Lincoln National Life Insurance Co.
08/07/2025 | Press release | Distributed by Public on 08/07/2025 13:42
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
Management's Narrative Analysis of the Results of Operations
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Forward-Looking Statements - Cautionary Language
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76
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Summary of Critical Accounting Estimates
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77
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Results of Consolidated Operations
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81
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Results of Annuities
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83
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Results of Life Insurance
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85
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Results of Group Protection
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86
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Results of Retirement Plan Services
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87
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Results of Other Operations
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88
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Liquidity and Capital Resources
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89
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The following Management's Narrative Analysis of the Results of Operations ("MNA") is intended to help the reader understand the financial condition as of June 30, 2025, compared with December 31, 2024, and the results of operations for the three and six months ended June 30, 2025, compared with the corresponding periods in 2024 of The Lincoln National Life Insurance Company ("LNL") and its consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, "LNL," "Company," "we," "our" or "us" refers to The Lincoln National Life Insurance Company and its consolidated subsidiaries. LNL is a wholly owned subsidiary of Lincoln National Corporation ("LNC"). The MNA is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying notes to the consolidated financial statements ("Notes") presented in "Part I - Item 1. Financial Statements" and our Annual Report on Form 10-K for the year ended December 31, 2024 ("2024 Form 10-K").
MNA is presented pursuant to General Instructions H(2)(a) of Form 10-Q in lieu of Management's Discussion and Analysis of Financial Condition and Results of Operations.
See "Part I - Item 1. Business" in our 2024 Form 10-K and Note 1 herein for a description of the business.
In this report, in addition to providing consolidated net income (loss), we also provide income (loss) from operations because we believe it is a meaningful measure of the profitability of our business segments and Other Operations. Income (loss) from operations is the financial performance measure we use to evaluate and assess the results of our segments and Other Operations. Accordingly, we define and report income (loss) from operations by segment in Note 15. Our management believes that income (loss) from operations explains the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in and performance of our current businesses. Certain items are excluded from income (loss) from operations because they are not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate to the operations of the individual segments.
FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE
Certain statements made in this report and in other written or oral statements made by us or on our behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements may contain words like: "anticipate," "believe," "estimate," "expect," "project," "shall," "will" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.
Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:
•Weak general economic and business conditions that may affect demand for our products, account balances, investment results, guaranteed benefit liabilities, premium levels and claims experience;
•Adverse global capital and credit market conditions that may affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition;
•Legislative, regulatory or tax changes that affect: the cost of, or demand for, our products; the required amount of reserves and/or surplus; our ability to conduct business; our affiliate reinsurance arrangements; and restrictions on the payment of revenue sharing and 12b-1 distribution fees;
•Changes in tax law or the interpretation of or application of existing tax laws that could impact our tax costs and the products that we sell;
•The impact of regulations adopted by the Securities and Exchange Commission ("SEC"), the Department of Labor or other federal or state regulators or self-regulatory organizations that could adversely affect our distribution model and sales of our products and result in additional disclosure and other requirements related to the sale and delivery of our products;
•The impact of new and emerging rules, laws and regulations relating to privacy, cybersecurity and artificial intelligence that may lead to increased compliance costs, reputation risk and/or changes in business practices;
•Increasing scrutiny and evolving expectations and regulations regarding environmental, social and governance matters that may adversely affect our reputation and our investment portfolio;
•Actions taken by reinsurers to raise rates on in-force business;
•Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses and demand for our products;
•Rapidly increasing or sustained high interest rates that may negatively affect our profitability, value of our investment portfolio and capital position and may cause policyholders to surrender annuity and life insurance policies, thereby causing realized investment losses;
•The impact of the implementation of the provisions of the European Market Infrastructure Regulation relating to the regulation of derivatives transactions;
•The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
•A decline or continued volatility in the equity markets causing a reduction in the sales of our products; a reduction of asset-based fees that we charge on various investment and insurance products; and an increase in liabilities related to guaranteed benefit riders, which are accounted for as market risk benefits ("MRBs"), of our variable annuity products;
•Ineffectiveness of our risk management policies and procedures;
•A deviation in actual experience regarding future policyholder behavior, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our products and in establishing related insurance reserves, which may reduce future earnings;
•Changes in accounting principles that may affect our consolidated financial statements;
•Lowering of one or more of our financial strength ratings;
•Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on financial assets;
•Interruption in or failure of the telecommunication, information technology or other operational systems of the Company or the third parties on whom we rely or failure to safeguard the confidentiality or privacy of sensitive data on such systems, including from cyberattacks or other breaches in security of such systems;
•The effect of acquisitions and divestitures, including the inability to realize the anticipated benefits of acquisitions and dispositions of businesses and potential operating difficulties and unforeseen liabilities relating thereto, as well as the effect of restructurings, product withdrawals and other unusual items;
•The inability to realize or sustain the benefits we expect from, greater than expected investments in, and the potential impact of efforts related to, our strategic initiatives;
•The adequacy and collectability of reinsurance that we have obtained;
•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;
•Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that we can charge for our products;
•The unknown effect on our businesses resulting from evolving market preferences and the changing demographics of our client base; and
•The unanticipated loss of key management or wholesalers.
The risks and uncertainties included here are not exhaustive. Our 2024 Form 10-K as well as other reports that we file with the SEC include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.
We do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See "Part I - Item 1A. Risk Factors" in our 2024 Form 10-K for a discussion of certain risks relating to our business.
SUMMARY OF CRITICAL ACCOUNTING ESTIMATES
The MNA included in our 2024 Form 10-K contains a detailed discussion of our critical accounting estimates. The following information updates the "Summary of Critical Accounting Estimates" provided in our 2024 Form 10-K, and therefore, should be read in conjunction with that disclosure.
Investments
Investment Valuation
For more information about the valuation of our financial instruments carried at fair value, see "Part II - Item 7. Management's Narrative Analysis of the Results of Operations - Summary of Critical Accounting Estimates - Investments - Investment Valuation" in our 2024 Form 10-K and Note 12 herein.
Derivatives
Derivatives are primarily used for hedging purposes. We hedge certain portions of our exposure to interest rate risk, foreign currency exchange risk, equity market risk, basis risk, commodity risk and credit risk by entering into derivative transactions. We also purchase and issue financial instruments that contain embedded derivative instruments. See "Policyholder Account Balances" below for information on
embedded derivatives. Assessing the effectiveness of hedging and evaluating the carrying values of the related derivatives often involve a variety of assumptions and estimates.
