Lincoln National Corporation (LNC) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report; the supplied filing text does not provide standalone fourth-quarter results. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context and reporting period
LNC is an insurance and retirement-services holding company with four reportable segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services. Other Operations includes corporate items, debt, and run-off businesses. The company adopted updated long-duration insurance accounting (ASU 2018-12) in 2023, retrospectively presenting comparative periods under the new guidance.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| GAAP revenue | $11.645 billion | $18.810 billion |
| Net income (loss) | $(752) million | $1.358 billion |
| Net income (loss) per diluted share | $(4.92) | $7.78 |
| Operating cash flow | $(2.074) billion | $3.609 billion |
| Net investment income | $5.879 billion | $5.515 billion |
| Net investment income yield on invested assets | 4.22% | 4.00% |
| Stockholders’ equity at year-end | $6.893 billion | $5.102 billion |
| Total debt at year-end, including current maturities | $5.949 billion | $6.455 billion |
GAAP net margin was approximately negative 6.5% in 2023, versus positive 7.2% in 2022. These figures reflect substantial market-sensitive and transaction-related items and are not the company’s segment operating measure.
Year-end total assets were $372.413 billion and liabilities were $365.520 billion. Cash and invested cash totaled $3.365 billion. Insurance liabilities and reinsurance-related balances are significant; the company reported $134.5 billion of future obligations under insurance policies and contracts, net of reinsurance, compared with $127.7 billion of investments and cash/invested cash. This comparison is not a measure of immediately available liquidity.
| Segment | 2023 operating revenue | 2023 income (loss) from operations | 2022 income (loss) from operations |
|---|---|---|---|
| Annuities | $3.002 billion | $1.073 billion | $1.161 billion |
| Life Insurance | $6.907 billion | $(159) million | $(2.094) billion |
| Group Protection | $5.563 billion | $299 million | $41 million |
| Retirement Plan Services | $1.310 billion | $171 million | $211 million |
| Other Operations | $(755) million | $(411) million | $(486) million |
Segment operating revenue and income are management-defined measures and exclude specified items; they should not be equated with consolidated GAAP revenue and net income. The filing does not provide a single consolidated operating margin.
The investment portfolio totaled $124.331 billion, down from $131.654 billion. Fixed-maturity AFS securities had a fair value of $88.738 billion and gross unrealized losses of $9.767 billion, down from $13.018 billion in 2022. Approximately 96.7% of fixed-maturity AFS securities were investment grade. Total policyholder account balances were $120.737 billion; future contract benefits were $39.864 billion.
Material changes versus 2022
- Net loss replaced 2022 net income. Realized losses were $4.311 billion in 2023 versus realized gains of $840 million in 2022; the 2023 result included $1.091 billion of AFS security impairments recorded because securities were intended to be transferred in the Fortitude Re transaction.
- The decline in net income also reflected less favorable annuity product-feature results, losses on VUL hedges, unfavorable reinsurance-related fair-value changes, and higher operating and transaction costs. A substantial 2022 Life Insurance assumption-review charge and a $634 million goodwill impairment did not recur at the same scale.
- Operating cash flow shifted to a $2.074 billion use from a $3.609 billion source, including transaction-related cash payments and changes in insurance liabilities and reinsurance balances.
- Segment operating results improved in Life Insurance and Group Protection, while Annuities and Retirement Plan Services declined. Group Protection’s total loss ratio improved to 74.5% from 82.5%.
- Common stockholders’ equity increased by $1.791 billion, largely alongside a $2.876 billion improvement in other comprehensive income. Statutory capital and surplus for the reported U.S. insurance entities declined to $8.129 billion from $8.624 billion.
- Annuity contract outflows as a percentage of average gross account balances rose to 9% from 7%, which management attributed primarily to higher surrenders in the rising-rate environment.
