Lincoln National Stock

Thank you for standing by, and welcome to the Lincoln Financial Third Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions]

I would like to now turn the call over to John Muething, Head of Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to our third quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website. www.lincolnfinancial.com.

These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today. In addition, please note that the reporting of risk-based capital, or 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.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Adam Cohen, Interim Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen?

Thank you, John, and good morning, everyone. We appreciate you joining us today. This was a solid quarter and an important one for Lincoln. In early 2024, we laid out a 3-year outlook and longer-term objectives to guide the next stage of the transformation.

This quarter, we substantially achieved the financial targets in that outlook, and we are now preparing for the next phase of our strategy, our continuation toward the longer-term objectives. For the quarter itself, adjusted operating income, excluding the impact of our annual assumption review, increased 10% year-over-year, supported in part by very strong alternative investment returns. Underneath that, the quarter demonstrated what a diversified franchise is built to do.

Growth in life insurance and retirement plan services offset lower earnings in Group Protection, and the sources of our earnings are broader than they were a year ago. Joining me this morning is Adam Cohen, our Interim Chief Financial Officer. Adam has been integrally involved in our financial transformation over the past several years, including our work to strengthen the balance sheet and capital position, and he has stepped into the role with confidence and credibility.

He will take you through the quarter in detail. Turning back to our transformation. We began a multiyear journey to rebuild Lincoln's financial strength establishing the strategic priorities that would underpin the 3-year outlook we introduced in early 2024. We have remained disciplined in executing against that plan and this quarter marked the completion of several additional major milestones. On October 1, we closed the Talcott transaction. Together with the Fortitude Retransaction, Roughly 60% of our guaranteed universal life reserves have now been transferred to reinsurance partners, another step in reshaping our liability mix and reducing the risk in this legacy block.

As we said earlier this year, addressing the preferred stock was one of the last remaining steps before returning additional capital to shareholders. This quarter, we retired more than 40% of the preferred through tender offers and fully funded the remainder, about a year ahead of the first call date. With those steps complete, we were in a position to resume share repurchases this quarter.

When we laid out our 3-year outlook, we established a road map of strategic objectives to fortify our capital foundation, including derisking the balance sheet, optimize our operating model and drive profitable growth across our businesses to support more durable earnings and free cash flow. We have delivered on the large majority of the commitments in the 3-year outlook, many of them ahead of schedule, and the quality and sustainability of our earnings and free cash flow have improved as a result.

Overall, we are pleased with the progress, but we are not done. Our longer-term objectives are still ahead of us and there is more opportunity and work to do within each of our businesses, and that is the next space. As we enter that phase, what is different from where we started is the foundation beneath us, a track record of execution, momentum across the enterprise and the financial flexibility to invest in our businesses and return capital at the same time.

The benefits of that stronger foundation are starting to show in each of our businesses, though at different stages. Some of the actions we have taken are still early and we'll build from here, and we are confident in the direction of all 4. In Annuities, our spread-based platform is scaling. We now retain all of our fixed annuity sales and the account balances we have built over the past year are only beginning to contribute to earnings.

In life insurance, the rebuild of the business is taking hold faster than we expected and the new policies we have been writing have yet to become a meaningful contributor to earnings. In Group Protection, even in a year of moderating margins, we have ample room to grow over time as we bring our capabilities to the fastest-growing segments and products. In retirement plan services, the strategic realignment is underway and the business is being repositioned for more profitable growth over time. Across Lincoln, the strategic investments we have made to attract and retain customers and the efficiencies we have built into our operating model support that progress as well, and there is more opportunity ahead.

Our priorities remain consistent with the strategy we have pursued over the last several years now from a stronger position. We will continue to optimize our business and risk profile, shifting our mix towards steadier, less market-sensitive earnings.

We will accelerate profitable growth where we can compete beyond price and earn attractive returns, drawing on the depth of our distribution relationships, the breadth of our product suite and our differentiated capabilities. We will continue to transform our operating model. The expense actions we have taken over the past 3 years have supported our efficiency, and we see additional room to lower our cost base.

Technology and AI are central to that opportunity, and they also enable our employees to do their best work, deliver a more connected and integrated experience for the customers and partners we serve and bring new products and services to market faster. We are also optimizing our investment strategy for better risk-adjusted returns and leveraging our Bermuda affiliate to enhance capital efficiency.

We will continue to strengthen free cash flow generation and capital return. Free cash flow has improved steadily as we have reshaped the business, reduced legacy risk and lowered our leverage and financing costs. And we expect to continue deploying excess capital through share repurchases while also investing in our businesses. Across all of our capital decisions, the objective is sustainable long-term value for our shareholders.

As we look ahead, we will be deliberate in how we sequence these priorities, balancing growth, profitability and capital return. We have made substantial progress against the commitments we laid out in our 3-year outlook, and we are excited to step into the next chapter with the same discipline. We will provide more specifics on how we intend to build on what we have accomplished as part of our 2027 outlook on our fourth quarter call.

Looking at the quarter by business, our results reflected the benefit of a more diversified earnings mix. Life earnings more than doubled supported by favorable mortality and higher alternative investment returns. RPS earnings grew unfavorable equity markets and spread expansion. In annuities, earnings were modestly lower than a year ago, driven by the previously disclosed reallocation of investment income, while sales rose sharply from the second quarter, led by fixed annuities.

Group Protection fell short of our expectations driven by volatility in claim severity and the continued moderation of disability results, although the underlying fundamentals of the business remain strong. I will now take a few minutes to discuss each of our businesses in more detail, starting with annuities. As a holistic annuity provider, our competitive advantage lies in the breadth of our product portfolio and the depth of our distribution relationships.

We offer a full suite of solutions across RILA, fixed and variable annuities with and without living benefits, allowing us to meet customer needs in a wide range of market environments. Our strategy is to continue to build a more diversified mix within this business and in particular, to grow spread-based earnings with more stable cash flows. Total annuity sales were $4.3 billion, up 21% sequentially and spread-based products represented 67% of those sales. Within this business, fixed annuities are our biggest growth opportunity and sales more than doubled sequentially to $1.4 billion with fixed indexed annuity sales, up 29% year-over-year. That performance is supported by the capabilities we have built over the last several years.

We have retained the full economics of this business for about a year now, expanded our investment sourcing and continue to compete beyond price through differentiated crediting strategies and select distribution platforms. We expect the momentum in fixed annuity sales to carry into the fourth quarter. Rylo remains an important product category for us. Sales of $1.5 billion were relatively flat year-over-year consistent with our expectation that 2026 sales would be broadly in line with the average of the past several years.

In a competitive market, we distinguish ourselves in part through unique product features, while prioritizing profitability over volume. Variable annuities continued to be a strong contributor to our free cash flow and meet an important need for our customers. Sales were $1.4 billion in the quarter, in line with the expectation we set at the beginning of the year that volumes would return to pre-2025 levels.

Within that, variable annuities without living benefit guarantees made up more than half of sales for the second consecutive quarter, up 33% year-over-year. Across the portfolio, we are intentional about how we grow. As our spread-based businesses scale, we expect them to contribute an increasing share of earnings and free cash flow, supporting a more balanced and predictable earnings profile.

Now turning to Life Insurance, where we are rebuilding the earnings profile of the business. We have improved the performance of the in-force through the reinsurance transactions I described earlier and other actions including the consolidation of our captives last year and ongoing in-force management while shifting new business toward accumulation and limited guaranteed products with more predictable cash flows.

Alongside that, our investments in product, underwriting, technology and distribution are strengthening our competitive position with the financial professionals and producers who sell our products. Total life sales were $106 million, down compared with the prior year quarter that included several large executive benefits cases. As we have noted previously, that segment sales vary with the timing and size of individual cases.

Core life sales, which exclude executive benefits, grew 3% year-over-year, led by Indexed Universal Life. Overall, Life is moving in the direction we intended. The actions across the in-force and the mix shift of new business we are writing have put this business on considerably stronger footing and they reinforce our confidence in the contribution Life will make to Lincoln over time.

Turning to Group Protection. Our targeted segment strategy continues to shape how we compete across the local, regional and national markets. We tailor distribution, underwriting, technology and service to the distinct needs of each segment, and we maintain pricing discipline on new business and renewals. We are deepening our presence in the local market and in supplemental health, the fastest-growing parts of the business and those with the most attractive long-term returns.

That strategy is visible in the premium mix. Premiums grew 3% year-over-year with local market premium up 5%. Supplemental health premium grew more than 30% and now represents 7% of in-force premium, up from 5% a year ago. Sales of $72 million were lower compared with the prior year quarter that included large case wins, and we are holding to our return requirements in a competitive market. We are also modernizing our claims platform and expanding the use of AI and automation to improve efficiency and experience for the employers, brokers and employees we serve. The business is operating from a far stronger position than a few years ago and represents a larger share of Lincoln's earnings, and we remain confident in our ability to grow Group Protection's contribution over time.

Now turning to Retirement Plan Services, where we are in the early stages of a strategic realignment, applying a playbook we have run successfully in Group Protection. We have organized the business around 3 market segments and are increasingly focusing on the fastest-growing higher return segments.

As part of that work, we are refreshing our value proposition, optimizing our distribution model to better serve customers, expanding revenue opportunities within our existing client base and modernizing our service model and technology. First year sales were $749 million, meaningfully down compared to the prior year quarter that included significant mid- to large market activity and sales will remain uneven as the new model takes hold. While the realignment remains at an early stage, the actions we are taking are designed to strengthen the underlying economics of the business and to make the contribution of retirement plan services to Lincoln more durable over the long term.

In closing, we set out several years ago to rebuild Lincoln's financial strength. And this quarter, we largely completed the 3-year outlook we laid out at that time. We are a more diversified company today with an improved business mix, a stronger capital position and less legacy risk on the balance sheet, reflecting the progress we've made in our enterprise transformation and positioning us to drive further profitable growth across our businesses.

I am proud of what our employees and leaders have accomplished and grateful to the 17 million customers who place their trust in us every day. At the same time, make no mistake, the work ahead is substantial and so is the opportunity. We will keep executing with the same rigor that brought us here, and we look forward to updating you on the next phase and the path toward our longer-term objectives when we report our fourth quarter results. With that, let me turn the call over to Adam. Adam?

Thank you, Ellen, and good morning, everyone. Our third quarter results reflect continued progress in strengthening our financial position and improving the earnings profile of our businesses. We saw solid contributions across much of the company, supported by improved investment returns favorable mortality experience and the benefits of actions we've taken over the past several years.

At the same time, results varied across our businesses this quarter and I'll spend some time discussing the key drivers of that performance. and our expectations as we look towards year-end. I'll also cover the outcome of our annual assumption review, along with updates on expenses, our investment portfolio and capital. Let's begin with a recap of the quarter. This morning, we reported third quarter adjusted operating income available to common stockholders of $339 million or $1.72 per diluted share. This includes the impact of our annual assumption review, which reduced adjusted operating income by $95 million or $0.48 per diluted share.

Our alternative investments portfolio delivered an annualized return of 16.5% in the quarter, above our 10% annualized target representing $55 million of after-tax of above-target income from that portfolio. Turning to net income. We reported net income available to common stockholders of $1.3 billion or $6.77 per diluted share. The difference from adjusted operating income was driven primarily by the change in market risk benefits which was favorable, given higher interest rates, along with the change in the fair value of the embedded derivative related to our Fortitude Re transaction.

Our hedge program, which explicitly targets capital continued to perform in line with our expectations, reflecting the consistent execution of the program throughout the year, we were able to take a $100 million distribution from Lin bar this quarter building on the $50 million distributions taken in each of the third quarters of 2024 and 2025. Before turning to our segment results, I want to briefly touch on our annual assumption review.

As I noted earlier, the review reduced adjusted operating income by $95 million after tax. The review was comprehensive reflects our disciplined process and we remain confident in our updated assumptions. I'll now discuss the breakdown of that total impact by business. Annuities earnings were lowered by $10 million, primarily reflecting updates to policyholder behavior for our variable annuity and Rylo businesses.

Life earnings were lowered by $25 million primarily driven by updates to policyholder behavior assumptions on our term business. Importantly, GUL policyholder behavior experience continues to be aligned with our expectations and assumptions. Group Protection earnings were reduced by $31 million this quarter, driven mainly by updated assumptions in our long-term disability line, reflecting a moderation in the favorable trends we have seen over the past few years.

Other operations earnings were reduced by $29 million, reflecting longer expected claim durations on a closed individual disability block. Turning to segment results, starting with Annuities. Excluding the impacts of the annual assumption review, Annuities reported operating income of $304 million and a return on average account balances or ROA of 67 basis points. Operating income was up $17 million sequentially. The improvement was driven by higher spread income and additional fee day and lower expenses partially offset by continued variable annuity outflows.

