Business Context and Reporting Period
Company: Lincoln National Corporation (LNC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2026
Business Overview: LNC operates through four primary segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services, plus Other Operations. The company provides wealth accumulation, protection, and retirement solutions including variable annuities, fixed annuities, universal life insurance, and group protection products.
Key Financial Metrics
| Metric (in millions, except per share) | Q1 2026 | Q1 2025 |
|---|---|---|
| Total Revenues | $5,306 | $4,691 |
| Total Expenses | $5,552 | $5,640 |
| Net Income (Loss) | $(172) | $(722) |
| Net Income (Loss) Available to Common Stockholders | $(206) | $(756) |
| Net Income (Loss) Per Share (Diluted) | $(1.10) | $(4.41) |
| Comprehensive Income (Loss) | $(581) | $8 |
| Net Cash Provided by Operating Activities | $138 | $(272) |
| Total Assets | $406,161 | $417,204 |
| Total Liabilities | $395,949 | $406,298 |
| Total Stockholders' Equity | $10,212 | $10,906 |
| Long-Term Debt | $5,969 | $5,866 |
Material Changes vs. Prior Period
- Net Loss Improvement: The net loss narrowed significantly from $(722) million in Q1 2025 to $(172) million in Q1 2026. This improvement was driven primarily by a lower loss in net annuity product features due to capital market impacts and favorable changes in the fair value of reinsurance-related embedded derivatives.
- Revenue Growth: Total revenues increased by $615 million (13.1%) year-over-year, largely due to a $455 million increase in realized gains (from $11 million to $466 million) and higher net investment income ($1,605 million vs. $1,462 million).
- Investment Portfolio: Gross unrealized losses on fixed maturity available-for-sale (AFS) securities increased by $899 million to $9.9 billion, primarily due to rising interest rates and widening credit spreads. However, management does not intend to sell these securities before recovery.
- Segment Performance:
- Annuities: Income from operations decreased slightly to $275 million from $290 million, impacted by higher commissions and DAC amortization.
- Life Insurance: Turned profitable with $41 million income from operations compared to a $(16) million loss in the prior year, driven by higher net investment income and lower benefit reserves.
- Group Protection: Income from operations increased to $112 million from $101 million due to higher premiums and investment income.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Legal Accruals: The company recorded a $122 million legal accrual within "Other items" related to cost of insurance litigation (Glover, Iwanski, TVPX, and Vida cases). A provisional settlement of $147.5 million pre-tax was approved in June 2025, subject to appeal.
- Realized Gains: A significant portion of the revenue increase ($466 million) came from realized gains, including $178 million from derivative results and $96 million from indexed product derivative results.
- Market Risk Sensitivities:
- A hypothetical 10% decrease in equity market returns would result in an estimated $(825) million impact to net income.
- A 25 basis point decrease in interest rates would result in an estimated $(400) million impact to net income.
- Liquidity and Capital:
- The company maintains a $2.0 billion revolving credit facility with no amounts drawn as of March 31, 2026.
- On March 30, 2026, LNC refinanced a $150 million term loan into a new $250 million term loan due 2031.
- Management believes it has adequate capital and liquidity to meet obligations without selling impaired securities.
- Risks: Key risks include adverse capital market conditions affecting investment values and guaranteed benefit liabilities, potential downgrades in credit or financial strength ratings triggering derivative terminations, and the outcome of ongoing litigation regarding cost of insurance rates.
Investor Verification Checklist
- Investment Portfolio Quality: Verify the composition of the $9.9 billion in gross unrealized losses on fixed maturity AFS securities and confirm management's assessment that these are not credit-related impairments.
- Legal Contingencies: Monitor the status of the $147.5 million provisional settlement in the cost of insurance litigation and the potential impact of the pending appeal.
- Market Risk Exposure: Review the sensitivity of net income to equity market declines and interest rate changes, particularly regarding Market Risk Benefits (MRBs) and hedging effectiveness.
- Segment Profitability: Analyze the sustainability of the Life Insurance segment's return to profitability and the impact of rising interest rates on the Annuities segment's spread.
- Reinsurance Agreements: Assess the impact of the Fortitude Re reinsurance agreements on the balance sheet and the volatility introduced by embedded derivatives in funds withheld arrangements.