We carry our derivative instruments at fair value, which we determine through valuation techniques or models that use market data inputs or independent broker quotations. The fair values fluctuate from period to period due to the volatility of the valuation inputs, including but not limited to swap interest rates, interest and equity volatility and equity index levels, foreign currency forward and spot rates, credit spreads and correlations, some of which are significantly affected by economic conditions. The effect to revenue is reported in realized gain (loss) and such amount along with the associated federal income taxes is excluded from income (loss) from operations of our segments.
For more information on derivatives, see Note 1 in our 2024 Form 10-K and Note 5 herein. For more information on market exposures associated with our derivatives, including sensitivities, see "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our 2024 Form 10-K.
Future Contract Benefits
Future contract benefits represent liability reserves that we have established and carry based on estimates of how much we will need to pay for future benefits and claims.
Liability for Future Policy Benefits
Liability for future policy benefits ("LFPB") represents the reserve amounts associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts that are calculated to meet the various policy and contract obligations as they mature. Establishing adequate reserves for our obligations to policyholders requires assumptions to be made that are intended to represent an estimation of experience for the period that policy benefits are payable. If actual experience is better than or equal to the assumptions, then reserves should be adequate to provide for future benefits and expenses. If experience is worse than the assumptions, additional reserves may be required. Significant assumptions include mortality rates, morbidity and policyholder behavior (e.g., persistency) and withdrawals. During the third quarter of each year, we conduct our comprehensive review of the actuarial assumptions to best estimate future premium and benefit cash flows ("cash flow assumptions") and projection models used in estimating these liabilities and update these assumptions as needed (excluding the claims settlement expense assumption that is locked-in at inception) in the calculation of the net premium ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. In measuring our LFPB, we establish cohorts, which are groupings of long-duration contracts. On a quarterly basis, we retrospectively update the net premium ratio at the cohort level for actual experience. For all contract cohorts issued after January 1, 2021, interest is accrued on LFPB at the single-A interest rate on the contract cohort inception date. For contract cohorts issued prior to January 1, 2021, interest remains accruing at the original discount rate in effect on the contract cohort inception date due to the modified retrospective transition method. We also remeasure the LFPB using the single-A interest rate as of the end of each reporting period.
Liability for Future Claims
Future contract benefits include reserves for long-term life and disability claims associated with our Group Protection segment. These reserves use actuarial assumptions primarily based on claim termination rates, offsets for other insurance including social security and long-term disability incidence and severity assumptions. Such cash flow assumptions are subject to the comprehensive review process discussed above. We remeasure the liability for future claims using a single-A interest rate as of the end of each reporting period.
Additional Liabilities for Other Insurance Benefits
We previously issued UL-type contracts where we provided a secondary guarantee to the policyholder. The policy can remain in force, even if the base policy account balance is zero, as long as contractual secondary guarantee requirements have been met. These guaranteed benefits require an additional liability that is calculated based on the application of a benefit ratio (calculated as the present value of total expected benefit payments over the life of the contract from inception divided by the present value of total expected assessments over the life of the contract). These secondary guarantees are reported within future contract benefits on the Consolidated Balance Sheets. The level and direction of the change in reserves will vary over time based on the emergence of the benefit ratio and the level of assessments associated with the contracts. Cash flow assumptions incorporated in a benefit ratio in measuring these additional liabilities for other insurance benefits include mortality rates, morbidity, policyholder behavior (e.g., persistency) and withdrawals based principally on generally accepted actuarial methods and assumptions. During the third quarter of each year, we conduct our comprehensive review of the cash flow assumptions and projection models used in estimating these liabilities and update these assumptions in the calculation of the benefit ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update.
For additional information on future contract benefits, see Note 11.
Market Risk Benefits
MRBs are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose us to other-than-nominal capital market risk upon the occurrence of a specific event or circumstance, such as death, annuitization or periodic withdrawal. An MRB can be in either an asset or a liability position. Our MRB assets and MRB liabilities are reported at fair value separately on the Consolidated Balance Sheets.
We issue variable and fixed annuity contracts that may include various types of guaranteed living benefit ("GLB") and guaranteed death benefit ("GDB") riders that we have accounted for as MRBs. For contracts that contain multiple riders that qualify as MRBs, the MRBs are valued on a combined basis using an integrated model. We have entered into reinsurance agreements to cede certain GLB and GDB riders where the reinsurance agreements themselves are accounted for as MRBs or contain MRBs. We therefore record ceded MRB assets and ceded MRB liabilities associated with these reinsurance agreements. We report ceded MRBs associated with these reinsurance agreements in other assets or other liabilities on the Consolidated Balance Sheets.
The change in the fair value of MRB assets and liabilities is reported in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss), except for the portion attributable to the change in non-performance risk, which is recognized in other comprehensive income (loss) ("OCI"). The change in the fair value of ceded MRB assets and liabilities, including the changes in our counterparties' non-performance risks, is reported in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).
MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our non-performance risk. Ceded MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our counterparties' non-performance risk. The scenario assumptions, at each valuation date, are those we view to be appropriate for a hypothetical market participant and include assumptions for capital markets, lapse, benefit utilization, mortality, risk margin and administrative expenses. These assumptions are based on a combination of historical data and actuarial judgments. The assumption for our own non-performance risk and our counterparties' non-performance risk for MRBs and ceded MRBs, respectively, are determined at each valuation date and reflect our risk and our counterparties' risks of not fulfilling the obligations of the underlying liability. The spread for the non-performance risk is added to the discount rates used in determining the fair value from the net cash flows. We believe these assumptions are consistent with those that would be used by a market participant; however, as the related markets develop, we will continue to reassess our assumptions. During the third quarter of each year, we conduct our comprehensive review of the assumptions used in calculating the fair value of these MRBs and update these assumptions on a prospective basis as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. For information on fair value inputs, see Note 12.
We cede a portion of these GLB and GDB features to Lincoln National Reinsurance Company (Barbados) Limited ("LNBAR") on a modified coinsurance basis. The modified coinsurance arrangement includes a hedging strategy designed to mitigate selected risk to LNBAR. The hedge program focuses on generating sufficient income to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. This hedging strategy utilizes options and total return swaps on U.S.-based equity indices, and futures on U.S.-based and international equity indices, as well as interest rate futures, interest rate swaps and currency futures.