On a year-over-year basis, the $14 million decline primarily reflected the change in classification of net investment income on our index credit hedging collateral to nonoperating income that took effect at the beginning of the year, which represented about $12 million in the prior year results. Average account balances, net of reinsurance were approximately $181 billion, up 6% from a year ago.

Spread-based products accounted for approximately 32% of ending account balances compared with 29% a year ago, demonstrating the continuation of the mix shift in this business towards more stable earnings over time.

Turning to flows. Total net outflows were approximately $2.7 billion, driven by traditional variable annuities, consistent with the pace of recent quarters. Fixed annuities generated net inflows of approximately $725 million and to provide additional insight into underlying account balance trends, this quarter, we added a new disclosure to our statistical supplement that separately identifies the market-linked adjustment component of RILA account balances. This provides greater transparency into underlying account balance growth and the profitability of our RILA business.

On this basis, underlying RILA account balances grew again this quarter, up 11% from a year ago. As we continue to expand our spread-based businesses, we expect spread earnings to grow over time with further growth in the fourth quarter. Partially offsetting the improvement is lower expected fee income driven by market impacts on account balances, higher DAC amortization reflecting the updated assumptions from this year's annual assumption review as well as higher expenses driven by the typical seasonal increase in the fourth quarter.

Taken together, we expect Annuities earnings in the fourth quarter to be relatively flat to the third quarter, excluding the third quarter annual assumption review impact. Looking beyond the fourth quarter, we expect the continued growth in spread-based balances and higher portfolio yields to support earnings growth over time.

Turning to life insurance. Excluding the impacts of the annual assumption review, Life reported operating income of $130 million compared with $54 million in the prior year quarter. The year-over-year improvement was driven primarily by stronger alternative investment income and more favorable mortality experience, along with the continued benefit of our captive consolidation. Mortality was again favorable this quarter consistent with the experience we've seen over the past several quarters and the broader improvement in U.S. mortality trends.

Favorable experience was driven primarily by lower claim incidents with claims severity broadly in line with expectations. Alternative investments also contributed $53 million above our 10% annualized return target in the quarter. I want to spend a little time putting Life's earnings performance into perspective, particularly relative to the outlook we first shared on our fourth quarter 2023 earnings call.

We've made meaningful progress in strengthening the earnings profile of this business, and I think it's helpful to distinguish that progress from some of the favorability we've experienced over the past year. Starting with the third quarter, after adjusting for favorable mortality experience, above-target alternative investment returns and other quarterly items, earnings were approximately $60 million. This provides a useful reference point as we look forward to the fourth quarter.

Taking a broader view, over the past 4 quarters, Life has generated $305 million of operating income, excluding the annual assumption review. That includes approximately $100 million of favorable mortality experience and $47 million of alternative investment income above our 10% annualized return target. Excluding those 2 items, Life generated approximately $158 million over the past year. This represents meaningful progress from where we started in 2023.

It reflects the actions we've taken to improve our in-force block and operating model, including captive consolidation and expense reductions as well as the emerging earnings from new business, which we expect to come through over time. Separately, to help investors model the business going forward, we've provided additional detail in our investor supplement on the estimated earnings impacts following the closing of the Talcott reinsurance transaction including the related refinement to our definition of adjusted operating income.

Together, we expect these changes to increase life operating income by approximately $12 million to $17 million in the fourth quarter. The progress we've made since 2023 is increasingly evident in Life's earnings performance, and we believe the business is on considerably stronger footing today. We expect further improvement over time as the benefits of our in-force actions continue and earnings from new business build.

Now turning to group. Excluding the impact of the annual assumption Group Protection operating earnings were $77 million compared with $110 million in the prior year record third quarter, and the margin for the quarter was 5.5%, down 260 basis points year-over-year. The main driver of our result was an increase in our disability loss ratio, which rose 670 basis points year-over-year to 83.4% excluding the impacts of the annual assumption review.

This increase reflected elevated severity in our disability experience and a continuation of incidence moderation from the record favorable levels in the prior year. This was partially offset by continued favorability in group life. Turning to the drivers within disability, I'll start with severity, which was the more significant headwind this quarter, accounting for roughly half of the increase in the disability loss ratio. Both LTD and STD were impacted by higher reserves on a relatively small subset of new claims with a greater mix of claims from higher salaried employees amplifying the overall impact.

We view this as volatility and expect severity to moderate towards more typical levels going forward. On incidents, which accounted for much of the remaining increase in the loss ratio, we experienced continued moderation from the favorable LTD incidence levels seen in recent years. As we messaged in the past, this is something we expected to eventually occur and we now believe the outsized benefit from this favorable experience is largely behind us.

Turning to Group Life. Excluding the assumption review, results continue to be favorable with a loss ratio of 64.2% compared with 65.3% in the third quarter of 2025. While quarterly fluctuations in mortality outcomes are expected, this reflects the actions we have executed in this business, coupled with broader mortality trends we have experienced in recent quarters.

Looking to the fourth quarter, we expect earnings to improve sequentially as the severity experienced in our third quarter disability results moderates. That said, we expect results to remain pressured year-over-year as we do not anticipate a repeat of the particularly favorable experience in the prior year quarter. With that framing in mind, we now expect to finish the year at or modestly below the low end of the 8% to 9% margin range we shared earlier this year.

Despite the pressure this quarter, group has delivered an 8% margin through the first 3 quarters, and we remain confident in the underlying fundamentals of the business. We expect to continue to grow the earnings of this business as we expand in attractive market segments and maintain our focus on pricing discipline.

Lastly, touching on retirement plan services, which delivered operating income of $55 million, up from $46 million in the prior year quarter. There were no impacts from the annual assumption review. The increase reflects spread expansion in higher equity markets, partially offset by higher expenses. Results this quarter also included a onetime benefit of approximately $3 million from an administrative item, which we do not expect to recur.

Base spreads were 124 basis points up 17 basis points from the prior year quarter. Average account balances grew 9% year-over-year to $130 billion, supported by equity market performance. Ending account balances were $128 billion, up 4% from a year ago. Ending balances were approximately $2 billion below the quarter's average, which is a small headwind as we enter the fourth quarter.

Turning to flows. We experienced net outflows of approximately $1.9 billion in the quarter, with first year sales also lower than a particularly strong prior year quarter. Looking ahead, we expect approximately $3 billion of net outflows in the fourth quarter, primarily driven by 1 large plan termination. As we progress through the early stages of our strategic realignment, we expect flows to remain uneven in 2027.

While this transition will take time, we expect to maintain and grow the underlying earnings power of the business as we execute, supporting more profitable growth over the long term. In the near term, we expect fourth quarter earnings to be in line with the prior year quarter, with the sequential decline reflecting the absence of the onetime benefit and the typical seasonal increase in expenses.

Turning to expenses. Third quarter G&A expenses, net of amounts capitalized, were $582 million, up approximately 2% year-over-year and down approximately 4% from the second quarter. As we look to the fourth quarter, we expect G&A expenses to increase sequentially, reflecting normal seasonal patterns. More broadly, expense efficiency remains a strategic priority, and we will continue to take a rigorous and disciplined approach to managing our expense base.

Turning to investments. Our portfolio remains high quality and well diversified. 97% of the portfolio is rated investment grade, with below investment-grade holdings near historic lows and ratings migrations remained modest in the quarter. Consistent with our ongoing general account optimization efforts, we continue to see opportunities to enhance investment income through new money deployment, active management of the existing portfolio and continued asset liability management, including the potential to reinvest proceeds from lower-yielding assets at higher rates.

Our ability to pursue these opportunities is supported by a disciplined risk management framework. Our strategic asset allocation is aligned with the liabilities we support with established limits across asset classes, credit ratings, industries and individual issuers. We monitor exposures closely, maintain rigorous underwriting standards and regularly stress test the portfolio across a range of economic scenarios including the potential impact on capital.

This framework allows us to pursue opportunities that improve risk-adjusted yield and diversification while maintaining the quality and resilience of the portfolio. On alternatives, looking ahead to the fourth quarter, we expect our broad-based, well-diversified alternatives portfolio to be in line with or modestly below our target. As always, we remain confident in the portfolio's ability to meet our long-term return target.

Lastly, turning to capital, where we made meaningful progress on our priorities during the quarter, including the resumption of share repurchases. Our estimated RBC ratio remains well in excess of both our 400% target and additional 20-point buffer and our leverage is at our 25% long-term target. We repurchased $50 million of common stock in the quarter, marking an important step as we shift more of our capital deployment towards returning capital to shareholders.

This is a starting point. And given our capital position and free cash flow generation, we are well positioned to build on that activity in the fourth quarter. We also completed tender offers for our preferred stock retiring $437 million or over 40% of the outstanding balance ahead of its 2027 call date.

We used the proceeds from our subordinated debt issuance earlier this year to fund the tender offers, replacing higher cost preferred stock with lower cost, tax deductible debt. This transaction reduces financing costs and supports holding company free cash flow. Holding company available liquidity, net of prefunding, increased approximately $100 million sequentially to $1 billion even after share repurchases, that was supported by $410 million of subsidiary remittances in the quarter, including $100 million from Lin bar, bringing year-to-date remittances to $990 million and tracking towards the high end of our full year expectations.

Importantly, we've now completed building cash at the holding company, earmarked for the redemption of the $563 million of remaining preferred stock on top of the $500 million of cash we target as a liquidity buffer.

Building that liquidity has been a significant use of our remittances this year and with that build now behind us, we expect to have greater capacity to return capital to shareholders.

In closing, our third quarter results reflect continued progress in strengthening our financial position and improving the earnings profile of our businesses. We remain focused on building on that momentum as we finish the year and are confident in the opportunities to further improve our underlying earnings performance as we move into 2027. We look forward to providing more detail on our outlook when we report fourth quarter results. With that, Ellen and I would be happy to take your questions.

[Operator Instructions]

Your first question today comes from the line of Wes Carmichael from Wells Fargo.

Just had the first one on capital. So it's good to see $50 million of repurchases in the quarter. And I don't want to front run your 2027 outlook next quarter, but could you just talk generally about capital flexibility from here, if you think that level of repurchases should accelerate into 2027? Just any help on magnitude would be great since I think it's one of the bigger open questions on investors' minds?

And I'm going to start, and then I'll hand it over to Adam to take you through some of the numbers. So first of all, exactly as you said, we are really pleased to be returning capital to shareholders via buybacks. $50 million in the third quarter, we view as a starting point. And with the preferred funding, and so therefore, no longer do we have to build holdco cash, we have the capacity to do more in the fourth quarter than we did in the third. And we're going to carry that posture into 2027. We'll obviously size it and give you more in our outlook in February. But importantly, also, we are going to keep investing in the businesses exactly as we have been alongside it. And I'm going to hand it over to Adam to provide a little bit more color.

Thanks, Ellen. And last, I agree with the common upfront, it's great to start with $50 million that is the starting point, and that gives us room to grow from there into Q4 and beyond. So I can start with just some general holdco math that I think should help you think about the pattern here.

And then like you said, we'll get into more specificity in the fourth quarter. just from a balance sheet standpoint, we continue to be well in excess of the RBC target and our stated buffer levels and leverage is at the 25% long-term target. The important thing is we're seeing free cash flow convert into strong subsidiary remittances.

This quarter, we brought up $410 million to the Holdco. That included $100 million from Linbar, so that takes us to $990 million of remittances from subsidiaries through the first 9 months. So that has us tracking towards the high end of our $1.2 billion to $1.3 billion remittance outlook that we came out with at the start of the year.

So when you look at the holdco, like Ellen mentioned, a significant use of the remittances this year was building up the cash that we had at the Holdco that's earmarked for the second half of the preferred now that's behind us. So with $1 billion of liquidity at the Holdco, covering our liquidity buffer and that remaining half of the preferred that frees up more capital to return to shareholders.

So in the fourth quarter, ultimately, our capital return, it's going to be funded by the remittances that we bring up beyond the cash that we have there now. So the fact that we're tracking towards the high end of our remittance range and when you look at typical Holdco uses of cash, that would imply about double what we did this quarter, and that's a good way to think about the run rate headed into 2027. And of course, we'll come back with more specificity in our outlook.

And one last point I would make. We may look to modestly grow the cash that we hold at the Holdco, but that's not going to be at odds with our ambition on shareholder return.

That's super helpful. And the second one, just on disability. I think you mentioned an expectation for some moderation in severity. I think that was about half of the increase in the loss ratio. But I just wanted to touch on incidents as well. Are you seeing higher claims submissions that you expect will continue to be kind of a pressure point into the fourth quarter or 2027, any insight would be great?

Yes. Thanks,. I can break down those components and what we're seeing. And first, I just want to make a point upfront and we said this in our prepared remarks, we're confident in the Group Protection business. It's on a very solid foundation, and headed into 2027. We're going to continue to grow this business, including growing the earnings of the business.

