- \n
- \nRisk transfer transaction encompassing approximately 37% of Lincoln\u2019s remaining in-force guaranteed universal life (\u201cGUL\u201d) block<\/p>\n<\/li>\n
- \nFurther reduces Lincoln\u2019s exposure to long-term mortality, lapse, and interest rate risk on a legacy, capital-intensive block<\/p>\n<\/li>\n
- \nRepresents an all-in statutory capital impact of approximately $200 million<\/p>\n<\/li>\n
- \nStrengthens free cash flow1<\/sup> and shareholder value, with an expected $30\u2013$40 million increase in annual subsidiary remittances over the medium term<\/p>\n<\/li>\n
- \nAdvances our strategy to shift our liability mix and grow sustainable free cash flow while improving risk-adjusted returns on capital and reducing earnings volatility.<\/p>\n<\/li>\n<\/ul>\n
RADNOR, Pa.–(BUSINESS WIRE<\/a>)–
\nLincoln Financial (NYSE: LNC) today announced that it has entered into an agreement with Talcott Financial Group (“Talcott”) under which Lincoln will cede approximately $5.8 billion of in-force GUL statutory reserves, representing approximately 37% of Lincoln\u2019s remaining in-force guaranteed universal life (\u201cGUL\u201d) block to a Talcott subsidiary. In connection with the transaction, Lincoln will also reinsure approximately $500 million of funding agreement business with a subsidiary of Talcott.<\/p>\n\nThe transaction further reduces Lincoln\u2019s exposure to a legacy capital-intensive block of business and builds on the actions Lincoln has taken over the past several years to strengthen its balance sheet and improve the quality and durability of its free cash flow. Combined with Lincoln\u2019s 2023 reinsurance transaction with Fortitude Re, approximately 60% of Lincoln\u2019s total in-force GUL will be reinsured upon the closing of the transaction.<\/p>\n
\n\u201cThis transaction reinforces the progress we reported this quarter by continuing to reshape our liability mix and enhancing our free cash flow,” said Ellen Cooper, Chairman, President and CEO of Lincoln Financial. “Further reducing our exposure to a legacy, capital-intensive block marks another deliberate step in our multi-year strategy to fortify Lincoln\u2019s balance sheet, strengthen our financial flexibility and create long-term value for our shareholders.”<\/p>\n
Transaction Structure and Counterparty<\/b><\/p>\n
\nThe transaction is structured partly as coinsurance with funds withheld and partly as modified coinsurance, with counterparty protections including over-collateralization and agreed-upon investment guidelines designed to align with Lincoln\u2019s risk management framework.<\/p>\n
\nUnder the terms of the transaction, Lincoln will retain account administration and recordkeeping for the policies, including claims management. The transaction will have no impact on Lincoln\u2019s commitments to its policyholders or distribution partners. Additionally, Lincoln remains focused on the continued growth of its Life Insurance business.<\/p>\n
\nTalcott Financial Group, together with its regulated insurance and reinsurance subsidiaries, is a recognized participant in the life and annuity reinsurance market. Through its partnership with Sixth Street, a leading global investment firm, Talcott has an established track record executing life and annuity block reinsurance transactions, including transactions involving secondary-guarantee universal life.<\/p>\n
Anticipated Capital, Free Cash Flow and Other Financial Impacts<\/b><\/p>\n
\nThe transaction reduces Lincoln’s risk profile and is expected to be accretive to ongoing free cash flow while maintaining a strong capital position. Additional financial considerations include:<\/p>\n
- \n
- Capital: <\/b>The transaction, once closed, will represent an all-in statutory capital impact of approximately $200 million on a pro forma basis, reducing Lincoln\u2019s estimated RBC ratio by approximately 10 percentage points. The transaction will be funded using a portion of the proceeds from Lincoln\u2019s strategic partnership with Bain Capital. Following the closing of the transaction, Lincoln expects to remain well in excess of its 420% RBC ratio buffer target.\n
Free cash flow: <\/b>Will strengthen ongoing free cash flow and create shareholder value – expected to result in approximately $30\u2013$40 million increase in annual subsidiary remittances over the medium term.<\/p>\n<\/li>\n
- Other Financial Impacts: <\/b>While the impacts of the transaction are expected to reduce net income due to amortization, Lincoln does not expect a material change to its adjusted operating income results attributable to the transaction. As reinsurance of exited business has grown to have a more significant impact over time, to further provide transparency into its operating results, beginning in the fourth quarter of 2026, the company plans to refine its definition of adjusted operating income to exclude amortization of deferred gains (losses) from blocks of business exited through reinsurance.2<\/sup><\/li>\n<\/ul>\n
