8-K: Lincoln Financial Reports Mixed Q1 2025 Results; Strategic Partnership with Bain Capital Announced

Lincoln Financial reported a net loss for Q1 2025, but adjusted operating income increased, and the company announced a strategic partnership with Bain Capital.

Summary

• Lincoln Financial reported a net loss available to common stockholders of $(756) million, or $(4.41) per diluted share, for the first quarter of 2025.
• Adjusted operating income available to common stockholders was $280 million, or $1.60 per diluted share.
• The primary difference between net income and adjusted operating income resulted from a $0.9 billion after-tax loss, primarily due to changes in market risk benefits.
• The company announced a partnership with Bain Capital, including a minority investment expected to close in the second half of 2025.
• Annuities generated sales of $3.8 billion, up 33% year over year.
• Group Protection reported operating income of $101 million, up 26% compared to the 2024 first quarter.
• Retirement Plan Services reported total deposits of $4.1 billion, 8% higher than the prior-year period.
• The estimated RBC ratio remains in excess of the targeted buffer, above 420%.

Sentiment

Score: 6

Explanation: The sentiment is mixed. While there are positive aspects like sales growth in annuities and improved performance in group protection, the net loss and reliance on adjusted operating income temper the overall outlook. The Bain Capital partnership is a potentially positive development, but its impact remains to be seen.

Positives

• Adjusted operating income increased 14% year-over-year.
• Annuities sales increased 33% year-over-year, driven by spread-based products.
• Group Protection operating income increased 26% year-over-year, with margin expansion of 120 basis points.
• Life Insurance operating loss improved compared to the prior year.
• Retirement Plan Services deposits increased 8% year-over-year.
• The company's capital position remains strong, with an estimated RBC ratio above 420%.
• The leverage ratio improved 260 bps year-over-year to 27.5%.

Negatives

• The company reported a net loss of $(756) million, or $(4.41) per diluted share.
• The net loss was primarily due to changes in market risk benefits driven by decreased interest rates and lower equity markets.
• Retirement Plan Services operating income decreased by 6% year-over-year due to a plan termination.
• Life Insurance reported an operating loss of $16 million.

Risks

• Weak economic conditions could affect demand for products and investment results.
• Adverse capital market conditions could impact the ability to raise capital and lead to impairments.
• Legislative, regulatory, or tax changes could affect the cost and demand for products.
• Declines in interest rates could reduce investment income.
• Volatility in equity markets could reduce sales and increase liabilities.
• Cyberattacks or other breaches in security of systems could interrupt operations.
• The Bain Capital transaction may not be completed or the anticipated benefits may not materialize.
• Pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely impact liabilities for policyholder claims, and adversely affect our businesses and the cost and availability of reinsurance.

Future Outlook

The company expects the partnership with Bain Capital to accelerate strategic priorities and create long-term value. They are focused on profitable growth and managing capital effectively.

Management Comments

• 'We delivered solid results in the first quarter of 2025 as we continued to execute on our strategy to transform Lincoln,' said Ellen Cooper, Chairman, President and CEO of Lincoln Financial.
• Cooper noted that the Bain Capital partnership is a pivotal milestone in advancing Lincoln's vision.

Industry Context

The announcement reflects a trend in the insurance industry of seeking strategic partnerships to enhance growth and capital efficiency in a volatile macroeconomic environment. Lincoln's focus on spread-based products in annuities aligns with the current interest rate environment.

Comparison to Industry Standards

• Comparing Lincoln Financial to peers like Prudential Financial, MetLife, and Principal Financial, the RBC ratio above 420% is generally competitive, indicating a strong capital position.
• The 33% increase in annuity sales is notable, as many competitors are also focusing on spread-based products to capitalize on the current interest rate environment.
• The 26% increase in Group Protection operating income is a positive sign, as this segment is often a stable source of earnings for insurance companies.
• The strategic partnership with Bain Capital is similar to moves made by other insurers to diversify their asset sourcing and optimize capital allocation, such as Apollo's partnership with Athene.

Stakeholder Impact

• Shareholders may be concerned about the net loss, but reassured by the adjusted operating income and strategic partnership.
• Policyholders should be confident in the company's strong capital position and ability to meet its obligations.
• Employees may experience changes as the company continues to optimize its operating model.
• The partnership with Bain Capital could lead to new opportunities and growth for the company.

Next Steps

• Complete the strategic partnership with Bain Capital in the second half of 2025.
• Continue to execute on strategic priorities to transform Lincoln.
• Focus on optimizing the product portfolio and reducing the expense base.
• Maintain a strong capital position and reduce the leverage ratio.

Key Dates

Keywords

financial results, annuities, life insurance, group protection, retirement plan services, Bain Capital, RBC ratio, operating income, net loss, sales, deposits, earnings