So in terms of what we saw this quarter, there's a piece that we believe is trend and there's a piece that we believe is volatility. We've been saying for some time that we expected some level of moderation in the business, disability and group life have both been running at record levels the last couple of years.

So last year, we talked about within the group margin roughly 100 basis points of the margin coming from the macro backdrop and very low LTD incidents. So when we talk about our overall margin expectation of 8% to 9%, the lower end of that range contemplates the moderation of what we view to be really historically low incidence.

So for this quarter, one thing I would note is it's important to compare this quarter to the prior year quarter because there is seasonality in this business. So when we look at the disability loss ratio versus the same quarter a year ago were up roughly 6%. Within that, half of it and actually the bigger story this quarter was severity. And that's the portion that was elevated reserves on a relatively small subset of claims bigger dollar, higher claims because it was higher salaried claimants, that's the portion we believe to be volatility.

And in fact, we already saw that trend moderate towards the end of the quarter, and what we've seen so far headed into the start of the fourth quarter. And so that is part of why we expect the results to improve sequentially period-over-period. The other piece is likely more durable, that's the increase in incidence.

So when we look at the year-to-date, we've seen an uptick in incidents throughout the year, and really that accelerated this quarter. So when we look at this quarter's incident result that to us says, "Hey, that backdrop has now moderated and it is generally our expectation that the historically low incidence tailwinds are behind us."

So as we look forward, like I said up front, we expect to continue to grow the earnings power of this business. And over time, we're going to continue to focus on our business mix and our pricing work focusing on local markets and supplemental health, together with some level of pricing actions, we expect to offset that incidence moderation over time. So more detail specifically on what we expect when we get into the fourth quarter outlook. But that's a good way to think about just the breakdown of this quarter's result and the piece that we view to be volatility versus trend.

Your next question comes from the line of Ryan Krueger from KBW.

I'll follow up first quickly on the -- on disability incidents. Are you also seeing the dynamic of higher behavioral health claims that several other life insurers have cited so far. And just at a higher level, is incidents now at a level that is kind of in line with your longer-term expectation? Or -- or is it either adverse or favorable still? .

Thanks, Ryan. I'll cover both of those. On the incidents, we would not say that it's centered around a specific claim type, it's a general trend around incidents like we were saying upfront. We've had that historically low incidence. This is the normalization of that. It's not really anchored around a particular -- particular claim type. We have really good insight into the detail of our claim types across our client base.

And so that's really not the story of concentration of a particular type. And on your second question, yes, that's generally right. Like when I talk about that 1% of margin that we've had driven by the low incidence, what we saw this quarter is really more in line with that longer-term expectation, and it's the severity that we think was the volatility.

Then a question on individual life mortality. You called -- you cited $100 million of favorable mortality over the last year. And I think it's been favorable most quarters -- are you -- can you give any more detail on what you see as driving that? And are you getting any closer to the point of thinking this could be more of an ongoing trend that could benefit you beyond this year? .

Ryan, a couple of comments on mortality. And one, you don't have to go back very far to see adverse mortality. It was really a couple of years ago that we had adverse mortality coming out of COVID and the favorable mortality that we've had for the last year or so is a relatively recent trend. So we're not the only ones experiencing that, but ultimately, mortality, the way we think about it, whether that be when we set assumptions on our in-force or we're looking at pricing, it's a long-term assumption.

So it takes time for current experience to really be viewed as a trend. So ultimately, when we talk about the underlying earnings power of life, we're not relying on the continued favorable mortality backdrop. And if it does continue, ultimately, that will be a tailwind.

Your next question comes from the line of Alex Scott from Barclays.

I just wanted to probe a little bit more on the guidance you've given for 4Q on group. I mean, from looking at our numbers, it seems like you're estimating a pretty full bounce back from the disability. I just want to make sure that's correct or if there's adjustments that need to be considered. And what is giving you the confidence to assume that just given this seems like a new trend that permeate through the industry?

Thanks, Alex. I'll hit on a couple of concepts that are within your question there. So one is when we think about the fourth quarter and we talk about what you're referring to as a bounce back. That is driven primarily by the normalization of the severity volatility that we experienced this quarter, which was roughly half of the increase in the loss ratio year-over-year.

And that's the piece where -- that's a Lincoln specific item where we can see detail into the claims. We certainly track our claims experience day to day and week to week, and we saw that moderate already towards the end of the quarter and headed into the fourth quarter.

We are not assuming that the incidents will normalize that's the piece that when we look across the industry seems to be the constant, severity is somewhat hit or miss across different companies and different client base. So we're not assuming a full bounce back on incidents.

So when we talk about the fourth quarter, we're at an 8% margin through 3 quarters with our expectation on the fourth quarter would be at or modestly below the 8% on the full year, so like I said, we're assuming the normalization of severity, but we are not assuming a full return to the historically favorable backdrop on incidents.

And Alex, just to provide some additional color here, and this was also in our upfront remarks. So Adam also talked about the disability loss ratio year-over-year decline of about 670 basis points. And to this point, roughly about half of that was directly tied to the claim severity. And that piece, in particular, we saw that normalize again back to its expected trend at the end of the third quarter, and we continue to see that as we move into the fourth quarter. .

So that piece, we expect to bounce back. And then the moderation piece, we -- which is much more aligned to longer term, we expect that to remain.

And then maybe switching over to annuities. Can you talk about just the competitiveness in the market -- and I know it's been competitive for a while, but it does seem like some of the rate levels being offered in MI in fixed index annuities in particular, have gotten a bit more aggressive. How are you viewing that market? Does it still look good from an IRR perspective? Are you having to do anything different with the way you're investing behind that new business? .

Absolutely, Alex. So from our perspective and one of the themes that you're going to continue to hear from us across all 4 of our businesses, including annuity is that we remain disciplined in a competitive market.

So yes, it is a competitive market out there. It always has been, broadly speaking, we see competitors that are rational but also I would say, to some extent, the competitive market is intensifying, and we continue to see that in annuities as well. So one of the things that is really critical, and we'll talk about annuity since that's where your question is, is that there -- we really lean into our competitive advantages.

So we've got distribution breadth. We continue to expand our distribution shelf space, the fact that we're a holistic annuity provider, for example, and we are leaning into fixed annuities. We've had the opportunity over the last 18 months to take places where we have historical distribution shelf space in variable and RILA and add our fixed annuities there. And then also importantly, we really look to differentiate beyond price. So that includes deep distribution relationships. It includes unique indexing crediting rate features. It includes being unlimited distribution partner shelves. And all of that is enabling us.

We simply won't sell a product if we're not achieving our return. So that is enabling us to compete on our terms and also for us to be able to achieve the returns. So you saw in particular, that fixed annuity, where we said is our largest growth opportunity our sales more than doubled sequentially. We feel really good about that. RILA, where we've continued to see a pretty competitive landscape.

They are consistent with our expectation. Sales were relatively flat, and we said in line with the average of the past several years, it's exactly where we're tracking. So again, we feel good about how we're competing and we're going to continue to prioritize profitability over volume .

Your next question comes from the line of Suneet Kamath from Jefferies.

I wanted to start with RPS. Ellen, in your comments, you've talked about realigning the business, and that's going to take some time. I'm just wondering if you could provide a little bit more detail in terms of what you're doing there. .

Are there going to be any sort of costs associated with that, that we should think about? And more specifically, some of your competitors are in the same business are rolling out the sort of wealth management platforms to sort of mind the customer base of their 401(k) defined contribution employer. Is that something that you're thinking about as well?

Sure. So as it relates to RPS and if you think about -- over the last several years, we have business by business, entered into a strategic realignment where we really have repositioned the business to optimize and to be able to grow earnings to be able to grow sustainable free cash flow.

And the last business of the 4 that we focused on simply because it was the smallest from an overall earnings perspective, is RPS. So here, we are focused on leveraging the exact same playbook for group, and we see lots of opportunity to optimize the current business.

So we don't see to your specific question, any material costs that we haven't communicated to all of you. If we had one, we would let you know. But what we're doing here is, first of all, we are -- we are optimizing our distribution. This is an area where we are leaning in, and we are leveraging our retail distribution in our core markets to really be able to refresh the value proposition. So that's one thing.

The second thing is that there are opportunities within our existing client base where we have revenue opportunities where we were providing services and we weren't necessarily charging for them. And so that's an opportunity that we have added to our overall opportunity. And then the other piece is that we are strategically investing in modernizing our service and technology. This, for us, ultimately results in expense base opportunities. We've talked about the fact that our cost per participant is higher than the overall peer group. And we see continued opportunity there.

And then the final thing that I'll say is that in our core markets, which is 1 of the fastest-growing markets where we're leaning in, we have been doing well in terms of overall sales of pooled employer plans. And so that's an opportunity that we're going to continue to leverage. So all in, right now, we expect that you're going to continue to see uneven sales and outflows as we're repositioning the business, but with an expectation that you're going to see better economics. You've seen so far year-to-date, but our expectation is that the earnings of this business will continue to grow.

That's helpful. And then maybe if I could go to strategy for a minute. A couple of years ago, when you laid out the strategy, I think you talked about I don't know whose office it was in, but there was a whiteboard with a bunch of ideas on it. And a lot of those things, I think, related to things like the captive consolidation and risk transfer and it felt -- feels like you've done a lot of that stuff. .

So if that's true, is it fair to conclude that, I guess, most of the work from here is that the sort of the business unit level and just kind of growing the core businesses or are there still some of the sort of extra-curricular types of things that you could do to improve earnings or free cash flow?

So Suneet, we will be providing a lot more color during our fourth quarter earnings call. We're going to roll out our 2027 outlook. Importantly, as you think about go-forward strategy, it's a continuation of everything that we have been doing. And if you think about the original 3-year outlook that we provided. We also provided as part of that a longer-term overall objective of our earnings mix and of our financial objectives.

And we have work to do to get to those longer-term -- to those longer-term objectives. So what you're going to see when we share with you our fourth quarter 2027 outlook is our focus on acceleration and how we -- how we really demonstrate that we move from recovery to sustainable and durable growth and higher quality growth. So you can expect that as part of that you're going to see us continue to optimize our businesses and our overall risk profile.

We believe that we have a lot of levers internally and just like we did over the last 3 years, if there is an opportunistic -- opportunity to do something externally. Of course, we would also focus on that. You're going to see us within the businesses, to your point, really accelerating profitable growth. We have the foundations underneath of us. We've got the momentum. We have done an awful lot to strategically invest in our businesses and to be able to support our customers, both in terms of new business and retention.

So you're going to see us really look to accelerate there. We have further opportunity to transform our operating model. So you're going to hear more from us on that and then the final thing is to continue to strengthen our free cash flow generation and our capital return. And importantly, while we continue to invest in our businesses, we also expect to continue to deploying excess capital through share repurchases. So you'll hear more, we're going to continue to stay disciplined. Importantly, we're going to sequence priorities across growth, profitability and capital return, more specifics when we roll out our '27 -- 2027 outlook in February.

And we have reached the end of our question-and-answer session. I will now turn the call back over to John Muething for closing remarks.

Thank you for joining us this morning. We're happy to address any follow-up questions you may have. Please e-mail us at [email protected].

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Lincoln Financial Second Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions].

I'd now like to turn the conference over to John Muething, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to our second quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website. www.lincolnfinancial.com.

These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios share repurchases, liquidity and capital resources as well as any statements relating to the closing of the GUL reinsurance transaction announced this morning and the expected timing thereof and the expected impact of the transaction on our risk profile RBC ratio and free cash flow are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly report on Form 10-Q and from time to time in our filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today. In addition, please note that the reporting of risk-based capital, or 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.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions.

Let me now turn the call over to Ellen. Ellen?

Thank you, John, and good morning, everyone. Thank you for joining our call today. This morning, alongside our second quarter results, we announced an agreement with Talcott to reinsure approximately $6 billion of our legacy life reserves.

The transaction marks one more important milestone in shifting the liability mix and enhancing the ongoing durability of enterprise free cash flow. Reaching this agreement in a quarter that added to our track record of solid operating results speaks to the financial and operating strength we have built and our ability to execute consistently. Chris will take you through the details shortly.

This transaction reflects the deliberate strategy we've been delivering over the past several years. From the outset, we laid out a clear path to build a strong balance sheet optimize our operating model and drive more profitable, durable growth across our businesses.

Since then, we have followed through on each of these priorities. We have grown earnings, improved the quality of those earnings increased free cash flow and built a more resilient, better positioned company. With the business performing well and our capital position strengthened, there was one remaining priority to address.

This quarter, we prefunded the repurchase and/or redemption of half of the preferred stock that becomes callable next year, bringing greater certainty to our capital plans. Together with the growth in holding company cash net of prefunding, we are entering a new phase with greater flexibility to advance our capital priorities while investing in the long-term growth of the business.