The hedging results do not impact LNL due to the modified coinsurance arrangement with LNBAR, as LNL cedes these derivative results to LNBAR. For additional information on MRBs, see Note 8.
Policyholder Account Balances
Policyholder account balances include the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability includes universal life insurance ("UL"), MoneyGuard®, variable universal life insurance ("VUL"), indexed universal life insurance ("IUL"), investment-type annuity (including registered index-linked annuities ("RILA"), individual and group fixed and fixed portion of variable annuities, fixed indexed deferred annuities and non-life contingent payout fixed annuities) and funding agreement products where account balances are equal to deposits plus interest credited less withdrawals, surrender charges, asset-based fees and policyholder administration charges (collectively known as "policyholder assessments"), as well as amounts representing the fair value of embedded derivative instruments associated with our fixed indexed annuity and IUL products. During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models underlying our reserves and embedded derivatives and update assumptions as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update.
Our indexed annuity and IUL contracts permit the holder to elect a fixed interest rate return or a return where interest credited to the contracts is linked to the performance of the S&P 500® Index or other indices. The value of the variable portion of the policyholder's account balance varies with the performance of the underlying variable funds chosen by the policyholder. Policyholders may elect to rebalance among the various accounts within the product at renewal dates. At the end of each indexed term, which can be up to six years, we have the opportunity to re-price the indexed component by establishing different participation rates, caps, spreads or specified rates,
subject to contractual guarantees. We purchase and sell index options that are highly correlated to the portfolio allocation decisions of our policyholders, such that we are economically hedged with respect to equity returns for the current reset period. The mark-to-market of the options held generally offsets the change in value of the embedded derivative within the contract, both of which are recorded as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). The Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the Financial Accounting Standards Board Accounting Standards CodificationTM require that we calculate fair values of index options we may purchase or sell in the future to hedge policyholder index allocations in future reset periods. These fair values represent an estimate of the cost of the options we will purchase or sell in the future, discounted back to the date of the balance sheet, using current market indicators of volatility and interest rates. Changes in the fair values of these liabilities are included as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). For more information on indexed product derivative results, see Note 16.
For additional information on the liability for policyholder account balances, see Note 10.
Reinsurance Recoverables
Reinsurance recoverables are generally measured and recognized consistent with the assumptions and methodologies used to project the future performance of the underlying direct business as discussed in the "Future Contract Benefits" and "Policyholder Account Balances" sections above. During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models and update assumptions as needed. In addition, we consider the potential impact of counterparty credit risks related to the reinsurance recoverable by estimating an allowance for credit losses using a probability of loss model approach to estimate expected credit losses for reinsurance recoverables. For additional information on our allowance for credit losses on reinsurance-related assets, see Note 7 in our 2024 Form 10-K.
Annual Assumption Review
During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used in estimating MRBs, our reserves and embedded derivatives. For more information on our comprehensive review, see Note 1 in our 2024 Form 10-K.
Income Taxes
Management uses certain assumptions and estimates in determining the income taxes payable or refundable for the current year, the deferred income tax assets and liabilities for items recognized differently in its financial statements from amounts shown on its income tax returns and the federal income tax expense. Determining these amounts requires analysis and interpretation of current tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of the resulting income tax assets and liabilities. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change. Legislative changes to the Internal Revenue Code of 1986, as amended, modifications or new regulations, administrative rulings, or court decisions could increase or decrease our effective tax rate.
The application of GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to reduce our deferred tax asset to an amount that is more likely than not to be realizable. Judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of existing temporary differences; the length of time carryovers can be utilized; and any future prudent and feasible tax planning strategies.
As of June 30, 2025, we had an approximate $1.3 billion deferred tax asset related to net unrealized losses on fixed maturity available-for-sale ("AFS") securities. In the assessment of the future realizability of this deferred tax asset, management concluded that its tax planning strategies, including holding these securities to recovery, were prudent and feasible as these unrealized losses were caused by factors other than credit loss, and we have the intent and ability to hold these securities to recovery and collect all of the contractual cash flows.
Although realization is not assured, management believes it is more likely than not that the deferred tax assets, will be realized.
For risks related to establishing a valuation allowance against our deferred tax assets, see "Part I - Item 1A. Risk Factors - Assumptions and Estimates - We may be required to recognize an impairment of our goodwill or to establish a valuation allowance against our deferred tax assets" in our 2024 Form 10-K.
For additional information on income taxes, see "Part II - Item 7. Management's Narrative Analysis of the Results of Operations- Introduction - Summary of Critical Accounting Estimates - Income Taxes" in our 2024 Form 10-K and Note 17 herein.
RESULTS OF CONSOLIDATED OPERATIONS
Details underlying the consolidated results (in millions) were as follows:
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For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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| 2025 |
2024 (1)
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2025 |
2024 (1)
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| Net Income (Loss) | |||||||||||||||||||||||
| Income (loss) from operations: | |||||||||||||||||||||||
| Annuities | $ | 222 | $ | 252 | $ | 449 | $ | 475 | |||||||||||||||
| Life Insurance | 58 | 79 | 27 | 28 | |||||||||||||||||||
| Group Protection | 147 | 129 | 233 | 209 | |||||||||||||||||||
| Retirement Plan Services | 34 | 37 | 65 | 69 | |||||||||||||||||||
| Other Operations | (44) | (54) | (99) | (114) | |||||||||||||||||||
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Net annuity product features, pre-tax (2)
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721 | 414 | 256 | 1,411 | |||||||||||||||||||
| Net life insurance product features, pre-tax | (57) | (14) | (36) | (146) | |||||||||||||||||||
| Credit loss-related adjustments, pre-tax | (25) | (33) | (53) | (33) | |||||||||||||||||||
| Investment gains (losses), pre-tax | (81) | (204) | (44) | (260) | |||||||||||||||||||
| Changes in the fair value of reinsurance-related | |||||||||||||||||||||||
| embedded derivatives, trading securities and | |||||||||||||||||||||||
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certain mortgage loans, pre-tax (3)
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(55) | 43 | (233) | 90 | |||||||||||||||||||
| GLB rider fees ceded to LNBAR, pre-tax | (237) | (232) | (469) | (462) | |||||||||||||||||||
| Gains (losses) on other non-financial assets - sale of | |||||||||||||||||||||||
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subsidiaries/businesses, pre-tax (4)
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- | 481 | - | 481 | |||||||||||||||||||
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Other items, pre-tax (5) (6) (7) (8)
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1 | (23) | (31) | (94) | |||||||||||||||||||
| Income tax benefit (expense) related to the | |||||||||||||||||||||||
| above pre-tax items | (57) | (114) | 123 | (236) | |||||||||||||||||||
| Net income (loss) | $ | 627 | $ | 761 | $ | 188 | $ | 1,418 | |||||||||||||||
(1) The prior period presentation was recast to conform to the revised definition of income (loss) from operations. See Note 15 for additional information.
