Lincoln National Corporation reported strong fourth quarter 2025 results, with adjusted operating income (AOI) increasing 31% year-over-year to $434 million ($2.21 per share). Full-year AOI exceeded $1.5 billion, a 23% increase compared to 2024, marking the sixth consecutive quarter of growth and the highest level in four years. Performance was broad-based, with Group Protection earnings up 16% (excluding assumption reviews) and the Life Insurance segment returning to profitability with $77 million in operating income versus a loss in the prior year. The company continues to successfully shift its business mix towards less market-sensitive, spread-based products, which now represent 30% of total annuity balances. Capital position remains robust with a Risk-Based Capital (RBC) ratio of 439% and a leverage ratio improved by 500 basis points since 2023. Management provided a medium-term outlook projecting subsidiary remittances of $1.2 billion to $1.3 billion and capital returns to shareholders of $400 million to $600 million plus annually.
| Metric | Value | Change |
|---|---|---|
| Q4 Adjusted Operating Income | $434 million | +31% YoY |
| Q4 Adjusted EPS | $2.21 | N/A |
| FY 2025 Adjusted Operating Income | $1.5+ billion | +23% YoY |
| Q4 Net Income | $745 million | N/A |
| Group Protection Margin (FY) | 9.0% | +70 bps YoY |
| RBC Ratio | 439% | Well above 400% target |
| Free Cash Flow Conversion | 45% | +10 pts since 2023 |
| Annuities Account Balances | $175 billion | +7% YoY |
Management is executing a deliberate strategic pivot to reduce market sensitivity and volatility by shifting the product mix towards spread-based annuities. In 2025, spread-based products grew to represent 30% of total annuity account balances (up from 27% a year ago), and two-thirds of total annuity sales came from these products. CEO Ellen Cooper emphasized that in 2026, they expect Variable Annuity (VA) volumes to be 'intentionally lower' to reduce exposure to market sensitivity, prioritizing profitable growth over top-line sales. This reallocation of capital towards Fixed Indexed Annuities (FIA) and RILA is designed to build a more stable, durable earnings base.
The Life Insurance segment has successfully turned a corner, swinging from an operating loss of $15 million in the prior-year quarter to an operating profit of $77 million in Q4 2025. This turnaround was driven by normalized mortality experience, higher alternative investment returns, and the completion of a captive consolidation initiative that reduced reserve financing costs. CFO Christopher Neczypor noted that this consolidation provides a $25-30 million GAAP earnings benefit for 2026 and additional free cash flow improvements. The segment is also pivoting its new business franchise toward accumulation and protection products with more balanced risk profiles.
Lincoln National's capital position has strengthened significantly, providing the foundation for future shareholder returns. The company ended 2025 with an RBC ratio of 439% (excluding Bain proceeds), well above its 400% target, and has built a 20% risk buffer on top of that. The leverage ratio has declined 500 basis points since 2023, returning to the company's long-term target. This fortified balance sheet supports a medium-term outlook for subsidiary remittances of $1.2 billion to $1.3 billion, positioning the company to address its redeemable preferred securities in 2027 and subsequently increase capital returns to shareholders to a range of $400 million to $600 million plus.
Group Protection has evolved into a larger and more profitable engine for the company, now contributing approximately 25% of business unit earnings compared to 18% in 2023. The segment achieved a full-year operating margin of 9% (excluding assumption reviews), exceeding the 8% target set for the end of 2026. Growth is being driven by disciplined pricing, premium growth of nearly 7%, and expansion into higher-margin local markets and supplemental health products, which saw sales increase over 40%. This segment provides stable cash flows and offsets volatility in the annuity business.
The Retirement Plan Services (RPS) segment continues to face structural headwinds, reporting net outflows of approximately $1 billion in the fourth quarter driven by participant withdrawals and planned terminations. While operating income improved slightly to $46 million, full-year earnings remained flat at $163 million. Management explicitly stated that they expect net flows to 'remain negative' in 2026 as they prioritize profitability over retaining business that does not meet return targets. This indicates a shrinking franchise that requires continued investment to stabilize.
Management issued a cautionary note regarding first quarter 2026 earnings, citing 'sequential pressure' for both the Annuities and Life segments. Specifically, the Annuities segment will face headwinds from 'two fewer fee days' and the resetting of favorable mortality experience experienced in Q4 2025. Additionally, the Life segment typically experiences its lowest earnings in Q1 due to unfavorable mortality seasonality. This sets up a potential weak start to the year that could test investor patience following the strong Q4 report.
Despite strong sales in 2025, the Variable Annuity (VA) business continues to experience persistent net outflows as policyholders withdraw funds amid higher equity markets. Management indicated that they expect 2026 VA volumes to be 'intentionally lower and more closely aligned with pre-2025 levels' as they deliberately reduce exposure. While this is a strategic choice to lower market sensitivity, it signals a contraction in the company's traditional VA franchise and a reliance on the success of the spread-based pivot to maintain revenue growth.