Approvals and Timing<\/b><\/p>\n
\nThe transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the fourth quarter of 2026 with an effective date of October 1, 2026.<\/p>\n
Wells Fargo acted as exclusive financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisor to Lincoln.<\/i><\/p>\n
About Lincoln Financial<\/b><\/p>\n
\nLincoln Financial helps people confidently plan for their version of a successful future. We focus on identifying a clear path to financial security with products including annuities, life insurance, group protection, and retirement plan services. With our 120-year heritage of completing promises and helping people prepare for the unexpected, we partner with more than 17 million customers to provide solutions that protect, grow, and secure their financial futures. Headquartered in Radnor, Pennsylvania, Lincoln Financial is the marketing name for Lincoln National Corporation (NYSE: LNC) and its affiliates. Learn more at LincolnFinancial.com.<\/p>\n
\n
\n 1<\/sup> Free cash flow is holding company net cash provided by (used in) operating activities less preferred stock dividends, capital contributions to subsidiaries and certain one-time items, plus the net change in excess statutory capital in our life insurance subsidiaries, after meeting targeted levels of statutory capital and holding company obligations, excluding the impact of certain strategic transactions and certain other one-time items.<\/td>\n<\/tr>\n \n \n 2<\/sup> Adjusted income (loss) from operations, or adjusted operating income (loss), is a non-GAAP financial measure. See current definition at the end of this release. Amortization of deferred gains (losses) from blocks of business exited through reinsurance represents the non-cash amortization of the gain or loss established at the inception of a strategic reinsurance transaction, which is not indicative of the current operating performance or future earnings of the company’s business. Management believes that excluding this item beginning in the fourth quarter will better reflect the ongoing economic fundamentals of the business.<\/p>\n<\/td>\n<\/tr>\n<\/table>\n
FORWARD-LOOKING STATEMENTS \u2013 CAUTIONARY LANGUAGE<\/b><\/p>\n
\nCertain statements made in this press release and in other written or oral statements made by Lincoln or on Lincoln\u2019s behalf are \u201cforward-looking statements\u201d within the meaning of the Private Securities Litigation Reform Act of 1995 (\u201cPSLRA\u201d). 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: \u201canticipate,\u201d \u201cbelieve,\u201d \u201cestimate,\u201d \u201cexpect,\u201d \u201cproject,\u201d \u201cshall,\u201d \u201cwill\u201d 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, performance or financial results, including the closing of the reinsurance transaction and the timing thereof, and the expected impact of the transaction on our risk profile, RBC ratio, free cash flow, and net income and adjusted operating income results. Lincoln claims the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.<\/p>\n
\nForward-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:<\/p>\n
- \n
- \nWeak general economic and business conditions that may affect demand for our products, account balances, investment results, guaranteed benefit liabilities, premium levels and claims experience;<\/p>\n<\/li>\n
- \nAdverse 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 and ability to raise additional capital or refinance existing debt as it matures;<\/p>\n<\/li>\n
- \nThe inability of our subsidiaries to pay dividends to the holding company in sufficient amounts, which could harm the holding company\u2019s ability to meet its obligations;<\/p>\n<\/li>\n
- \nLegislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries\u2019 products; the required amount of reserves and\/or surplus; our ability to conduct business; and our affiliate reinsurance arrangements;<\/p>\n<\/li>\n
- \nChanges 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;<\/p>\n<\/li>\n
- \nThe impact of regulations adopted by the Securities and Exchange Commission (\u201cSEC\u201d), 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;<\/p>\n<\/li>\n
- \nThe impact of existing and emerging rules and regulations relating to privacy, cybersecurity and artificial intelligence (\u201cAI\u201d) that may lead to increased compliance costs, reputation risk and\/or changes in business practices, and challenges with properly managing the use of AI that could result in reputational harm, competitive harm and legal liability;<\/p>\n<\/li>\n
- \nContinued scrutiny and evolving expectations and regulations regarding ESG matters that may adversely affect our reputation and our investment portfolio;<\/p>\n<\/li>\n