(2) For the three months ended June 30, 2025 and 2024, includes changes in MRBs of $443 million and $167 million, respectively; income allocated to support the cost of hedging or future benefits of $166 million and $171 million, respectively; and changes in the fair value of the embedded derivative liabilities and the associated index options for our indexed annuity products of $112 million and $76 million, respectively. For the six months ended June 30, 2025 and 2024, includes changes in MRBs of $(176) million and $863 million, respectively; income allocated to support the cost of hedging or future benefits of $346 million and $330 million, respectively; and changes in the fair value of the embedded derivative liabilities and the associated index options for our indexed annuity products of $86 million and $218 million, respectively.
(3) Includes primarily changes in the fair value of embedded derivatives related to affiliate reinsurance transactions. For more information, see Note 7.
(4) For information on the sale of the wealth management business, see Note 1 in our 2024 Form 10-K.
(5) Includes certain legal accruals of $(3) million for the six months ended June 30, 2024.
(6) Includes severance expense related to initiatives to realign the workforce of $(2) million and $(7) million for the three months ended June 30, 2025 and 2024, respectively, and $(8) million and $(56) million for the six months ended June 30, 2025 and 2024, respectively.
(7) Includes transaction, integration and other costs related to mergers, acquisitions, divestitures and certain other corporate initiatives primarily related to the sale of the wealth management business of $2 million and $(16) million for the three months ended June 30, 2025 and 2024, respectively, and $(18) million and $(27) million for the six months ended June 30, 2025 and 2024, respectively.
(8) Includes deferred compensation mark-to-market adjustment of $1 million for the three months ended June 30, 2025, and $(5) million and $(8) million for the six months ended June 30, 2025 and 2024, respectively.
Comparison of the Three Months Ended June 30, 2025 to 2024
Net income decreased due primarily to the following:
•Gain on other non-financial assets in 2024 due to the sale of the wealth management business.
•Unfavorable changes in the fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans in 2025 compared to favorable changes in 2024 driven by the fair value of embedded derivatives related to certain reinsurance arrangements.
•Lower income from operations in our Annuities and Life Insurance segments.
•Higher losses in net life insurance product features driven by change in the fair value of hedges associated with VUL products attributable to the impact of capital markets.
The decrease in net income was partially offset by the following:
•Higher gain in net annuity product features driven by the impact of capital markets.
•Lower investment losses driven by lower losses on fixed maturity AFS securities and derivative investments.
•Higher investment income on alternative investments.
•Improvement in our total loss ratio in our Group Protection segment.
Comparison of the Six Months Ended June 30, 2025 to 2024
Net income decreased due primarily to the following:
•Lower gain in net annuity product features driven by the impact of capital markets.
•Gain on other non-financial assets in 2024 due to the sale of the wealth management business.
•Unfavorable changes in the fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans in 2025 compared to favorable changes in 2024 driven by the fair value of embedded derivatives related to certain reinsurance arrangements.
The decrease in net income was partially offset by the following:
•Lower investment losses driven by lower losses on derivative investments and fixed maturity AFS securities.
•Lower loss in net life insurance product features driven by change in the fair value of hedges associated with VUL products attributable to the impact of capital markets.
•Higher investment income on alternative investments.
•Improvement in our total loss ratio in our Group Protection segment.
We provide information about our business segments' and Other Operations' operating revenue and expense line items, key drivers of changes and historical details underlying the line items below. For factors that could cause actual results to differ materially from those set forth, see "Forward-Looking Statements - Cautionary Language" above and "Part I - Item 1A. Risk Factors" in our 2024 Form 10-K.
RESULTS OF ANNUITIES
Details underlying the results for Annuities (in millions) were as follows:
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For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
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Insurance premiums (1)
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$ | 28 | $ | 34 | $ | 50 | $ | 60 | |||||||||||||||
| Fee income | 526 | 539 | 1,067 | 1,072 | |||||||||||||||||||
| Net investment income | 526 | 485 | 1,034 | 941 | |||||||||||||||||||
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Other revenues (2)
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50 | 83 | 98 | 246 | |||||||||||||||||||
| Total operating revenues | 1,130 | 1,141 | 2,249 | 2,319 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
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Benefits (1)
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35 | 37 | 63 | 64 | |||||||||||||||||||
| Interest credited | 439 | 378 | 859 | 731 | |||||||||||||||||||
| Policyholder liability remeasurement (gain) loss | (5) | 2 | (6) | 2 | |||||||||||||||||||
| Commissions and other expenses | 405 | 430 | 816 | 950 | |||||||||||||||||||
| Total operating expenses | 874 | 847 | 1,732 | 1,747 | |||||||||||||||||||
| Income (loss) from operations before taxes | 256 | 294 | 517 | 572 | |||||||||||||||||||
| Federal income tax expense (benefit) | 34 | 42 | 68 | 97 | |||||||||||||||||||
| Income (loss) from operations | $ | 222 | $ | 252 | $ | 449 | $ | 475 | |||||||||||||||
(1) Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include primarily changes in income annuity reserves driven by insurance premiums.
(2) Consists primarily of revenues attributable to broker-dealer services, which are subject to market volatility and have a comparable offset in commissions and other expenses; and the net settlement related to certain reinsurance transactions, which has a corresponding offset in net investment income and interest credited. During the second quarter of 2024, LNC closed the sale of its wealth management business. For more information, see Note 1 in our 2024 Form 10-K.
Comparison of the Three Months Ended June 30, 2025 to 2024
Income from operations for this segment decreased due primarily to the following:
•Lower other revenues due to the 2024 reinsurance transaction.