The competitive landscape for Registered Index-Linked Annuities (RILA) is intensifying, which could pressure margins or market share. CEO Ellen Cooper noted that 'customer demand continues to expand alongside increasingly competitive dynamics.' While Lincoln is leveraging differentiated product features to compete, the shift towards a more competitive environment may limit the company's ability to generate the same level of risk-adjusted returns on RILA products compared to the early entrant phase.
Overall: Management conveyed a tone of disciplined confidence and momentum. Throughout the prepared remarks and Q&A, executives emphasized 'profitable growth' and 'strategic discipline' while acknowledging the work remaining in certain segments like Retirement Plan Services. There was a clear sense of satisfaction regarding the multi-year turnaround progress, particularly in capital strength and free cash flow generation, yet they remained cautious about near-term market volatility and competitive dynamics.
Confidence: HIGH - Management provided specific, detailed metrics supporting their strategic pivot (e.g., RBC at 439%, 45% free cash flow conversion) and offered concrete medium-term guidance ranges. Their responses to analyst questions regarding capital allocation were direct and transparent about the sequencing of priorities (buffer capital, preferred securities, then shareholder returns).
$1.2 billion - $1.3 billion annually
$400 million - $600 million+ annually
VA volumes intentionally lower; Fixed annuity account values expected to increase; RILA sales consistent with past 2-3 years
Expect to operate at 8% or above
Expected to remain negative
Hedging & Uncertainty: Management utilized temporal and probabilistic hedges to set expectations without over-committing, particularly regarding the timing of capital returns. Phrases like 'we would expect,' 'should translate into,' and 'potential ranges over the next two years' were used to frame the medium-term outlook. CFO Neczypor hedged on the specific split of capital returns between 2026 and 2027, stating, 'We are not going to give you a 2026 versus 2027,' emphasizing the dependency on the preferred security redemption. However, hedging was notably reduced when discussing past performance and current capital strength, where language was definitive ('We have now achieved that target,' 'momentum continues to build').
We remain focused on balancing profitability, capital efficiency, and lower market sensitivity over time, prioritizing profitable growth over top-line sales growth. - Ellen G. Cooper, Chairman, President, and CEO
We are not going to give you a 2026 versus 2027, but the good news is all of the signs that would support increasing capital return to shareholders continue to move in the right direction. - Christopher Michael Neczypor, Chief Financial Officer
We expect to sustain the momentum we have built... our goal remains to continue operating at 8% or above. - Christopher Michael Neczypor, Chief Financial Officer
We are operating from a position of strength, which gives us the flexibility to invest where we see the greatest opportunities while remaining disciplined in how we deploy capital. - Ellen G. Cooper, Chairman, President, and CEO
Results may not be linear, markets can be volatile, and the economic backdrop could change, but we remain steadfast in our commitment to deliver results that drive long-term value. - Ellen G. Cooper, Chairman, President, and CEO
Analyst Sentiment: Analysts were highly focused on the mechanics of the new medium-term capital outlook, specifically asking for clarification on the timing of share repurchases versus the redemption of preferred securities. Questions were detailed and math-oriented, probing the 'excess cash' calculations and the drivers behind the projected increase in subsidiary remittances.
Management Responses: Management was transparent and patient, walking through the logic of the capital allocation priorities without committing to a specific calendar year for buyback initiation. They effectively used the Q&A to reinforce the discipline of their capital strategy, emphasizing that the preferred security redemption in 2027 is the gating factor for expanded shareholder returns.
Capital allocation priorities and the sequencing of preferred security redemption versus share repurchases.
The mechanics and drivers behind the increase in projected subsidiary remittances to $1.2-$1.3 billion.
The rationale for reallocating net interest income (NII) from the Annuities segment to non-operating income.
Operational improvements in the Life Insurance segment, specifically regarding captive consolidation and reserve financing costs.
Competitive dynamics in the RILA market and the strategic shift towards Fixed Indexed Annuities.
Lincoln National has successfully navigated its multi-year turnaround, evidenced by six consecutive quarters of adjusted operating income growth and a fortified balance sheet (RBC of 439%). The strategic pivot towards less capital-intensive, spread-based products (Group Protection, Fixed Annuities) is de-risking the business model and improving free cash flow conversion, which reached 45% in 2025. While the Retirement Plan Services segment remains a headwind and Variable Annuity sales are set to intentionally decline, the company's capital generation is robust. The medium-term outlook signals a clear path to returning significant capital ($400M-$600M+) to shareholders once the preferred securities are addressed in 2027. The stock appears poised to benefit from the compounding of this strong capital base and the re-rating of its earnings quality.
Management continues to benefit from a higher interest rate environment, with new money invested at a yield of 5.3% in Q4 and 5.7% for the full year, approximately 110 basis points above the portfolio yield. This spread supports the profitability of fixed annuities and stable value products.
Favorable equity markets contributed to higher account balances and supported alternative investment returns, which delivered an annualized return of nearly 12% in the quarter. However, higher markets also contributed to increased Variable Annuity withdrawals.
The company experienced a normalization in mortality trends following elevated severity in 2024, particularly within the Universal Life block, which was a primary driver of the Life Insurance segment's return to profitability.