- \nActions taken by reinsurers to raise rates on in-force business;<\/p>\n<\/li>\n
- \nDeclines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses and demand for our products;<\/p>\n<\/li>\n
- \nIncreasing or sustained higher 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;<\/p>\n<\/li>\n
- \nThe 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;<\/p>\n<\/li>\n
- \nA decline or continued volatility in the equity markets causing a reduction in the sales of our subsidiaries\u2019 products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; and an increase in liabilities related to guaranteed benefits, including riders on certain of our annuity products and secondary guarantees on certain variable universal life insurance products;<\/p>\n<\/li>\n
- \nIneffectiveness of our risk management policies and procedures, including our various hedging strategies;<\/p>\n<\/li>\n
- \nA deviation in actual experience regarding future policyholder behavior, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries\u2019 products and in establishing related insurance reserves, which may reduce future earnings;<\/p>\n<\/li>\n
- \nChanges in accounting principles that may affect our consolidated financial statements;<\/p>\n<\/li>\n
- \nLowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;<\/p>\n<\/li>\n
- \nLowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention and profitability of our insurance subsidiaries and liquidity;<\/p>\n<\/li>\n
- \nSignificant 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;<\/p>\n<\/li>\n
- \nInterruption 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;<\/p>\n<\/li>\n
- \nThe 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;<\/p>\n<\/li>\n
- \nThe 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;<\/p>\n<\/li>\n
- \nThe adequacy and collectability of reinsurance that we have obtained;<\/p>\n<\/li>\n
- \nPandemics, 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;<\/p>\n<\/li>\n
- \nCompetitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;<\/p>\n<\/li>\n
- \nThe unknown effect on our subsidiaries\u2019 businesses resulting from evolving market preferences and the changing demographics of our client base; and<\/p>\n<\/li>\n
- \nThe unanticipated loss of key management or wholesalers.<\/p>\n<\/li>\n<\/ul>\n
\nThe risks and uncertainties here are not exhaustive. Our most recent 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. Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, Lincoln disclaims any obligation to correct or update any forward-looking statements to reflect events or circumstances that occur after the date of this press release.<\/p>\n
\nThe reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.<\/p>\n
Adjusted Income (Loss) from Operations Definition<\/b><\/p>\n
\nAdjusted income (loss) from operations is a non-GAAP financial measure and does not replace GAAP net income (loss), the most directly comparable GAAP measure.<\/p>\n
\nAdjusted income (loss) from operations is GAAP net income (loss) excluding the following items, as applicable:<\/p>\n
- \n
- \nItems related to annuity product features, which include changes in market risk benefits (\u201cMRBs\u201d), changes in the fair value of the related hedge instruments inclusive of income allocated to support the cost of hedging or future benefits, and changes in the fair value of the embedded derivative liabilities and the associated index options for our indexed annuity products (collectively, \u201cnet annuity product features\u201d);<\/p>\n<\/li>\n
- \nItems related to life insurance product features, which include changes in the fair value of derivatives we hold as part of VUL hedging, changes in reserves resulting from benefit ratio unlocking associated with the impact of capital markets, and changes in the fair value of the embedded derivative liabilities of our IUL contracts and the associated index options we hold to hedge them (collectively, \u201cnet life insurance product features\u201d);<\/p>\n<\/li>\n
- \nCredit loss-related adjustments on fixed maturity AFS securities, mortgage loans on real estate and reinsurance-related assets (\u201ccredit loss-related adjustments\u201d);<\/p>\n<\/li>\n
- \nChanges in the fair value of equity securities and certain other investments, the impact of certain derivatives, and realized gains (losses) on sales, disposals and impairments of financial assets (collectively, \u201cinvestment gains (losses)\u201d);<\/p>\n<\/li>\n
- \nChanges in the fair value of reinsurance-related embedded derivatives, trading securities and mortgage loans on real estate electing the fair value option (\u201cchanges in the fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans\u201d);<\/p>\n<\/li>\n