•Lower net investment income, net of interest credited, which more than offset impacts from higher average general account balances and improving portfolio yields from the current interest rate environment. The lower net investment income, net of interest credited, was experienced in certain reinsured portfolios that have a corresponding increase in other revenues.
•Higher commissions and other expenses, net of broker-dealer expenses, driven by higher other costs pertaining to business operations and higher deferred acquisition costs ("DAC") amortization.
•Lower fee income driven bylower average daily separate account balances.
The decrease in income from operations was partially offset by policyholder liability remeasurement gain in 2025 compared to a loss in 2024 driven by more favorable experience on income annuities than expected.
Comparison of the Six Months Ended June 30, 2025 to 2024
Income from operations for this segment decreased due primarily to the following:
•Lower other revenues due to the 2024 reinsurance transaction.
•Lower net investment income, net of interest credited, which more than offset impacts from higher average general account balances, improving portfolio yields from the current interest rate environment. The lower net investment income, net of interest credited, was experienced in certain reinsured portfolios that have a corresponding increase in other revenues.
•Higher commissions and other expenses, net of broker-dealer expenses, driven by higher DAC amortization and higher other costs pertaining to business operations.
The decrease in income from operations was partially offset by the following:
•Lower federal income tax expense due to unfavorable separate account dividends-received deduction true-ups in 2024.
•Policyholder liability remeasurement gain in 2025 compared to a loss in 2024 driven by more favorable experience on income annuities than expected.
Additional Information
Effective June 30, 2024, we entered into a reinsurance agreement with Lincoln Pinehurst Reinsurance Company (Bermuda) Limited ("LPINE"), a wholly owned subsidiary of LNC, to reinsure liabilities under certain blocks of in-force fixed annuities. See Note 7 for more information.
New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations.
The other component of net flows relates to the retention of new business and account balances. An important measure of retention is the reduction in account balances caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average gross account balances were 11% for the three and six months ended June 30, 2025, and 10% and 11%, respectively, for the corresponding periods in 2024.
Our fixed annuities and RILA have discretionary fixed and indexed crediting rates that reset on an annual or periodic basis and may be subject to surrender charges. Our ability to retain these annuities will be subject to current competitive conditions at the time crediting rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see "Part I - Item 1A. Risk Factors - Market Conditions - Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements," "Part I - Item 1A. Risk Factors - Market Conditions - Increases in interest rates and sustained high interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals and surrenders" and "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" in our 2024 Form 10-K.
RESULTS OF LIFE INSURANCE
Details underlying the results for Life Insurance (in millions) were as follows:
|
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
|
Insurance premiums (1)
|
$ | 198 | $ | 393 | $ | 423 | $ | 613 | |||||||||||||||
| Fee income | 502 | 506 | 1,015 | 1,013 | |||||||||||||||||||
| Net investment income | 465 | 391 | 889 | 818 | |||||||||||||||||||
|
Other revenues (2)
|
53 | 28 | 102 | 54 | |||||||||||||||||||
| Total operating revenues | 1,218 | 1,318 | 2,429 | 2,498 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Benefits | 594 | 702 | 1,321 | 1,380 | |||||||||||||||||||
| Interest credited | 222 | 227 | 442 | 449 | |||||||||||||||||||
| Policyholder liability remeasurement (gain) loss | 32 | 15 | 36 | 74 | |||||||||||||||||||
|
Commissions and other expenses (2)
|
304 | 281 | 614 | 572 | |||||||||||||||||||
| Total operating expenses | 1,152 | 1,225 | 2,413 | 2,475 | |||||||||||||||||||
| Income (loss) from operations before taxes | 66 | 93 | 16 | 23 | |||||||||||||||||||
| Federal income tax expense (benefit) | 8 | 14 | (11) | (5) | |||||||||||||||||||
| Income (loss) from operations | $ | 58 | $ | 79 | $ | 27 | $ | 28 | |||||||||||||||
(1) Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves.
(2) For information on amortization of deferred gain (loss) on business sold through reinsurance, see Note 1 in our 2024 Form 10-K.
Comparison of the Three Months Ended June 30, 2025 to 2024
Income from operations for this segment decreased due primarily to the following:
•Lower insurance premiums attributable to affiliate reinsurance activity.
•Higher policyholder liability remeasurement loss driven by more unfavorable actual to expected mortality experience within UL-type contracts with secondary guarantees.
The decrease in income from operations for this segment was partially offset by the following:
•Lower benefits driven by affiliate reinsurance activity and improved mortality for the block in aggregate due to lower claims incidence.
•Higher net investment income, net of interest credited, driven by higher investment income on alternative investments.
Comparison of the Six Months Ended June 30, 2025 to 2024
Income from operations for this segment decreased modestly as lower insurance premiums attributable primarily to affiliate reinsurance activity was almost entirely offset by the following:
•Higher net investment income, net of interest credited, driven by higher investment income on alternative investments.
•Lower benefits driven by affiliate reinsurance activity and improved mortality for the block in aggregate due to lower claims incidence.
•Lower policyholder liability remeasurement loss driven by more favorable actual to expected mortality experience within UL-type contracts with secondary guarantees.
Additional Information
Generally, we experience higher mortality in the first quarter of the year due to the seasonality of claims.
Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest.
For information on interest rate spreads and interest rate risk, see "Part I - Item 1A. Risk Factors - Market Conditions - Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements," "Part I - Item 1A. Risk Factors - Market Conditions - Increases in interest rates and sustained high interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals and surrenders" and "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" in our 2024 Form 10-K.
RESULTS OF GROUP PROTECTION
Details underlying the results for Group Protection (in millions) were as follows:
|
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Insurance premiums | $ | 1,386 | $ | (3,194) | $ | 2,766 | $ | (1,909) | |||||||||||||||
| Net investment income | 92 | 88 | 178 | 172 | |||||||||||||||||||
|
Other revenues (1)
|
8 | 55 | 13 | 111 | |||||||||||||||||||
| Total operating revenues | 1,486 | (3,051) | 2,957 | (1,626) | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Benefits | 977 | (3,459) | 1,996 | (2,429) | |||||||||||||||||||
| Interest credited | 1 | 1 | - | 2 | |||||||||||||||||||
| Policyholder liability remeasurement (gain) loss | (67) | (124) | (101) | (191) | |||||||||||||||||||
| Commissions and other expenses | 389 | 367 | 767 | 728 | |||||||||||||||||||
| Total operating expenses | 1,300 | (3,215) | 2,662 | (1,890) | |||||||||||||||||||
| Income (loss) from operations before taxes | 186 | 164 | 295 | 264 | |||||||||||||||||||
| Federal income tax expense (benefit) | 39 | 35 | 62 | 55 | |||||||||||||||||||
| Income (loss) from operations | $ | 147 | $ | 129 | $ | 233 | $ | 209 | |||||||||||||||
(1) Consists of revenue from third parties for administrative services performed, which has a corresponding partial offset in commissions and other expenses, and the ceded net investment income related to the 2024 reinsurance transaction. For more information on the reinsurance transaction, see "Additional Information" below.