As I reflect on what we've accomplished, I'm deeply grateful for the dedication, resilience and commitment our team has demonstrated every step of the way. Every day, they make a difference in the financial lives of more than 17 million customers, helping them plan, protect and prepare for their future. Together, we've built a better Lincoln, one with a stronger foundation, a better business mix and growing earnings and free cash flow.

While our work is never complete, I believe we have reached an important inflection point in our journey. That progress has expanded our opportunities and flexibility, positioning us to create greater value for our shareholders in the years ahead. Against that backdrop, our second quarter results demonstrate the consistent execution that has brought us to this point.

Adjusted operating income increased 3% year-over-year marking our eighth consecutive quarter of year-over-year growth. Just as importantly, each of our 4 businesses advanced its strategy this quarter. And together, they are building toward a more balanced higher quality and more predictable earnings profile.

In Group Protection, earnings were among the highest in the segment's history even as they moderate from a record 1 year ago. In annuities, earnings remained solid as spread-based products, again represented about 2/3 of sales. Life Insurance produced a good quarter supported by favorable mortality, while sales increased meaningfully year-over-year and in Retirement Plan Services, earnings grew at a double-digit rate, driven by favorable markets and spread expansion as the strategic realignment of the business is in its early stages.

Taken together, these results demonstrate that the strategic choices we have made are producing a more balanced earnings profile and creating multiple pathways for future growth. I will now take a few minutes to discuss each of our businesses in more detail, starting with annuities.

As a holistic annuity provider, our competitive advantage lies in the breadth of our product portfolio, and the depth of our distribution relationships. We offer a full range of solutions across Rila fixed and variable annuities with and without living benefits, allowing us to meet customers' needs across a wide range of market environments.

Our strategy is straightforward: grow where we can differentiate beyond price, achieve target returns and steadily expand the spread-based earnings power of the business. Total annuity sales were $3.5 billion in the quarter with spread-based products representing 63% of sales as we shift toward a less market-sensitive business.

RILA sales rose 10% year-over-year, a more measured increase than we generated in the first quarter as we prioritize profitability over volume in a competitive market. We remain selective and disciplined, concentrating on the sources of growth where our distinctive capabilities complement customer needs and our return objectives. Fixed annuity sales were lower this quarter, but that does not change our view of the potential ahead.

We believe this product category offers the longest runway for growth within our annuity business with capacity to extend our competitive position over time. The investments we've made in our platform including through our partnership with Bain Capital, broaden our toolkit and position us to meaningfully increase fixed annuity sales over the remainder of the year.

As we've said previously, with fixed annuity flows now fully retained, we expect fixed annuity account values to rise this year, supporting future earnings and cash flow. Variable annuity sales met our expectations as volumes normalized from the elevated levels we saw in 2025.

Within that, sales of variable annuities without living benefit guarantees rose more than 60% year-over-year and, for the first time, exceeded those with guarantees. This is a capital efficient part of our business that generates attractive earnings and cash flow without the guarantee and an area where we see room for expansion. Across the portfolio, we are intentional about how to grow. As spread-based products scale, we expect them to contribute a larger share of earnings and free cash flow.

Now turning to Life Insurance. We have been deliberately reshaping the earnings profile of this business. We have improved the performance of the in-force portfolio while shifting new business toward expanding segments and products that meet our long-term objectives. Just as importantly, we have enhanced our value proposition by investing in the technology, underwriting and distribution footprint needed to compete and grow over the long term. Those efforts produced results again this quarter.

Life earnings increased year-over-year, driven by favorable mortality, partially offset by lower alternative investment returns. Total life sales increased nearly 80% year-over-year with core life sales up 18% to $103 million, led by MoneyGuard and VUL with limited guarantees. Executive Benefits also performed well, supported by 1 large case. As we've noted, sales of this product can vary from quarter-to-quarter based on the timing and size of individual cases.

The Life business is moving in the direction we intended. We are seeing the benefits of the actions we've taken across the in-force block, while the new business we're writing advances our strategic priorities. Together, those actions are building a durable foundation for future earnings and free cash flow.

Turning to Group Protection. Our targeted segment strategy shapes how we compete across local, regional and national markets. We tailor how we serve each customer segment with dedicated distribution, underwriting, technology and service models built around the distinct needs of each market while emphasizing the areas with the most attractive long-term returns. In keeping with that strategy, we are deepening our presence in the local market segment and supplemental health products, which are the fastest growing. That emphasis is showing up in our results.

Overall premium growth was 2.5% year-over-year and concentrated in the areas we have prioritized. Supplemental health premium rose 28% year-over-year and now represents 7% of our in-force premium, up from 5% a year ago, consistent with the outlook we shared at the beginning of the year. Local market premium again increased more than 3%, supported by our tailored operating model and deep local market relationships. This reflects focused execution pricing rigor across both new business and renewals and expansion into higher return markets and products. Sales declined from last year's record second quarter, but were solid and we held firm on our pricing discipline throughout.

Our efforts are concentrated on the segments and products with the greatest long-term opportunity along with the margins that have set our performance apart. We are also modernizing the business. This includes advancing our claims platform, expanding the use of AI and automation across underwriting and claims and enhancing the digital tools available for brokers, employers and employees.

Together, these initiatives improve responsiveness, simplify the customer experience and reinforce our position. Today, Group protection contributes more to Lincoln's earnings than it did just a few years ago and the momentum behind it gives us confidence it will become an increasingly meaningful part of Lincoln's higher-quality earnings profile.

Now turning to retirement plan services. We are applying the same disciplined framework that has guided our strategy across Lincoln, making deliberate choices that improve the profitability of the business. While this work is earlier in its evolution than in some of our other businesses, we have organized the business around distinct market segments with products, distribution and service models designed for the unique needs of each segment. RPS earnings increased year-over-year, and total deposits also grew, driven by steady demand for our retirement solutions.

Net flows remain negative, primarily due to the planned transition of several large cases that don't meet our profitability objectives. These actions support the direction we have established for the business and our objective of improving its overall economic profile.

As we execute, we will build on our strengths while emphasizing opportunities with more favorable economics. The work is still in its early stages, but we believe it will steadily improve the profile of the business and its contribution to Lincoln's earnings growth.

In closing, the actions we have taken over the past several years have reshaped Lincoln into a stronger, more diversified company with greater financial flexibility. Every 1 of our businesses now has room to accelerate earnings and grow free cash flow. We have reached an important inflection point.

The next chapter is no longer about repositioning Lincoln. It is about building on what we have created, making disciplined, deliberate choices that expand our businesses and improve the quality and durability of our earnings. Lincoln today is a fundamentally different company than it was 4 years ago. And what matters most is what that now enables us to achieve. We will be defined not by the journey behind us, but by the opportunities ahead and the value we create from here.

With that, let me turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. This quarter marked another significant step forward for Lincoln with 3 key milestones. First, we delivered our eighth consecutive quarter of adjusted operating earnings growth with each of our businesses showing progress in their transformation.

Second, we signed an agreement to reinsure another $5.8 billion of our legacy life reserves, another significant step forward in the journey to improve that business and restore enterprise free cash flow.

And third, we prefunded the repurchase and/or redemption of half of the preferred stock that becomes callable next year while at the same time, growing our holding company cash net of prefunding to over $900 million, positioning us earlier than expected to now have the flexibility to deploy holding company capital more freely as we move forward.

I'll walk through each of these 3 milestones in more detail, and we'll start with the operating results for the quarter. This morning, we reported second quarter adjusted operating income available to common stockholders of $439 million, 3% growth compared to a year ago. EPS was $2.24 per diluted share, slightly lower than 2Q '25 due to the incremental share count from last year's pain transaction. There were no significant items in the quarter. However, our alternative investments portfolio delivered an annualized return of approximately 5% in the quarter, below our 10% annualized target representing $43 million after tax of below target income from that portfolio.

On a net income available to common stockholders basis, we reported income of $1.3 billion or $6.72 per diluted share, -- as in prior quarters, the difference between GAAP net income and adjusted operating income was driven primarily by the change in market risk benefits, which was favorable this quarter, given higher equity markets and higher interest rates.

Our hedge program, which explicitly targets capital, again performed in line with our expectations. Now turning to the segments, beginning with Group Protection. Group delivered operating income of $147 million compared with a record $173 million a year ago. The margin was 10.4%, down 210 basis points from the prior year quarter. Excluding the $15 million related to the annual experience refund on One States paid family leave program in the prior year quarter, earnings declined $11 million as favorability in life was more than offset by modest normalization and disability results.

Our group business continues to operate within our expected margin range with the impacts of the past 3 years repricing and strategic growth in higher-margin segments and markets contributing to earnings, while the disability environment continues to slightly moderate towards our longer-term expectations.

On a product basis, the life loss ratio this quarter was approximately 62% and improving roughly 500 basis points from a year ago as low incidence levels continue to support favorable mortality. While mortality experience can vary from quarter-to-quarter, the favorable trends we've observed over the past several quarters continue to provide a supportive backdrop for the business alongside the benefits of disciplined pricing actions.

The disability loss ratio was 71.9% this quarter compared to a loss ratio of 64.2% a year ago. As I noted earlier, the prior year quarter included roughly $15 million tied to the annual experience refund on One States paid family leave program, which we now accrue quarterly. Excluding that item, the disability loss ratio increased approximately 500 basis points from the prior year quarter, reflecting a comparison against the exceptionally favorable long-term disability results we experienced in the second quarter of 2025.

As you know, disability results have benefited from favorable experience over the past couple of years. While the disability loss ratio remains favorable relative to historical levels, we have seen modest normalization from these historically strong results which we expect to be reflected in year-over-year comparisons over the periods ahead.

Looking ahead to the remainder of the year, we expect many of the trends in the first half of the year to continue. Group life mortality should remain favorable, while disability results are expected to reflect a broadly similar year-over-year headwind to what we experienced year-to-date as the benefit from particularly strong 2025 experience continues to moderate. Overall, group continues to perform well, and we expect to deliver a full year margin within our targeted range of 8% to 9%, supported by the underlying strength of the business.

Now to Annuities, which reported operating income of $287 million. Sequentially, earnings improved $12 million, reflecting market appreciation, higher spread income the nonrecurrence of the unfavorable tax item we discussed last quarter and an additional fee day, partially offset by continued variable annuity outflows.

On a year-over-year basis, operating income was flat as higher average account balances and continued growth in spread income were largely offset by the reallocation of net investment income on our index credit hedging collateral to nonoperating income, which we implemented earlier this year.

Average account balances net of reinsurance were approximately $179 billion, up 12% from a year ago. Spread-based products accounted for approximately 31% of total account balances compared with 28% a year ago.

Turning to flows. Total net outflows were approximately $2.9 billion, driven by traditional variable annuities. Traditional variable annuity net outflows were about $2.7 billion with the pace of outflows consistent with recent quarters and in line with our expectations. The higher dollar amount reflects larger account balances following strong equity markets over the past year.

As we look toward the third quarter, higher starting account balances and additional fee day and continued spread income growth should support additional earnings growth. Overall, we are seeing early benefits from the shift towards spread-based products and we see meaningful opportunity to build on that progress over time.

Turning to Retirement Plan Services, which delivered operating income of $49 million, up 32% from $37 million a year ago driven by higher equity markets supporting average account balances and spread expansion. Base spreads were 119 basis points, up 20 basis points year-over-year, driven primarily by a higher earned rate as we continue deploying new money and yields above our portfolio yield.

Average account balances grew approximately 15% year-over-year to $128 billion, supported by equity market performance over the past year. Net outflows were approximately $2.4 billion in the quarter, driven by 3 large plan sponsor terminations, none of which met our profitability thresholds.

As we have said throughout the past year, we are prioritizing the profitability of the business we retain over volume even when that produces elevated outflows in a given quarter. We remain focused on disciplined pricing and improving the profitability of the business we retain.

While we experienced elevated outflows this quarter, they support a higher quality, more profitable earnings base over time and are consistent with the disciplined returns-focused approach at the center of how we are realigning this business.

The disciplined pricing on the business we retain and the meaningful spread expansion we delivered this quarter, build on the results we achieved in the first quarter and are continued evidence that this approach is taking hold. Together with the operating leverage from a higher quality mix spread expansion and stable value and the potential for a more efficient cost structure, retirement plan services is well positioned to deliver durable earnings growth over time. We are still early in this work, but the progress is real and we remain focused on continuing to execute in the quarters ahead.

Finally, turning to Life Insurance, which delivered operating income of $57 million an improvement of $25 million from $32 million a year ago. The improvement was driven by favorable mortality and the continued benefit of our fourth quarter captive consolidation an approximately $10 million year-over-year tailwind that continues into the third quarter before the comparison normalized, partially offset by lower alternative investment returns.