- \nIncome (loss) from the initial adoption of new accounting standards, accounting policy changes and new regulations, including changes in tax law;<\/p>\n<\/li>\n
- \nIncome (loss) from reserve changes, net of related amortization, on business sold through reinsurance;<\/p>\n<\/li>\n
- \nLosses from the impairment of intangible assets and gains (losses) on other non-financial assets;<\/p>\n<\/li>\n
- \nIncome (loss) from discontinued operations;<\/p>\n<\/li>\n
- \nOther items, which include the following: certain legal and regulatory accruals; severance expense related to initiatives that realign the workforce; transaction, integration and other costs related to mergers and acquisitions including the acquisition or divestiture, through reinsurance or other means, of businesses or blocks of business, and certain other corporate initiatives; mark-to-market adjustment related to the LNC stock component of our deferred compensation plans (\u201cdeferred compensation mark-to-market adjustment\u201d); gains (losses) on modification or early extinguishment of debt; and impacts from settlement or curtailment of defined benefit obligations; and<\/p>\n<\/li>\n
- \nIncome tax benefit (expense) related to the above pre-tax items, including the effect of tax adjustments such as changes to deferred tax valuation allowances.<\/p>\n<\/li>\n<\/ul>\n
\nManagement believes that the use of the non-GAAP financial measure adjusted income (loss) from operations is helpful to investors in evaluating the company\u2019s performance. Management believes that excluding the following items from adjusted income (loss) from operations enhances understanding of the underlying trends and long-term performance of the company\u2019s business. Management excludes \u201cnet annuity product features\u201d as this adjustment primarily represents the difference between the valuation of reserves and the valuation of derivatives utilized for hedging our variable annuity and indexed annuity products, which can fluctuate significantly from period to period based on changes in equity markets and interest rates. This difference is due to the hedge focus on managing risks to statutory capital as opposed to the GAAP reserves. Management excludes \u201cnet life insurance product features\u201d for similar reasons. In addition, management excludes \u201ccredit loss related adjustments\u201d and \u201cinvestment gains (losses)\u201d as the timing of changes in allowances or sales of credit impaired investments depends largely on market credit cycles and can vary considerably from period to period and the timing of other sales of investments that would result in gains or losses is driven by market conditions, including interest rates, and other factors. Management excludes \u201cchanges in the fair value of reinsurance-related embedded derivatives, trading securities and certain mortgage loans\u201d as this adjustment represents the economics of investments in underlying funds withheld portfolios supporting reinsurance agreements that have been transferred to third-party reinsurers, which is not indicative of our ongoing results. Finally, management excludes from adjusted income (loss) from operations certain additional items (as set forth in the definition above) that 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. Management believes excluding these items better explains the results of the company\u2019s ongoing businesses in a manner that allows for enhanced understanding of underlying trends, company performance and business fundamentals.<\/p>\n
<\/p>\n
View source version on businesswire.com: <\/span>https:\/\/www.businesswire.com\/news\/home\/20260730437608\/en\/<\/a><\/span><\/p>\n
\nJohn Muething
\n
Investor Relations
\n
Investorrelations@LFG.com<\/a><\/p>\n\nKaryn Baldwin
\n
Media Relations
\n
Media@LFG.com<\/a><\/p>\nKEYWORDS:<\/b> Pennsylvania United States North America<\/p>\n
INDUSTRY KEYWORDS:<\/b> Professional Services Insurance Finance<\/p>\n
- Other Financial Impacts: <\/b>While the impacts of the transaction are expected to reduce net income due to amortization, Lincoln does not expect a material change to its adjusted operating income results attributable to the transaction. As reinsurance of exited business has grown to have a more significant impact over time, to further provide transparency into its operating results, beginning in the fourth quarter of 2026, the company plans to refine its definition of adjusted operating income to exclude amortization of deferred gains (losses) from blocks of business exited through reinsurance.2<\/sup><\/li>\n<\/ul>\n
- \nAdvances our strategy to shift our liability mix and grow sustainable free cash flow while improving risk-adjusted returns on capital and reducing earnings volatility.<\/p>\n<\/li>\n<\/ul>\n
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