Comparison of the Three and Six Months Ended June 30, 2025 to 2024
Income from operations for this segment increased due primarily to the following:
•Higher insurance premiums due to the 2024 reinsurance transaction, growth in business in force and persistency.
•Higher net investment income, net of interest credited, driven by growth in business in force.
The increase in income from operations was partially offset by the following:
•Lower other revenues due to the 2024 reinsurance transaction.
•Higher commissions and other expenses due to incentive compensation as a result of increased production performance.
•Higher benefits, net of policyholder liability remeasurement gain, due to the 2024 reinsurance transaction, less favorable claims experience than expected and growth in business in force, partially offset by lower incidence and claims severity in our life business and lower incidence in our disability business.
Additional Information
Effective June 30, 2024, we entered into a reinsurance agreement with LPINE, an affiliated reinsurer, to reinsure certain blocks of in-force group protection products. Insurance premiums and benefits for the three and six months ended June 30, 2024, reflect day one impacts of $4.5 billion attributable to the reinsurance agreements that had no income (loss) from operations effect. See Note 7 for more information.
Our total loss ratio for the three and six months ended June 30, 2025, was 65.7% and 68.5%, respectively, compared to 70.1% and 72.5% for the corresponding periods in 2024 not including the day one impact of the second quarter 2024 reinsurance agreement discussed above. For information about the effect of the loss ratio sensitivity on our income (loss) from operations, see "Part II - Item 7. Management's Narrative Analysis of the Results of Operations - Results of Group Protection - Additional Information" in our 2024 Form 10-K.
Generally, we experience higher mortality in the first quarter of the year and higher disability claims in the fourth quarter of the year due to the seasonality of claims. Generally, we have higher sales during the fourth quarter of the year.
For information on the effects of current interest rates on our long-term disability claim reserves, see "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk - Effect of Interest Rate Sensitivity" in our 2024 Form 10-K.
RESULTS OF RETIREMENT PLAN SERVICES
Details underlying the results for Retirement Plan Services (in millions) were as follows:
|
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Fee income | $ | 71 | $ | 70 | $ | 141 | $ | 139 | |||||||||||||||
| Net investment income | 250 | 245 | 499 | 485 | |||||||||||||||||||
|
Other revenues (1)
|
7 | 8 | 11 | 16 | |||||||||||||||||||
| Total operating revenues | 328 | 323 | 651 | 640 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Interest credited | 174 | 168 | 344 | 335 | |||||||||||||||||||
| Commissions and other expenses | 115 | 113 | 234 | 226 | |||||||||||||||||||
| Total operating expenses | 289 | 281 | 578 | 561 | |||||||||||||||||||
| Income (loss) from operations before taxes | 39 | 42 | 73 | 79 | |||||||||||||||||||
| Federal income tax expense (benefit) | 5 | 5 | 8 | 10 | |||||||||||||||||||
| Income (loss) from operations | $ | 34 | $ | 37 | $ | 65 | $ | 69 | |||||||||||||||
(1) Consists primarily of mutual fund account program revenues from mid to large employers.
Comparison of the Three Months EndedJune 30, 2025 to 2024
Income from operations for this segment decreased due primarily to the following:
•Higher commissions and other expenses driven by higher trail commissions resulting from higher average daily separate account balances.
•Lower net investment income, net of interest credited, driven by an increase in crediting rates, partially offset by impacts to portfolio yields from the current interest rate environment and higher investment income on surplus investments.
Comparison of the Six Months EndedJune 30, 2025 to 2024
Income from operations for this segment decreased due primarily to the following:
•Higher commissions and other expenses driven by higher trail commissions resulting from higher average daily separate account balances.
•Lower other revenues due to a plan termination during the fourth quarter of 2024.
The decrease in income from operations was partially offset by the following:
•Higher net investment income, net of interest credited, driven by impacts to portfolio yields from the current interest rate environment and higher investment income on surplus investments, partially offset by an increase in crediting rates.
•Higher fee income driven by higher average daily separate account balances.
Additional Information
Net flows in this business fluctuate based on the timing of larger plans being implemented and terminating over the course of the year.
New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. The other component of net flows relates to the retention of the business. An important measure of retention is the reduction in account balances caused by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account balances were 15% and 19% for the three and six months ended June 30, 2025, and 13% for the corresponding periods in 2024. The increase in the outflow rate for the six months ended June 30, 2025, was attributable primarily to a large plan termination during the first quarter of 2025.
Our net flows are negatively affected by the continued net outflows from our oldest blocks of annuities business, which are among our higher margin product lines in this segment, due to the fact that they are mature blocks with low distribution and servicing costs. The proportion of these products to our total account balances was 12% and 14% as of June 30, 2025 and 2024, respectively. Due to this overall shift in business mix toward products with lower returns, new deposit production continues to be necessary to maintain earnings at current levels.
Our fixed annuity business includes products with discretionary and index-based crediting rates that are reset on either a quarterly or semi-annual basis. Our ability to retain quarterly or semi-annual reset annuities will be subject to current competitive conditions at the time crediting rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see "Part I - Item 1A. Risk Factors - Market Conditions - Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements," "Part I - Item 1A. Risk Factors - Market Conditions - Increases in interest rates and sustained high interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals and surrenders" and "Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk - Interest Rate Risk" in our 2024 Form 10-K.