Mortality was a significant contributor this quarter, with broad-based favorability across both frequency and severity and among the most favorable results we have seen in some time. That favorability extended across the portfolio including continued favorable experience in our term business, consistent with the broader improvement we continue to see in U.S. mortality trends.

Mortality favorability of this magnitude will not recur every quarter. That said, we have now seen favorable experience for the better part of the past 1.5 years. And while quarterly results will always vary, that longer track record has been encouraging and remain supportive of the underlying trajectory of the business.

Turning to alternative investments, which was the primary offset this quarter. Alternatives generated an annualized return of 4.9% versus our 10% target, representing an approximately $39 million headwind in the quarter to the Life business. As we have discussed previously, the majority of our alternatives portfolio supports our life business, and that is by design as they are a natural fit for the long duration profile of this business.

Over time, that allocation is a meaningful source of risk-adjusted return that supports the economics of the business. While quarterly results can fluctuate as was evident this quarter, we remain confident the portfolio will deliver returns consistent with our long-term target.

Looking ahead to the third quarter, 2 dynamics are worth noting. First, on mortality, while we would ordinarily expect a seasonal improvement from the second quarter to the third, this quarter's favorability was greater than that typical seasonal uplift.

Second, we expect alternative investment returns to recover and be at or above our target in the third quarter. Taken together, we'd expect to see earnings in line sequentially.

Beyond the near term, we remain focused on building the durable earnings power of the Life business and improving its overall economic profile.

Turning to expenses. Second quarter G&A expenses, net of amounts capitalized, were $604 million, up approximately 5% year-over-year. The increase reflects continued investment tied to specific actions across our businesses, the investment in our claims platform and Group Protection the cost of retaining and servicing a larger share of our fixed annuity business and investments in our retirement plan services operations.

Each of these support a better experience for our customers and a more efficient platform over time, and expense discipline remains a strategic priority as we advance our transformation.

Turning to investments. Our high quality and broadly diversified portfolio remains tightly aligned with our liability profile and is positioned to perform well across a range of economic scenarios. 97% of the portfolio is rated investment grade, with below investment-grade holdings near historic lows.

The portfolio is broadly diversified across asset classes, industries and issuers with the granularity and limited single-name concentration that come from years of disciplined credit selection. It also reflects the deliberate work we have done across the general account to improve quality and diversification over time, and the portfolio delivered positive net rating migrations in the quarter.

Together, that quality and diversification are central to how we manage risk in the portfolio. We've also continued to enhance our sourcing and execution capabilities, which allows us to be more deliberate in how we optimize the general account.

Over the past several quarters, we have executed a targeted shift in our asset mix toward high-quality assets and structured strategies, adding incremental yield within our overall risk appetite while preserving the credit quality of the portfolio. These efforts support our spread-based growth initiatives and remain an important part of our broader strategy to enhance returns and product competitiveness.

On alternatives, returns were below our target this quarter at approximately 4.9% annualized, reflecting softer performance across parts of the portfolio. Based on the visibility we have into our public and venture capital positions, together with the market recovery through the second quarter, we would expect alternative returns to improve meaningfully in the third quarter and to run at or above our target.

As always, the quarterly range of outcomes is wide and alternative returns are difficult to predict, but what we have seen to date gives us confidence in a rebound. The breadth and diversification of the portfolio continue to support our confidence in its ability to meet our return objectives over time.

Stepping back, our portfolio across asset classes remain strong. We maintain a robust asset allocation framework with rigorous stress testing and a measured diversified approach to managing the general account grounded in a consistent and disciplined risk framework. We remain very comfortable with the portfolio.

Now let's turn to the transaction we announced this morning, which represents another deliberate step in the multiyear work we have done to shift our liability mix and improve the quality of our free cash flow. This morning, we announced that we have entered into an agreement to reinsure a legacy block of guaranteed universal life business to a subsidiary of Talcott Financial Group.

Under the agreement, we will see approximately $5.8 billion of our in-force guaranteed Universal Life statutory reserves roughly 37% of our remaining guaranteed universal life block, along with approximately $500 million of funding agreement business.

Together with our 2023 transaction with Fortitude Re, approximately 60% of our total in-force guaranteed universal life will now be reinsured upon the closing of the transaction. The transaction is structured partly as coinsurance with funds withheld and partly as modified coinsurance with robust counterparty protections, including over-collateralization and investment guidelines aligned with our risk management framework.

We will retain administration, recordkeeping and claims management for these policies and there is no change to our commitments to policyholders or distribution partners. The rationale is straightforward. Guaranteed Universal Life is among the most capital-intensive long-tailed parts of our in-force and this transaction meaningfully reduces our exposure to long-term mortality, lapse and interest rate risk.

On an all-in basis, transaction will have a statutory capital impact of approximately $200 million or roughly 10 RBC percentage points. As we have said previously, we intend to fund that impact from a portion of the remaining proceeds from last year's Bain Capital transaction. Even after giving effect to the transaction, we expect to remain meaningfully above our 20% RBC ratio buffer.

Going forward, we expect the transaction to increase our ongoing annual free cash flow by approximately $30 million to $40 million a year. From a GAAP perspective, the transaction is expected to reduce net income through amortization of the deferred loss, but we do not expect a material change to our adjusted operating income.

Given that reinsurance of exited blocks has become a more significant part of our results, beginning in the fourth quarter, aligned with the expected closing of the deal, we intend to refine our definition of adjusted operating income to exclude the amortization of deferred gains and losses on business exited through reinsurance providing a cleaner view of our ongoing operating performance while aligning the operating result with the underlying economics.

The transaction is subject to regulatory approval and subject to those approvals, we expect the transaction to close in the fourth quarter.

Lastly, turning to capital, where we continue to operate from a position of strength, further reinforced by the progress we made during the quarter. Our estimated RBC ratio remains well above our 400% target and the 20-point buffer we hold on top of it, and we maintained our leverage ratio at roughly 25%, in line with our long-term target. At the same time, we continue to build excess cash at the holding company.

Holding company cash net of prefunding ended the quarter at approximately $900 million, an increase of roughly $100 million from the first quarter and well above our historical operating range. Underpinning the build were strong remittances from our operating subsidiaries at $310 million in the quarter, bringing year-to-date subsidiary remittances to $580 million and tracking in line with our full year expectations.

We also took advantage of an attractive market backdrop to issue $500 million of hybrid securities, creating increased certainty as we look ahead to the repurchase and/or redemption of our outstanding preferred stock. Taken together with the continued build of excess cash at the holding company, we are now well positioned to address the preferred securities, which in turn allows for increased capital flexibility going forward and an ability to turn to other capital priorities, including share repurchases.

In closing, let me just say how proud I am of the team. We set out 3.5 years ago with the mission to restore our capital base derisk the balance sheet, improve our operating model and strategically realign our businesses for profitable growth. While the momentum has been building with each successive quarter, this quarter marks an important milestone for Lincoln with continued progress across our 4 businesses, another in a series of transactions to meaningfully shift our liability profile and the ability to now expand our capital priorities toward a more complete mix of options to generate shareholder value.

With that, Ellen and I would be happy to take your questions.

[Operator Instructions]. Our first question will come from the line of Wes Carmichael with Wells Fargo.

So clearly, some positive developments from a capital flexibility perspective, Ellen, you mentioned Lincoln's entered a new phase. You prefunded some of the press, the reinsurance transactions coming together. So I just wanted to see Chris, you mentioned buybacks, but I just wanted to see if you could provide more insight on what you're planning for a resumption of the repurchase. Is that '26 or anything on timing would be great.

Sure. Good question. And you're right, it was a really good quarter for Lincoln, especially on the capital front where a number of milestones are important to understand. I think if you step back and you think about the priorities that we've talked about over the past couple of years. We are largely complete and ahead of schedule.

So if you think about it, the first thing that we talked about was rebuilding RBC back to the 400 level and then holding a buffer on top of that. We largely executed on that with the Fortinet deal and the Elephant deal. We also talked about bringing our leverage ratio back down from, call it, north of 30% to the 25% level. We did that last year, and it continues to hold.

We talked about being able to fully retain our fixed annuity sales and allocating capital to continue to deal with the legacy Life block. We've largely done that, mostly through the combination of the Bain transaction last year and standing up the Bermuda entity in 2024. And then frankly, we've talked a lot about growing our ongoing capital generation, so improving the free cash flow conversion, and you saw with last year in the fourth quarter that we had gone from the 30% a couple of years ago, up to almost 50%. And this year remains supportive of that trend in terms of growth.

So the last piece has really been about being in a position to deal with the preferred. We've been very clear that this is an expensive security for us and from a capital priority perspective, we want to be well positioned to redeem or repurchase that security, as we've mentioned. And that's $1 billion, as you know.

And so with this quarter, we're now for the first time able to say that we're well positioned to handle it. We issued the $500 million of hybrid. You can see the cash continuing to build at the holding company. So it feels really good to be able to say with all the different capital priorities that we've set out over the past couple of years, we're now in a position where we can pivot to other opportunities that are available to us.

So if you think about where we are today, there's about $1.8 billion of capital at the holding company, $400 million of that is for the senior note prefunded that comes due in December. $500 million from the hybrid will be put towards the preferred, so that leaves about $900 million of available capital. And recall, we tend to hold around $500 million of the liquidity buffer. So call it $400 million of excess.

If you think about the first half of the year, the cash of the holding company billed by, call it, $250 million, and as we think about the second half, look at the guidance that we gave in -- with the outlook in fourth quarter, we would expect that number to be relatively similar. So you can do the math and understand sort of where we will be as it relates to what we'll do with that excess capital. There's a number of different options we could obviously retain more of a buffer.

There is the other $500 million of the preferred and then most accretively would be share repurchases. So at the end of the day, we're not announcing anything as it relates to timing today. As you'd imagine, our normal cadence for capital decisions involves reporting our earnings quarterly and then meeting with our Board thereafter and any decisions for the next quarter would be confirmed subsequently.

But what I can tell you is that we do have an outstanding repurchase authorization. It's obviously been dormant the past few years, and our Board has recently reconfirmed that program which is a good sign. But beyond that, we don't have anything else to add at the moment.

Okay. That's all helpful. I just wanted to come back to on the transaction and the redefinition of operating earnings regarding the reinsurance deal. Did I get that right that you don't expect adjusted earnings to change going forward? Or is it like after the REIT definition? Or should we think about earnings actually going higher if you exclude those deferred losses?

Yes. So that's a good question, Wes. What I would say is as it relates to this transaction, in particular, the impact of the deferred loss obviously won't have any impact on operating income when we make the accounting policy. What we realized was we were a little bit of an outlier as it relates to the way the industry treats those transactions and frankly, when you think about the underlying economics, getting GAAP to be as close as we can is important from an operating income perspective. So that's really what drove the thinking.

And then to your point, we have done a number of other deals. And so there is some businesses that would have deferred loss, some that would have a deferred gain. And so we're going through all of that in anticipation of closing the deal in the fourth quarter. And when we do, we'll obviously give you the pro formas and lay everything out for you.

[Operator Instructions]. Our next question will come from the line of Ryan Krueger with KBW.

I guess, first, I just wanted to confirm what you were saying on how to think life insurance certainties to the third quarter. Are you -- do you think the $57 million of reported earnings is a reasonable expectation for the third quarter? Or did you mean the $97 million with normalized alts?

Now, the reported for this quarter should get you to within some range, Ryan, how you would think about the third quarter. And that's before accounting for or adjusting for any favorable mortality trends that might continue. All we're doing is resetting the baseline for the very favorable mortality that we had this quarter as well as the underperformance in alts.

So when you -- normally, if you think about the seasonality in that business, as you know, it's very seasonal. 2Q tends to be your baseline and then third quarter and fourth quarter tend to be better and first quarter obviously tends to be the worst of the 4 quarters given the dynamic with mortality.

So all we're saying is just keep in mind that mortality was very favorable this quarter, and so when you think about the seasonality adjustment that you would normally make for third quarter, you have to adjust for all those things. So hopefully, that helps. We can go through the math more if you'd like.

No, that makes sense. Got it. a just a follow-up is on mortality trends. Chris, you mentioned 1.5 years of favorable mortality. I guess as you analyze your experience, are you seeing anything that you think might suggest this could -- at least some portion of this could become more permanent? Or is it -- do you just feel like it's too early to tell right now?

So these are very long-term trends, as you know. And I think when you go back and you look 5 out of the last 6 quarters have been very favorable for mortality. It's mostly been in the term block, although the UL block has had as much positive quarters as it has negative, which is a really good sign as it relates to the health of that block in relation to mortality.

I think when you look at the overall trends and you look at general U.S. mortality trends that we're not alone. And frankly, if you look at our results in our group business, those have also been favorable. So we'll see what it means about the long term. But if you go back, especially prior to COVID, the industry was dealing with mortality unfavorability off and on for years. And so I just think it's a really good sign that we've had a number of different drivers.

