and an area where we see room for expansion.”
Lincoln is choosing profitability over annuity volume
RILA sales increased 10%, but management said growth was more moderate because pricing competition has intensified. Lincoln is prepared to sacrifice volume rather than write business below its return targets.
“We are being very intentional around how we are prioritizing profitability over volume in a very competitive market.”
Fixed indexed annuities are Lincoln’s largest growth opportunity
Lincoln added its fixed indexed annuity product to nine distribution firms over the past 12 to 18 months. Investments in product features, Bermuda capabilities and its Bain Capital partnership are expected to support higher sales during the second half.
Lincoln deliberately allowed three retirement plans to leave
Retirement Plan Services recorded $2.4 billion in net outflows after three large plan sponsors terminated their relationships. Lincoln said none of those plans met its profitability requirements, making the departures consistent with its strategy.
“We are prioritizing the profitability of the business we retain over volume even when that produces elevated outflows in a given quarter.”
Supplemental health is becoming more important
Group Protection’s supplemental health premium increased 28% and now represents 7% of in-force premium, up from 5% a year earlier. Lincoln is prioritizing supplemental health and the local employer market because it sees stronger growth and returns in those areas.
“We really see the fastestgrowing areas for us are in the supplemental health area and in local markets, and we see continued growth there.”
Mortality has been favorable—but Lincoln isn’t counting on it
Life Insurance benefited from favorable mortality across both the frequency and severity of claims. Five of the past six quarters have produced favorable results, but management cautioned that a few large claims could quickly reverse the trend.
“Mortality favorability of this magnitude will not recur every quarter.”
Alternative investments missed Lincoln’s target
Lincoln’s alternative investments returned 4.9% on an annualized basis, compared with its 10% target. The shortfall reduced quarterly adjusted operating income by $43 million after tax, primarily affecting the Life Insurance segment.