RESULTS OF OTHER OPERATIONS
Details underlying the results for Other Operations (in millions) were as follows:
|
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
||||||||||||||||||||||
| 2025 |
2024 (1)
|
2025 |
2024 (1)
|
||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
|
Net investment income (2)
|
22 | 21 | 56 | 37 | |||||||||||||||||||
|
Other revenues (3)
|
13 | 13 | 21 | 22 | |||||||||||||||||||
| Total operating revenues | 35 | 34 | 77 | 59 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Benefits | 3 | - | 5 | 1 | |||||||||||||||||||
| Interest credited | 13 | 8 | 27 | 17 | |||||||||||||||||||
| Policyholder liability remeasurement (gain) loss | 1 | 1 | 1 | - | |||||||||||||||||||
| Other expenses | 35 | 45 | 83 | 83 | |||||||||||||||||||
| Interest and debt expense | 40 | 48 | 80 | 96 | |||||||||||||||||||
| Total operating expenses | 92 | 102 | 196 | 197 | |||||||||||||||||||
| Income (loss) from operations before taxes | (57) | (68) | (119) | (138) | |||||||||||||||||||
| Federal income tax expense (benefit) | (13) | (14) | (20) | (24) | |||||||||||||||||||
| Income (loss) from operations | $ | (44) | $ | (54) | $ | (99) | $ | (114) | |||||||||||||||
(1) The prior period presentation was recast to conform to the revised definition of income (loss) from operations. See Note 15 for additional information.
(2) Includes our institutional pension business, which has a corresponding offset in benefits for changes in reserves, and funding agreements, which has a partial offset in interest credited. For information on funding agreements, see Note 10.
(3) Includes certain third-party advisory fees, which has a partial offset in other expenses.
Comparison of the Three Months Ended June 30, 2025 to 2024
Loss from operations for Other Operations decreased due primarily to the following:
•Lower other expenses associated with strategic initiatives.
•Lower interest and debt expense driven by a decline in average outstanding debt and interest rates.
•Higher other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans.
The decrease in loss from operations was partially offset by lower net investment income, net of interest credited, related to lower allocated investments driven by a decrease in excess capital retained by Other Operations.
Comparison of the Six Months Ended June 30, 2025 to 2024
Loss from operations for Other Operations decreased due primarily to the following:
•Higher net investment income, net of interest credited, related to higher allocated investments driven by an increase in excess capital retained by Other Operations.
•Lower interest and debt expense driven by a decline in average outstanding debt and interest rates.
•Lower other expenses associated with strategic initiatives.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Liquidity refers to our ability to generate adequate amounts of cash from our normal operations to meet cash requirements with a prudent margin of safety. Capital refers to our long-term financial resources to support the operations of our businesses, to fund long-term growth strategies and to support our operations during adverse conditions. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our businesses, general economic conditions and access to the capital markets and other sources of liquidity and capital as described below. When considering our liquidity, it is important to distinguish between our needs, the needs of Lincoln Life & Annuity Company of New York ("LLANY") and the needs of the holding company, LNC. As a holding company with no operations of its own, LNC derives its cash primarily from its operating subsidiaries. Disruptions, uncertainty or volatility in the capital and credit markets may materially affect our business operations and results of operations and may adversely affect our or LLANY's capital position.
Reductions to our or LLANY's capital position may cause us to retain more capital. This in turn may pressure our ability to receive dividends from LLANY or pay dividends to LNC, which may lead us to take steps to preserve or raise additional capital. We believe we and LLANY have appropriate capital to operate our business in accordance with our strategy. For more information, see "Statutory Capital and Surplus" below.
For factors that could cause actual results to differ materially from those set forth in this section and that could affect our expectations for liquidity and capital, see "Forward-Looking Statements - Cautionary Language" above and "Part I - Item 1A. Risk Factors" in our 2024 Form 10-K.
Sources and Uses of Liquidity and Capital
Our primary sources of liquidity and capital are insurance premiums and fees, investment income, maturities and sales of investments, issuance of debt or other types of securities and policyholder deposits. We also have access to alternative sources of liquidity as discussed below. Our primary uses are to pay policy claims and benefits, to fund commissions and other general operating expenses, to purchase investments, to fund policy surrenders and withdrawals, to pay dividends to LNC and to repay debt. Our operating activities provided (used) cash of $640 million and $(1.7) billion for the six months ended June 30, 2025 and 2024, respectively. Cash flows from operating activities will fluctuate based on the timing of insurance premiums received and benefit payments to policyholders, as well as other business activities including cash payments on certain derivatives used to hedge exposure to product-related risks. We received capital contributions from LNC of $800 million for the three and six months ended June 30, 2025, compared to none for the corresponding periods in 2024. We paid cash dividends to LNC of $170 million and $400 million during the three and six months ended June 30, 2025, respectively, compared to $15 million and $195 million for the corresponding periods in 2024. During the second quarter of 2024, we made a $929 million extraordinary dividend in the form of investments to LNC. We also received dividends from our subsidiaries of $66 million and $236 million during the three and six months ended June 30, 2025, respectively, compared to $79 million and $256 million for the corresponding periods in 2024.
Statutory Capital and Surplus
We must maintain certain regulatory capital levels. We utilize the RBC ratio as a primary measure of our capital adequacy. The RBC ratio is an important factor in the determination of our financial strength ratings, and a reduction in our or LLANY's surplus will affect our RBC ratios and dividend-paying capacity. For additional information on RBC ratios, see "Part I - Item 1. Business - Regulatory - Insurance Regulation - Risk-Based Capital" in our 2024 Form 10-K.
Our regulatory capital levels are affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. For instance, our term products and UL products containing secondary guarantees subject to the National Association of Insurance Commissioners ("NAIC") RBC framework require reserves calculated pursuant to the Valuation of Life Insurance Policies Model Regulation ("XXX") and Actuarial Guideline XXXVIII ("AG38"), respectively. We employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the business to captive reinsurance subsidiaries or reinsurance affiliates. Our captive reinsurance subsidiaries and reinsurance affiliates provide a mechanism for financing a portion of the excess reserve amounts in a more efficient manner and free up capital we can use for any number of purposes, including paying dividends to LNC. We use long-dated letters of credit ("LOCs") and debt financing as well as other financing strategies to finance those reserves. For information on the LOCs, see the credit facilities table in Note 13 in our 2024 Form 10-K. Our captive reinsurance subsidiaries and reinsurance affiliates have also issued long-term notes to finance a portion of the excess reserves. For information on long-term notes issued by our captive reinsurance subsidiaries and reinsurance affiliates, see Note 4 in our 2024 Form 10-K. We have also used the proceeds from certain senior notes issued by LNC to execute long-term structured solutions primarily supporting reinsurance of term products and UL products containing secondary guarantees.