Outlook, management commentary, risks, and unusual items
- Capital and strategic actions: LNC said its 2023 priorities included strengthening the balance sheet, improving free cash flow, and pursuing profitable growth. It closed Fortitude Re agreements effective October 1, 2023, covering specified in-force life and annuity blocks. Management said the transaction improved statutory capital and is expected to support free cash flow, while reducing future quarterly segment operating income by approximately $25–$30 million for Life Insurance and $0–$5 million for Annuities.
- Pending disposition: LNC agreed to sell its wealth management business operated through Lincoln Financial Network to Osaic. Closing was expected in the first half of 2024, subject to customary conditions and regulatory approvals. Management anticipated using the capital benefit to improve statutory capital and reduce leverage.
- Management plans: For 2024, the company identified profitable growth, capital-efficient new business, expense discipline, reinsurance strategies, and improving Group Protection profitability as priorities. It reported a workforce reduction of approximately 5% in February 2024 and expected related expenses in the first half of 2024. No consolidated earnings or revenue guidance is provided in the supplied filing text.
- Assumptions and guarantees: The 2023 annual assumption review reduced net income by $167 million, compared with $2.044 billion in 2022, primarily due to unfavorable Life Insurance lapse and mortality assumption updates. Results remain sensitive to policyholder behavior, mortality, interest rates, equity markets, volatility, and hedge performance. The filing’s illustrative sensitivity estimates a $775 million after-tax net-income reduction for an instantaneous 10% equity-market decline and a $500 million reduction for a 25-basis-point interest-rate decline; the company cautions these are scenario estimates, not forecasts.
- Liquidity and ratings: LNC is dependent on regulated subsidiaries for dividends and other transfers. It estimated that direct domestic insurance subsidiaries could pay approximately $790 million to LNC in 2024 without prior regulatory approval. The company reported that subsidiary RBC ratios exceeded the company-action level; a precise ratio is not stated here, though a separate statutory disclosure says consolidated RBC was approximately four times that level. Insurer ratings included A+ from S&P for LNL and LLANY; Fitch ratings and certain AM Best outlooks were negative. LNC’s indicative long-term credit ratings included BBB+ from S&P and Fitch and Baa2 from Moody’s.
- Investments and reinsurance: Rising or falling rates can affect spreads, investment values, surrenders, and capital. Reinsurance collectability and concentration are material risks: Fortitude Re was the largest reinsurance exposure at year-end, and 86% of total reinsurance recoverables was collateralized. Commercial real estate performance, illiquid investments, and collateral calls may also affect liquidity.
- Legal and control matters: The company estimated reasonably possible litigation and regulatory losses of up to approximately $190 million after tax, including amounts above accrued amounts; this is not an estimate of expected or maximum loss. A cost-of-insurance class settlement received final court approval in October 2023, with a reduced $109.96 million pretax cash fund and a five-year rate freeze, subject to supplemental notice for a small group. Management reported that a material weakness identified in 2023 concerning accounting for realized gains on a prior reinsurance transaction was remediated by year-end. The filing says 2022 and 2021 statements were restated in 2023 to correct a $498 million after-tax classification error; the auditor expressed unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Reconcile the $4.311 billion GAAP realized loss, Fortitude Re accounting effects, and segment operating results; distinguish recurring performance from market and transaction items.
- Track statutory capital, RBC ratios, permitted accounting practices, subsidiary dividend capacity, and any changes in credit or insurer financial-strength ratings.
- Confirm completion and final proceeds of the Osaic wealth management sale and whether the proceeds improve capital and leverage as management expects.
- Monitor annuity surrenders, fixed-account spreads and crediting rates, and the effectiveness and cost of hedges for variable annuity guarantees.
- Assess Life Insurance reserve assumptions, including lapse and mortality experience, and the effects of Fortitude Re on future earnings and cash flows.
- Review operating cash flow, collateral requirements, investment portfolio credit quality and real-estate exposures, and developments in the disclosed litigation matters.
- Check the effects of the 2023 restatement and remediation on subsequent filings, and compare reported results under the adopted insurance accounting standard with prior-period disclosures.