We've had, like I said, 5 out of the last 6 quarters being positive and so it just speaks to the go-forward health of that business, which is not to say that you can't get surprised by severity in any given quarter, right, especially in the UL block, if you have a handful of $20 million claims in a given quarter relative to your expectation, you can certainly have it go the other way. But underneath the surface, the mortality trends are encouraging.

Our next question will come from the line of Tom Gallagher with Evercore ISI.

First, just a follow-up on the amortization of deferred gains or losses. Chris, today, is that a positive or negative when we think about your earnings?

So it depends which business, Tom. But in aggregate, I would say it's a net negative.

Got you. So that if we were to just pro forma that on your current earnings, putting that below the line would actually lift your operating earnings, all things equal?

All things equal, but again, it's going to depend on which segment there's -- we've done, obviously, a number of deals that have impacted the Life business. We've done some fixed annuity blocks, although a lot of that was a while ago. And so the liabilities have run off to a degree. So yes, I mean in aggregate, that's certainly the case, Tom. But it's going to be very business-by-business specific.

Got you. And then my follow-up is just on Group Protection. Results continue to look good there. The I guess some peers had PFML-related elevated claims. Curious if you also saw that if you peel back the onion on your underlying group disability results? And maybe just tell us -- and I heard your forward comments, Chris, about what -- how you expect disability to remain a bit elevated. But I guess, is there a also a PFML-elevated claims issue that you would expect to reprice or you could see some improvement? Just wanted to understand kind of underlying on the disability claims, what's happening.

Sure. Yes. So disability, there's always a lot of moving pieces. So let's just unpack it. Within disability, obviously, you have LTD and then STD, you also have -- within each of those, you're looking at your incidents, you're looking at your severity resolutions and then against all of that, you're comparing to the prior quarter and any volatility that may have occurred there.

So there's a lot of different dynamics when you're looking year-over-year. What I would say, if you take each of those, STD, which includes PFML, is a little bit pressured. But relative to first quarter, the PML headwind is much less severe. When we look at the first quarter impact to disability loss ratio from FML was probably about 100 basis points. And this quarter, it was like less than 20 basis points. And so the dynamic is as the new states come online. And by the way, we've learned from prior experience because this year, there was 3 new states that came online, but we've dealt with this in the past and have had fairly arduous results in the short term.

So I think we have a good process. But essentially, with that first quarter you're looking at the claims that are coming in and you're putting up extra reserves. So when you get into second quarter, the headwind just becomes a lot less. And it's really the first quarter dynamic that is the most impacted -- as it relates to the product overall, look, I would say it's obviously not margin accretive, but it is good for the customer and over time is something that we're happy to have as part of the book. But the very simple answer to your question on PFML is that was really a first quarter dynamic for us, not as much go forward.

So big picture then for LTD. Look, I think I would reiterate what I've said in the past couple of quarters, which is -- you are seeing some normalization results. It's modest and measured and in line with what we expect. In any given quarter, you're going to get volatility in severity -- and when you think about the resolutions, I think it was third quarter of last year, where we had both volatility as well as the real start of normalization from a recoveries perspective, the normalization is going to continue.

But just keep in mind, these are still really good results. So net-net, when you step back, I think our view is we'll do sort of that 8% to 9% all-in margin for the year for group Third quarter, the trends should continue. We'll see what happens with volatility in any given quarter. But also just keep in mind, when you look at the third quarter of last year, the reported loss ratio has the assumption review in it.

And so you have to back out the very favorable assumption positive that obviously will influence that loss ratio. We gave the numbers at the time, but I think it's important with all the moving pieces that just have the right baseline.

And Tom, just a couple in addition into your PFML point. And Chris' point around the fact that we have learned from as these states come online. So First of all, we don't sell PFML as a stand-alone. It's always as part of some other comprehensive benefit offering.

But in addition, as they come online, repricing is just part of our overall standard process. So there's nothing new there. Again, we've learned along the way as we continue to implement PFML across these states that are coming online.

Our next question will come from the line of Suneet Kamath with Jefferies.

Just wanted to get some color on the $30 million to $40 million of incremental free cash flow that you expect from this deal. It just strikes me as a little bit low relative to the over $100 million that you got from the first deal. I just want to think about -- or just any color on kind of what's driving that? And when you say medium term, what do you mean by that over what period of time?

So it's an annual number, Suneet. It's just -- we're making the definitional point as it relates to the medium-term outlook that we gave in fourth quarter. So that's all that means. We would expect an immediate benefit once the deal closes. I look at the deal, and it's a $6 billion of pure GUL and the free cash flow uplift there is pretty good.

I mean we're spending $200 million of capital, and we're getting $30 million to $40 million. That's a pretty good return. I think if you're comparing it to the Fortitude block, there was a lot of different things in there, right, because we had a couple of other blocks of business that we seeded alongside it. It was a bigger size of GUL and if you think about the improvements we've made overall for the business over the past couple of years, all those things are going to influence it. So this is a much more straightforward block.

But again, when you think about the fact that you're removing, call it, 40% of the very capital-intensive mortality risk, interest rate risk, lapse risk, and it's costing you $200 million which you funded with the Bain deal and you're getting a $30 million to $40 million uplift in terms of free cash flow, it's a big positive for the company.

Okay. That makes sense. And then I guess, I think Chris, you had made some comments about the subsidiary dividend outlook for the second half. I was just hoping you could just remind me of what that is. And you had also mentioned a Board authorization -- existing share repurchase authorization, if you could just comment on the size of that and when the Board plans to meet next?

Sure, Suneet. So we meet with our Board next week, as we always do, following earnings. You can see the details of the existing program.

I think it's in our Q. It's a $1.5 billion program, obviously, dormant since 2022, I think there's over $700 million left on the authorization. And then to your question on remittances, I think what we said in the fourth quarter was that we would expect, call it, $1.2 billion to $1.3 billion a year. So far, in the first half, we did about $580 million, so you can sort of take the midpoint and subtract 1 from the other to get the expectation for the second half.

The thing that's worth remembering Suneet, is we tend to take our dividends from our smaller subsidiaries in the second half. So the Bermuda sub, Lin bar, they are usually third quarter, fourth quarter dividends. And so there is some seasonality. You can't just take the remittances and divide it by 4 and think that, that's the cadence. So I know you know that, but it's just worth reiterating.

Our next question will come from the line of Joel Hurwitz with Dowling.

Couple on annuities. Ellen, in your prepared remarks, you remain bullish on growth in fixed annuities. Can you just talk about what you saw in the quarter that resulted in the more subdued sales and what gives you confidence for a rebound in the second half of the year?

Absolutely. So first of all, if you just take a step back and some of my comments in the remarks upfront, we are a holistic annuity provider. And so along with our broad distribution, we are really one of the few carriers that is across all of the main product categories. And so in terms of our distribution, we're able to take a solutions-based consultative approach. And at the same time, we are being very intentional around how we are prioritizing profitability over volume in a very competitive market.

And so this really enables us to stay flexible, so that we can lean into areas where we overall see the greatest opportunity. So we're not beholden to any particular segment in 1 particular moment in time. So when you look at our quarter and you look at the fact that -- we saw opportunity, first of all, in RILA, where sales were up 10% year-over-year. We mentioned and we referenced that we saw opportunity in VA without GLB, those sales were up 60% year-over-year.

And then when it comes to fixed annuity, we also want to be clear that our conviction in terms of this opportunity remains we see fixed and, in particular, FIA as our longest time way for growth. And some of the reasons why are that: number one, we have spent over the last couple of years, while we have been working to rebuild the foundation, we've also built a foundation in terms of all the capability to be able to support us in fixed indexed annuities. That includes unique crediting strategies. It includes differentiated product features. It includes our work with Bermuda but it also includes our investment capabilities and in particular, our partnership with Bain, which is really broadening our toolkit.

Additionally, we have been working to expand on the shelves of distribution firms where we already had deep existing relationships, but we've been able to put our FIA product on the shelves in particular. And over the last, call it, 12 to 18 months, we've actually added the product on to 9 firms where we had existing relationships, and we're starting to gain traction there as well.

So you put all of that together and you put you put on top of that the fact that one of our objectives is to expand our spread-based earnings power. And we really see a long runway and in particular, that our expectation is to meaningfully increase our FIA sales in the back half of the year.

Got it. That's helpful. And then just on the earnings there, Chris, anything unusual you'd call out in annuities in the quarter? I guess I would have expected I expected a bigger rebound in the ROA, just given the equity market recovery and the dynamics of like the extra fee day. I don't know if there's anything. It looks like net expenses might have been a little higher. But anything you would call out there?

Not in particular, Joel, there weren't any onetime items or unusual items for the quarter for annuities. I think if you step back, there's a couple of dynamics to understand, so I know you know this, but the ROA on VA is relatively stable.

The account value is going to move up and down with markets. We and the industry have been in a net outflow position there for a while. And so I think the earnings power from VA is relatively straightforward depending on what happens with markets I think the important thing to understand then as it relates to spread, so obviously, on a year-over-year basis, we're still dealing with 2 dynamics.

The first is the op to non op where we moved some of the NII related to collateral for the hedging from operating income to non-op, and so that is still a dynamic this quarter. And then also as we exited the flow agreement, you're retaining more of that acquisition expense near term and then you get the spread income associated longer term.

The last thing I would call out, when you think about ROA, specifically for RILA, you have to understand that the index credit piece of it is going to -- especially in periods with large market moves, but definitely over time, is going to increase the A without necessarily increasing the R by design, you're earning the your spread income on the assets that you're purchasing.

But if you think about it, the surrenders that we had this year from the 2020 vintage for $100,000 deposit, the policyholder was receiving $170,000 in benefits. So it's a really good product for customers. It's a good product for Lincoln. But from a strict metric as it relates to ROA, it can be skewed sometimes depending on what's happening with markets and the index credit and so forth. So net-net, the economics of the business continue to grow.

In the short term, you have some of the accounting noise, which masks some of the underlying positives. The bottom line, however, is we're seeing growth in our spread-based account value. We're seeing growth in spreads and VA is going to move around with markets.

Our final question will come from the line of Alex Scott with Barclays.

I wanted to circle back on group and just see if you could talk about competition in the space, what you'd anticipate heading into the end of the year just given some pretty favorable performance across Group Life and some of the other products.

Absolutely, Alex. So as you would expect, the market remains competitive as -- really as it always is, but still completely rational. And so as we look at this and we look at the back half of the year, first of all, we believe that we are well positioned.

We have, as you know, a targeted segment strategy across local, regional and national. We've got strong distribution relationships. We have strong retention in terms of continued business with employers -- we've got broad expanding product coverage. And our lineup in particular, as we see voluntary supplemental health enables us to continue to grow expanded lines of coverage. So and then importantly, also, we are continuing to invest in all the capabilities to support customer needs.

And we mentioned a number of them upfront. But all of that goes to persistency, it goes to to new business as it relates to investing in the claims process, investing in underwriting, investing in digital capabilities. We really -- we see a healthy pipeline as we go into the second half of the year. We believe that we have all the capabilities and the right to continue to win there as well and wwill continue to update you.

I think importantly, there are a couple of other things while we talk about group that I just want to mention. We really see the fastest-growing areas for us are in the supplemental health area and in local markets, and we see continued growth there. So I spiked out in my comments, supplemental health premium being up 28% and also seeing local market premium growth up over 3% as well.

As we look even at our second quarter sales, and we are comparing them to the highest second quarter sales result ever, but $150 million of sales in the second quarter is also healthy. We also see continued momentum there. So Supplemental health represented 26% of the sales in the quarter.

Local markets represented 37%. So as we continue to prioritize profitability and value over volume, with a healthy pipeline into the second half. Expect to continue to see us leaning into those segments and markets.

That's really helpful. Maybe over to annuities. -- how are you thinking about unit costs and your ability to compete in the market? Obviously, there's 2 peers that teamed up to generate more scale Certainly, you guys have some digital initiatives that are working on it just within your own firm. Can you do enough there? What do you anticipate you can do from a technology standpoint? Is it enough to be able to compete with some of these big peers?

Yes. So Alex, we believe that we will be able to continue to compete and perform extremely well. I mentioned earlier, broad distribution, broad distribution strength, got relationships across all the organizations. We have holistic offerings. We oftentimes have have distribution that is going across product, across solutions, et cetera. And -- we also mentioned upfront that we are making significant investments, in particular, in your question around technology and digital.

So a great example of that is that we have a completely digital process as it relates to new business processing for some of our annuity segments. As it relates to overall financial producers and firms, we are oftentimes really a preferred provider because of our ability to handle new business in a fully automated way. So -- we're going to continue to develop the right products to be able to compete. We're going to continue to invest in all the digital and technology.