Statutory reserves for variable annuity guaranteed benefit riders and guaranteed benefits on VUL policies, as well as certain components of the NAIC RBC calculation that are impacted by such guaranteed benefits, are sensitive to changes in the equity markets and interest rates, and such statutory reserves and our RBC levels are also affected by the level of account balances relative to the level of any guarantees, product design and reinsurance arrangements. As a result, the relationship between reserve changes and equity market performance is non-linear during any given reporting period. We cede a portion of the variable annuity guaranteed benefit riders to LNBAR through a modified coinsurance agreement. The variable annuity hedge program mitigates the risk to LNBAR from guaranteed benefit riders and continues to focus on generating sufficient income to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. We also use a partial hedge that mitigates potential capital volatility from guaranteed benefits on VUL policies. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and supporting derivatives.
Changes in equity markets may also affect our capital position. We may decide to reallocate available capital among us and our insurance and captive reinsurance subsidiaries, which would result in different RBC ratios for us. In addition, changes in the equity markets can affect the value of our variable annuity and VUL separate accounts. When the market value of our separate account assets increases, the statutory surplus within us and LLANY also increases, all else equal. Contrarily, when the market value of our separate account assets decreases, the statutory surplus within us and LLANY also decreases, all else equal, which will affect RBC ratios, and in the case of our separate account assets becoming less than the related product liabilities, we must allocate additional capital to fund the difference.
During the second quarter of 2024, we entered into a coinsurance with funds withheld reinsurance agreement with LPINE. For more information, see Note 7.
Debt
For information about our short-term and long-term debt and our credit facilities, see Note 13 in our 2024 Form 10-K.
Alternative Sources of Liquidity
Inter-Company Cash Management Program
To meet short-term liquidity needs that arise in the ordinary course of business, we utilize an inter-company cash management program between LNC and participating subsidiaries whereby participating subsidiaries can borrow cash from or lend cash to LNC. Loans under the inter-company cash management program are permitted under applicable insurance laws subject to certain restrictions. LNL, domiciled in Indiana, is currently subject to a borrowing and lending limit of 3% of the insurance company's admitted assets as of its most recent year end. For our New York-domiciled insurance subsidiary, it may borrow from LNC less than 2% of its admitted assets as of its most recent year end but may not lend any amounts to LNC. As of June 30, 2025 and December 31, 2024, we had $173 million and $24 million, respectively, of outstanding borrowings from the cash management program reported in short-term debt on the Consolidated Balance Sheets. As of June 30, 2025 and December 31, 2024, we had $1.7 billion and $1.8 billion, respectively, of outstanding lending into the cash management program reported in other assets on the Consolidated Balance Sheets.
Federal Home Loan Bank
LNL is a member of the Federal Home Loan Bank ("FHLB") of Indianapolis ("FHLBI"). Membership allows LNL access to the FHLBI's financial services, including the ability to obtain loans and to issue funding agreements as an alternative source of liquidity that are collateralized by qualifying mortgage-related assets, agency securities or U.S. Treasury securities. Borrowings under this facility are subject to the FHLBI's discretion and require the availability of qualifying assets at LNL. As of June 30, 2025, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of $4.7 billion. As of June 30, 2025, LNL had outstanding borrowings of $2.9 billion under this facility reported within payables for collateral on investments on the Consolidated Balance Sheets. LLANY is a member of the Federal Home Loan Bank of New York ("FHLBNY") with an estimated maximum borrowing capacity of $750 million. Borrowings under this facility are subject to the FHLBNY's discretion and require the availability of qualifying assets at LLANY. As of June 30, 2025, LLANY had no outstanding borrowings under this facility. For additional information, see "Payables for Collateral on Investments" in Note 3.
Repurchase Agreements and Securities Lending Programs
We, LNBAR and LPINE had access to $2.6 billion through committed repurchase agreements, of which none was utilized as of June 30, 2025. LNL and LLANY, by virtue of their general account fixed-income investment holdings, can also access liquidity through securities lending programs and uncommitted repurchase agreements. As of June 30, 2025, we had securities pledged under securities lending agreements and uncommitted repurchase agreements with a carrying value of $155 million and $418 million, respectively. For additional information, see "Payables for Collateral on Investments" in Note 3.
Collateral on Derivative Contracts
Our cash flows associated with collateral received from counterparties (when we are in a net collateral payable position) and posted with counterparties (when we are in a net collateral receivable position) change as the market value of the underlying derivative contract changes. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. As of June 30, 2025, we were in a net collateral payable position of $4.8 billion compared to $6.9 billion as of December 31, 2024. In the event of adverse changes in fair value of our derivative instruments, we may need to return, post or pledge collateral to counterparties. If we do not have sufficient high quality securities or cash to provide as collateral to counterparties, we have alternative sources of liquidity. In addition to the liquidity from repurchase agreements and FHLB facilities discussed above, we also have a five-year revolving credit facility discussed in Note 13 in our 2024 Form 10-K. For additional information, see "Credit Risk" in Note 5.
Ratings
Financial Strength Ratings
See "Part I - Item 1. Business - Financial Strength Ratings" in our 2024 Form 10-K for information on our financial strength ratings.
If LNL's current financial strength ratings or the credit ratings of LNC were downgraded in the future, terms in our derivative agreements or certain repurchase agreements may be triggered, which could negatively affect overall liquidity. For the majority of our derivative counterparties, there is a termination event if LNL's financial strength ratings drop below BBB-/Baa3 (S&P Global Ratings ("S&P")/Moody's Investor Service ("Moody's")). For certain repurchase agreements, there is a termination event if the long-term credit ratings of LNC drop below BBB-/Baa3 (S&P/Moody's) or our financial strength ratings drop below BBB+/Baa1 (S&P/Moody's). In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products.
See "Part I - Item 1A. Risk Factors - Covenants and Ratings - A downgrade in our financial strength ratings could limit our ability to market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors" in our 2024 Form 10-K for more information.
Lincoln National Life Insurance Co. published this content on August 07, 2025, and is solely responsible for the information contained herein. Distributed via SEC EDGAR on August 07, 2025 at 19:42 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]