LINCOLN NATIONAL CORP
For the period ended Sep 30, 2024. Filed Oct 31, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 31, 2024
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Results of Consolidated Operations
Details underlying the consolidated results (in millions) were as follows:
| For the Three Months Ended September 30, · For the Nine Months Ended September 30, | ||||||
|---|---|---|---|---|---|---|
| 2024 | 2023 (1) | 2024 | 2023 (1) | |||
| Net Income (Loss) | ||||||
| Income (loss) from operations: | ||||||
| Annuities | $301 | $248 | $857 | $794 | ||
| Life Insurance | 22 | (173) | (48) | (153) | ||
| Group Protection | 109 | 68 | 318 | 247 | ||
| Retirement Plan Services | 44 | 43 | 120 | 133 | ||
| Other Operations | (84) | (102) | (276) | (293) | ||
| Net annuity product features, pre-tax | (381) | 1,322 | 1,319 | 1,076 | ||
| Net life insurance product features, pre-tax | (125) | 108 | (253) | (168) | ||
| Credit loss-related adjustments, pre-tax | (88) | (27) | (124) | (53) | ||
| Investment gains (losses), pre-tax (2) | (105) | (400) | (416) | (1,126) | ||
| Changes in the fair value of reinsurance-related | ||||||
| embedded derivatives, trading securities and | ||||||
| certain mortgage loans, pre-tax (3) | (446) | (29) | (51) | (27) | ||
| Gains (losses) on other non-financial assets – sale of | ||||||
| subsidiaries/businesses, pre-tax (4) | (2) | – | 582 | – | ||
| Other items, pre-tax (5) (6) (7) (8) | (19) | (12) | (238) | (23) | ||
| Income tax benefit (expense) related to the | ||||||
| above pre-tax items | 246 | (193) | (202) | 76 | ||
| Net income (loss) | $(528) | $853 | $1,588 | $483 | ||
(1)The prior period presentation has been recast to conform to the revised definition of income (loss) from operations. See Note 16 for additional information.
(2)The three and nine months ended September 30, 2023, include impairments of certain fixed maturity AFS securities in an unrealized loss position, resulting from the Company’s intent to sell these securities as part of the fourth quarter 2023 reinsurance transaction. See Notes 3 and 7 for additional information.
(3)Includes primarily changes in the fair value of the embedded derivative related to the fourth quarter 2023 reinsurance transaction. The coinsurance with funds withheld investment portfolio includes fixed maturity securities classified as AFS with changes in fair value recorded in OCI. Since the corresponding and offsetting changes in fair value of the embedded derivative related to the coinsurance with funds withheld investment portfolio are recorded in realized gain (loss), volatility can occur within net income (loss). See Note 7 for more information.
(4)For information on the sale of our wealth management business, including the statutory capital benefit, see Note 1.
(5)Includes certain legal accruals of $(12) million in the third quarter of 2023 and $(114) million primarily related to the settlement of cost of insurance litigation in the first quarter of 2024.
(6)Includes severance expense related to initiatives that realign the workforce of $(3) million, $(3) million, $(49) million, $(7) million and $(16) million in the first quarter of 2023, second quarter of 2023, first quarter of 2024, second quarter of 2024 and third quarter of 2024, respectively.
(7)Includes transaction and integration costs related to mergers, acquisitions and divestitures of $(9) million, $(1) million, $(10) million, $(27) million and $(2) million for the second quarter of 2023, third quarter of 2023, first quarter of 2024, second quarter of 2024 and third quarter of 2024, respectively.
(8)Includes deferred compensation mark-to-market adjustment of $12 million, $(8) million, $1 million, $(13) million, $1 million and $(1) million in the first quarter of 2023, second quarter of 2023, third quarter of 2023, first quarter of 2024, second quarter of 2024 and third quarter of 2024, respectively.
Net income decreased due primarily to the following:
Loss in net annuity product features in 2024 compared to gain in 2023 driven by unfavorable changes in interest rates in 2024 compared to favorable changes in 2023, partially offset by favorable changes in equity markets in 2024 compared to unfavorable changes in 2023, driving MRB-related impacts, partially offset by favorable changes in the fair value of GLB hedge instruments in 2024 compared to unfavorable changes in 2023 attributable to the impact of capital markets.
Unfavorable changes in the fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans driven by the fair value of the embedded derivative related to the fourth quarter 2023 reinsurance transaction.
Loss in net life insurance product features in 2024 compared to gain in 2023 driven by mark-to-market losses on hedges associated with VUL products.
Higher credit loss-related adjustments on our mortgage loans on real estate and fixed maturity AFS securities.
The decrease in net income was partially offset by the following:
Favorable impact from our annual assumption review in 2024 compared to unfavorable impact in 2023.
Lower investment losses driven by intent to sell impairment in 2023 on fixed maturity AFS securities as part of the fourth quarter 2023 reinsurance transaction.
Growth in average account balances and improvement in our total loss ratio in our Group Protection segment.
Net income increased due primarily to the following:
Lower investment losses driven by intent to sell impairment in 2023 on fixed maturity AFS securities as part of the fourth quarter 2023 reinsurance transaction.
Gain on other non-financial assets due to the sale of our wealth management business in the second quarter of 2024.
Favorable impact from our annual assumption review in 2024 compared to unfavorable impact in 2023.
Growth in average account balances and improvement in our total loss ratio in our Group Protection segment.
The increase in net income was partially offset by the following:
Higher expenses in other items driven by a legal accrual in the first quarter of 2024, severance expense related to initiatives that realign the workforce and transaction costs related to the sale of our wealth management business in the second quarter of 2024.
Higher loss in net life insurance product features driven by mark-to-market losses on hedges associated with VUL products.
Higher credit loss-related adjustments on our mortgage loans on real estate and fixed maturity AFS securities.
See “Summary of Critical Accounting Estimates – Annual Assumption Review” above for information on the impacts from our annual assumption review.
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