We believe that we can do that with significant operating leverage going forward. And then broadening and deepening our distribution relationships. I think it's worth mentioning also that as it relates to distribution, a very significant portion of our wholesalers are long tenured. They've got deep relationships with financial producers. And at the same time, we've done all the investment that we need in terms of distribution platform to be able to offer training, online capabilities around product support with the illustrations, et cetera. So I really believe that we will compete well in these markets and that we have the scale that we need.

That concludes the question-and-answer session. I will hand the call back over to John for any closing comments.

Thank you for joining us this morning. We're happy to address any follow-up questions you have. Please e-mail us at [email protected].

This concludes today's meeting. Thank you again for joining. You may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to the Lincoln Financial First Quarter 2026 Earnings Webcast. [Operator Instructions]

I would now like to turn the call over to John Muething, Head of Investor Relations. You may begin.

Thank you. Good morning, everyone, and welcome to our first quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen?

Thank you, John, and good morning, everyone. Thank you for joining our call today. Our first quarter results reflect continued execution with adjusted operating income increasing 16%, marking our seventh consecutive quarter of year-over-year growth. This performance is the cumulative impact of the actions we have taken over the past several years to strengthen our balance sheet, build a more efficient operating model and diversify our business mix. Together, these are building the resilience that positions Lincoln for durable value creation in the years ahead.

Anchoring this performance are 3 priorities that guide our strategy: fortifying our capital foundation, optimizing our operating model and driving profitable growth across our businesses. Our capital foundation remains strong with capital levels well above our established buffer and our leverage ratio at our long-term target. The capital buffer is sized to provide a cushion against adverse economic conditions, allowing us to maintain steady execution as we advance our strategy.

We have also made meaningful progress on our operating model. This includes continuing to leverage our Bermuda affiliate to enhance capital efficiency, optimizing our investment strategy and maintaining expense discipline alongside investments in digital capabilities and automation that improve the customer experience and support the growth of our businesses. We see additional opportunity ahead to drive broader enterprise operating leverage while enhancing how we serve our customers through higher employee productivity, more streamlined processes and unlocking capacity for further innovation. At the same time, we are advancing profitable growth across our businesses, balancing top line momentum with profitability and capital efficiency.

Our focus remains on segments and products where we can compete beyond price, leveraging the depth of our distribution relationships, the breadth of our product suite and our differentiated capabilities to meet our financial objectives with attractive risk-adjusted returns and more predictable, stable cash flows. The mix of business we are writing is increasingly shaped by this approach, providing a foundation for our ability to sustain value creation over time.

Underpinning these priorities, we are growing the core capital generation of the company, deploying that capital to sharpen our competitive advantages, broaden our moat and drive growth in free cash flow over time. Results will not always be linear and the economic backdrop can be uncertain, but our momentum is building. Our track record is increasingly evident and we remain committed to creating long-term value.

Each of our businesses made progress against these priorities in the first quarter. Group Protection had another strong quarter with earnings growth and margin expansion. Life Insurance produced solid earnings with sales up over 30% year-over-year, driven by growth across core Life and executive benefits.

Retirement Plan Services generated earnings growth with the realignment of this business still in its early stages. And in Annuities, we shifted further toward a more balanced, less market-sensitive business mix with sales aligned to our deliberate approach and earnings carrying the known headwinds we previously communicated. Our Annuities business had another solid quarter, supported by diversified sales and strength in our distribution relationships. We offer a broad set of products across RILA fixed and variable annuities with and without living benefits, enabling us to meet customer needs across a range of market environments.

As we discussed last quarter, our new business approach centers on balancing profitability, capital efficiency and lower market sensitivity. Our first quarter results reflect that discipline across each of our product lines.

Total sales were $3.9 billion with spread-based products representing 64% of sales as we evolve toward a more balanced and less market-sensitive business mix. Starting with RILA, as we shared last quarter, we expect sales this year to be in line with the average of the past several years as we emphasize the parts of this segment, where we compete beyond price through our unique product features, crediting strategies and depth of our distribution relationships. A clear signal of that approach is our second-generation RILA launched nearly 2 years ago, which was recognized by SRP in 2025 and as the most innovative annuity product.

First quarter RILA sales were up year-over-year and lower sequentially, consistent with our objective to prioritize profitability over volumes. As we mentioned last quarter, within fixed annuities, we see the most runway to grow over time across our annuity portfolio, particularly in fixed indexed annuities where our crediting strategies and product features allow us to compete beyond price.

First quarter FIA sales increased over 90% year-over-year, supported by differentiated offerings, broader distribution and enhanced digital capabilities. Total fixed annuity sales of $716 million were below the prior year, reflecting lower volumes in the more price-sensitive MYGA products. Total fixed account balances grew as we retained 100% of our fixed sales with new business aligned to areas of the segment where the economics support our return objectives.

Variable annuity sales of $1.4 billion were down year-over-year with the decline most pronounced in variable annuities with living benefits, consistent with our objective to reduce market sensitivity over time and the expectation we shared last quarter that 2026 volumes would move closer to pre-2025 levels. Variable annuities remain an important part of our portfolio, supporting continued free cash flow generation and attractive risk-adjusted returns.

As a holistic annuity provider, the breadth of our franchise, our proven ability to pivot across product lines and our investment in technology modernization to support a more seamless and integrated customer experience position us to deliver on our objectives. Together, these capabilities reinforce our balancing of profitability, capital efficiency and growth while building towards a higher quality earnings profile over time.

Now turning to Life Insurance. Transforming this business has been a significant strategic priority over the past several years. Aligned with our financial objectives, we refocused our new business mix on products with more predictable cash flows, accumulation and limited guarantee solutions such as IUL, accumulation VUL and executive benefits. These are areas where demand is rising and where our product distribution and customer experience capabilities give us a clear advantage. Drawing on insights from our deep relationships with advisers and producers, we launched a new generation of products in these areas, optimized our distribution footprint to align with our product strategy and built the digital capabilities to better serve our producers and their clients.

We have been seeing momentum in our sales growth, although it will take time to meaningfully flow through to earnings and free cash flow. First quarter life sales were $129 million, up over 30% from the prior year, with growth across all product categories. Core Life and MoneyGuard sales were $96 million up 20% year-over-year. Our IUL suite led the growth as our integrated approach to product design and policy servicing is resonating with advisers who want to give their clients both long-term value and a simpler in-force experience.

Accumulation VUL is also gaining traction, supported by broader offerings and self-service capabilities. Executive Benefits had a strong start to the year with sales nearly doubling versus the prior year period. While large case activity can vary from period to period, the pipeline remains active, and we are encouraged by the momentum we are building in this business. Overall, the progress in Life this quarter reinforces the direction we set several years ago. The actions we have taken are building on one another, and we are developing a more diversified and profitable life franchise over time. There is more work ahead, but the path forward is increasingly clear.

Turning to Group Protection, another business where execution is clearly translating into results. Central to our success is our targeted segment strategy. We operate across 3 distinct market segments: local, regional and national with products, capabilities and distribution tailored to the different needs of each.

In local markets, the fastest-growing part of our 3 market segments and where we see the most attractive margin profile, our approach centers on bundled solutions that emphasize ease of doing business, leveraging our local distribution footprint.

In regional markets, we are reinforcing our broker partnerships and expanding the technology integrations and digital capabilities employers depend on to manage their benefits programs. And in national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by integrated technology, streamlined processes and our market-leading leave management expertise.

Across all 3 segments, supplemental health remains a key priority. This strategy is coming through in our results and reflected in year-over-year higher earnings, margin expansion and premium growth. First quarter premiums were up 2% year-over-year, driven by strong prior period sales and in-line persistency, offset by a large case lapse.

Importantly, that premium growth is increasingly concentrated in the priority segments we are most focused on expanding with local market premium increasing by more than 4%, its strongest year-over-year increase in nearly a decade and supplemental health premium up 28% year-over-year.

Sales were roughly in line with the prior year period and consistent with typical sales levels experienced in the first quarter. 74% of sales were from existing customers and a sizable share of that came from expanding additional lines of coverage with our in-force customers, particularly in supplemental health, where employers are responding to rising employee demand. Our pricing remains disciplined. Alongside that, we are making meaningful investments, modernizing our claims platform and expanding digital tools that improve the experience for the brokers and employers we serve.

These investments enhance our offerings, reinforcing persistency while helping us attract new business. Overall, our targeted segment strategy, diversified footprint and disciplined execution are translating into consistent performance with a clear runway ahead. Looking forward, we expect Group Protection to be an increasingly meaningful contributor to Lincoln's higher-quality earnings profile.

Now turning to Retirement Plan Services. First quarter operating income was up 26% year-over-year. First year sales of $1.1 billion were up nearly 3% year-over-year with growth concentrated in the core market segment, a priority area for us. Total deposits were modestly higher at $4.1 billion. As we discussed on our last call, the realignment of this business is in its early stages. Importantly, we are applying a playbook we have run successfully in other parts of our business, which gives us confidence in our ability to execute here.

Three priorities anchor our approach. The first is disciplined growth, enhancing our product and service capabilities while broadening the opportunity to increase revenue. The second is service excellence, modernizing our operations, expanding offerings of digitally enabled tools and capabilities for participants and recalibrating how we meet the needs of plan sponsors. The third is enhancing what we offer, refreshing our value proposition by segment, updating our distribution model and using analytics to deepen engagement with our existing customer base.

Across all 3 priorities, we are modernizing the technology that underpins this business. While this realignment will take time, we are encouraged by the early progress. We will steadily advance these priorities to improve the earnings trajectory of this business in the years ahead. In closing, we are executing, delivering results and making tangible progress on our priorities. There is more to do, and we see significant opportunities ahead. Lincoln has a differentiated set of competitive advantages, a diversified franchise across 4 businesses, each at a different stage of its realignment toward our financial and strategic objectives, a deep distribution platform that we are actively expanding and optimizing and capabilities tailored to each of the markets we serve, giving us the capacity to do more for our customers with greater agility.

We are operating from a position of strength with a balanced and disciplined approach to growth and capital deployment. We remain confident in the actions we are taking, which are building toward a higher quality earnings profile that creates sustainable long-term value for our shareholders. With that, let me now turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our first quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering year-over-year adjusted operating income growth for the seventh consecutive quarter. The result this quarter was supported by favorable underwriting experience in our group and life businesses, continued growth in spread income in annuities and retirement plan services and another strong contribution from our alternative investments portfolio.

Alongside strong earnings, free cash flow and capital generation continued to build, tracking in line with our expectations. Holding company liquidity, excluding prefunding for our December senior note maturity, ended the quarter above $800 million, reinforcing the financial flexibility we have to act on multiple fronts over the next few years.

This morning, I will focus on 3 areas. First, I will walk through our consolidated and segment level performance for the first quarter. Second, I will touch on our investment portfolio. And third, I will provide an update on our capital position.

Let's begin with a recap of the quarter. This morning, we reported first quarter adjusted operating income available to common stockholders of $326 million or $1.66 per diluted share. There were no significant items in the quarter, but there were 2 normalizing items. First, our alternative investments portfolio delivered an annualized return of 12.3% in the quarter or $129 million. On an after-tax basis, this amount was approximately $19 million, above our 10% annualized target or $0.10 per diluted share. And second, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts.

As a result, the annuities effective tax rate this quarter was approximately 200 basis points above recent levels. Ongoing impacts are minimal at approximately $1 million per quarter.

Turning to net income for the quarter. We reported a net loss available to common stockholders of $211 million or $1.10 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the negative movement in market risk benefits amid lower equity markets in the quarter. Importantly, our hedge program, which explicitly targets capital, continued to perform in line with expectations.

Now turning to our segment results, beginning with Group Protection. Group delivered another strong quarter, building on the momentum from 2025. First quarter operating income was $112 million, up 11% from $101 million in the prior year quarter, and the margin was 8%, a 60 basis point improvement.

The year-over-year improvement was driven by the strength of our group life results, partially offset by continued normalization in disability. The group life loss ratio was roughly 67%, an improvement of more than 800 basis points from the first quarter of 2025. Group Life results remained strong this quarter, supported by favorable incidence and severity outcomes. While mortality results can vary from quarter-to-quarter, the result was consistent with the favorable trends we've observed in recent quarters and remains favorable relative to historical experience.

Importantly, we continue to see the benefits of disciplined pricing actions, which have supported a more durable earnings profile in this business. The disability loss ratio was 73.4% compared to 70.1% in the prior year quarter. The elevated loss ratio was driven by 2 primary items. First, our paid family leave product experienced elevated incidence rates with the introduction of 2 newly effective states, consistent with our continued footprint expansion as more states adopt these programs. This is an expected occurrence for new states, and we anticipate it will moderate as we move through the year. Second, within LTD, we experienced unfavorable resolution severity this quarter. As we discussed in the back half of last year, disability results are normalizing from the record low levels we experienced over the last 2 years, including some moderation in the favorable claims dynamics that supported those results.

Even with this normalization, claims management outcomes remain solid and the underlying fundamentals continue to be strong and in line with our expectations. As we look ahead, risk results have historically improved from the first to the second quarter, and we expect that seasonal pattern to repeat this year. As a reminder, however, our second quarter results in 2025 included approximately $15 million associated with the annual experience refund tied to one state's paid family leave program.

As we communicated last year, we have transitioned to accruing this refund on a quarterly basis throughout the year, mitigating the onetime impact experienced in prior years. Overall, group's first quarter results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise.

Now turning to Annuities. Annuities reported first quarter operating income of $275 million compared to $290 million in the prior year quarter. Given a few moving pieces this quarter, let's walk through the result on a sequential basis from the fourth quarter reported earnings of $311 million. As a reminder, fourth quarter results included approximately $8 million of favorable payout annuity mortality experience that we noted at the time.

Excluding that, underlying earnings in the fourth quarter were closer to $303 million. From that level, a few items drove the sequential change to $275 million. First, as we discussed on last quarter's call, beginning in the first quarter and continuing on a go-forward basis, we reallocated net interest income earned on collateral posted in connection with our index credit hedging strategies from annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful.

Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. Relative to the fourth quarter, this reallocation reduced reported annuities operating income by approximately $10 million in the first quarter with no change to the underlying economics or free cash flow.

Second, as I discussed earlier, results in the first quarter included a onetime $7 million impact due to unfavorable tax-related items, reflecting a true-up of certain prior year tax positions on our variable annuity separate accounts. The remainder of the sequential change relative to the fourth quarter reflects 2 fewer fee days, which drove approximately $10 million of additional pressure and continued traditional variable annuity outflows, partially offset by continued growth in spread income.

Stepping back to a year-over-year view, when normalizing for the NII reallocation and the unfavorable tax-related items in the first quarter of this year, Annuities underlying earnings would have modestly improved relative to the first quarter of 2025. The improvement reflects continued growth in spread income and the benefit of higher equity markets, partially offset by continued traditional variable annuity outflows and higher expenses associated with the full retention of our fixed annuity flows.

Account balances net of reinsurance ended the quarter at $169 billion, 7% above the prior year period, supported by 15% growth in RILA balances and 24% growth in fixed annuity balances. Spread-based products now represent 31% of total annuity account balances net of reinsurance, up from 28% a year ago. On a sequential basis, however, ending account balances were down approximately 4% from the fourth quarter, driven by the equity market decline in the period and continued variable annuity outflows.

We would expect this lower starting balance to be a headwind to fee income beginning in the second quarter. That said, equity markets have recovered meaningfully through the first several weeks of the quarter. And if these levels are sustained, we would expect a reversal of that pressure.

Turning to net flows. Total net outflows for the quarter were approximately $2.2 billion, an increase from the prior year quarter, reflecting higher traditional variable annuity outflows, partially offset by continued positive net flows in spread-based products. Traditional variable annuity net outflows for the quarter were approximately $2.6 billion. While outflows increased relative to the prior year quarter, the outflow rate has remained relatively consistent over the past year with the increase in outflow volume reflecting growth in our underlying account balances driven by favorable equity markets over the last year.

Across spread-based products, both fixed annuities and RILA continued to generate positive net flows in the quarter. Fixed annuity net inflows were approximately $100 million and RILA net inflows were approximately $285 million as continued strong sales were partially offset by higher surrenders from earlier vintages exiting their surrender charge periods.

As we have noted previously, we expect RILA net flows to moderate relative to recent years as additional vintages move out of their surrender charge periods with overall account balance dependent on overall sales. As we look to the second quarter, we anticipate a sequential tailwind from the normalization of the unfavorable tax-related items alongside the benefit of an additional fee day and continued growth in spread income.

Overall, the fundamentals of the business remain solid. Our continued emphasis on diversifying the product mix towards spread-based products, together with the disciplined risk and hedging framework we have built around the business, positions annuities to remain a steady contributor to earnings and free cash flow over the long term.

Now turning to Retirement Plan Services. Retirement Plan Services delivered a strong quarter with operating income of $43 million, up 26% from $34 million in the prior year quarter. The improvement was driven by continued spread expansion alongside the benefit of higher equity markets supporting average account balances. Base spreads were 116 basis points, up 13 basis points from 103 basis points in the prior year quarter.

The expansion is driven by deploying new money at rates above our existing portfolio yield, along with targeted crediting rate actions taken at the start of the year. Average account balances grew approximately 10% year-over-year to $125 billion, supported by equity market performance over the past 12 months. Net outflows for the quarter were approximately $200 million, a meaningful improvement from the prior year quarter.

As we look to the second quarter, however, we expect net outflows to be elevated in the range of $2 billion to $2.5 billion, driven by a small number of known plan terminations, the majority of which did not meet our profitability targets. Consistent with the comments made throughout last year, we are continuing to be deliberate about the business we retain, focusing on the segments and customers that meet our targeted return thresholds even when that means accepting elevated outflows in a given quarter.

The combination of disciplined pricing on retained business, the meaningful spread expansion delivered this quarter and the operating leverage from a higher quality business mix is what positions retirement plan services to deliver durable earnings growth over time. The first quarter result represents an early but tangible proof point that the actions we've been taking in this business are beginning to translate into improved earnings, and we expect to sustain a similar level of year-over-year growth as we look towards the second quarter.

Lastly, turning to Life Insurance. Life delivered first quarter operating earnings of $41 million, our strongest first quarter result in 5 years and a meaningful improvement from an operating loss of $16 million in the prior year quarter. The improvement was driven by higher alternative investment returns and the continued benefit of our captive consolidation, which represents an approximately $10 million year-over-year tailwind. As a reminder, we executed this consolidation in the fourth quarter of last year, so we will continue to see this year-over-year benefit in the second and third quarters of this year, after which the comparisons will normalize.

Mortality this quarter was favorable to our expectations, driven primarily by continued favorable experience within our term business. The result is consistent with the improvement we have seen in recent quarters and with broader U.S. mortality trends, which have continued to move in a favorable direction. While quarterly mortality results will continue to vary, recent experience has been encouraging and remain supportive of the underlying trajectory of the business. Alternative investment returns were also strong, contributing approximately $19 million after tax above our 10% annualized target. Building on this progress, we are also beginning to see early evidence of the impact from the strategic repositioning of our new business franchise contributing to underlying earnings.

While modest in the current earnings profile, the deliberate mix shift over recent years toward products with more favorable risk characteristics and attractive risk-adjusted returns will continue to emerge over time as the in-force grows in size. As we look to the second quarter, we expect a modest improvement in mortality as favorable seasonal trends from the first to second quarter are partly offset by the favorable experience in the first quarter.

Additionally, given the elevated volatility we have seen across markets, alternative investment returns could experience some variability relative to our 10% annual guidance. As a reminder, the second quarter of 2025 also benefited from favorable mortality experience, which could create a less favorable year-over-year earnings comparison for the second quarter even as the underlying trajectory of the business continues to improve.

Beyond near-term seasonality and as demonstrated by the past year of results, we remain focused on building the durable earnings power of this business through disciplined expense management, optimization of the investment portfolio and continued progress on our strategic repositioning toward products that generate more stable cash flows and attractive risk-adjusted returns.

Turning briefly to expenses. First quarter G&A expenses, net of amounts capitalized, were $589 million, up modestly year-over-year and down sequentially from a seasonally high fourth quarter. The year-over-year increase reflects continued investments tied to specific business actions, including the ongoing modernization of our claims platform and Group Protection, which is intended to drive efficiency and a simpler experience for our customers as well as the financial impact of supporting the full retention of our fixed annuity flows and annuities.

Expense discipline remains a strategic priority across the organization, and we see continued opportunity to drive efficiency as we advance our transformation with an ongoing focus on leveraging technology to improve productivity and ensuring our expense base is appropriately sized to support our strategic objectives.

Now turning to investments. Our investment portfolio delivered solid results in the first quarter, reflecting our high-quality and well-diversified portfolio and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade, while our below investment-grade exposure remains at historic lows.

Credit performance for the quarter was in line with our expectations. Touching briefly on alternative investments. Our alternatives portfolio delivered another strong quarter with a return of 3.1% or approximately 12% annualized above our 10% annualized return target. While alternative investment returns have been at or above our target over recent quarters, the elevated volatility we have seen across markets could lead to some variability in our alternatives portfolio in the near term. While quarterly results can vary, the breadth and diversification of the portfolio give us confidence in its ability to achieve our return objectives over time.

Lastly, I want to spend a moment on private credit, given the heightened focus on this area across the industry. Our approach across all asset classes is grounded in how we manage the general account, anchored in a robust strategic asset allocation framework that recognizes private assets as a natural fit for the long-duration illiquid nature of our liabilities. Investment-grade private placements, in particular, have been a long-standing core competency of our investment platform and a meaningful source of risk-adjusted yield that supports our liability profile.

As you can see in our investor supplement on Slide 12, our private credit portfolios represent approximately 20% of our general account and are comprised of 3 categories: investment-grade private placements, private structured securities and direct lending. The vast majority of our exposure, approximately 15% of our general account or $19 billion sits in investment-grade private placements. This is a market we have invested in for decades, along with the majority of our long-tenured insurance peers.

These are institutional investment-grade borrowers diversified across industry with sectors like utilities comprising a large portion of the exposure. Historically, the IG private placement market has delivered fewer rating migrations, lower defaults and better recoveries than their public comparables, supported by strong covenant protections and the deeper diligence that comes from having a direct relationship with the issuer. It's also worth noting that this market has been relatively stable in terms of growth over the last decade.

At a smaller scale, we also hold approximately $4 billion or roughly 3.5% of our general account in private structured securities, which is largely an investment-grade strategy. This portfolio is A rated on average, has an average position size of $14 million and is represented by collateral such as equipment financing, solar financing and aircraft leasing. And while our portfolio is smaller than the industry in terms of allocation, we would expect this portfolio to grow over time given its duration profile, consistent with our strategic priority of growing our spread-based earnings and diversifying our annuity mix.

The last and smallest allocation of the portfolio is direct lending, which represents less than 1.5% of our general account. This has been a surplus strategy, which over the last decade has delivered attractive net returns, though it has been a modest overall contributor to our earnings given the small allocation. The portfolio is highly diversified with more than 400 underlying loans, primarily managed by 4 large, well-tenured managers with an average position size of approximately $4 million.

The weighted average life of the portfolio today is under 2 years, and we would expect this exposure to decrease over time, both in terms of absolute dollars and as a percentage of the general account, in line with the strategic priority of growing our spread-based businesses and thus allocating our risk appetite to assets more efficiently supporting our interest-sensitive liabilities.

Stepping back, our portfolio across asset classes is the highest credit quality we've experienced in years. We maintain a robust asset allocation framework with rigorous stress testing and a measured approach toward diversified deployment of new money across asset classes, executed alongside our strategic partners and grounded in a consistent disciplined risk framework. We remain very comfortable with the portfolio.

Turning now to capital, where we continue to operate from a position of strength. I would highlight 3 points. First, our estimated RBC ratio remains well above our 400% target and the 20 percentage point buffer we built on top of that target, now the eighth consecutive quarter that we've ended above the 420% target buffer level.

Second, our leverage ratio improved further during the quarter to 25%, which is now at our long-term target. We've made meaningful progress on this front since the end of 2023, and the lower leverage ratio reinforces the financial flexibility we have built across the enterprise. Third, holding company liquidity ended the quarter at approximately $1.2 billion, an increase of approximately $150 million from year-end. This includes $400 million of prefunding for our senior notes maturing in December of this year. So net of prefunding, holding company liquidity is $805 million, well above our historical operating range. The continued build in holding company liquidity in part reflects the growing dividend capacity from our operating subsidiaries and provides the flexibility to support our broader capital priorities.

Before I conclude, I want to briefly touch on the macro environment. While uncertainty remains with elevated volatility persisting across markets, the work we have done over the past several years to fortify the balance sheet, diversify our sources of earnings and deepen our risk framework leaves Lincoln well positioned to perform through it. In closing, our first quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered the seventh consecutive quarter of year-over-year adjusted operating income growth with continued progress across our underwriting businesses, ongoing spread expansion and another quarter of free cash flow and capital generation tracking in line with our expectations.

The path forward will not always be linear and mortality experience and market conditions will continue to create some variability from quarter-to-quarter, but the trajectory of the business is clear, and we remain focused on disciplined execution, free cash flow generation and the creation of long-term shareholder value. With that, let me turn the call back over to the operator.

[Operator Instructions]

And your first question comes from the line of Wes Carmichael with Wells Fargo.

Just thinking about the holdco liquidity increased about $150 million sequentially. And I think you guided to around, call it, $100 million of holdco expenses on a quarterly basis. So is that a decent proxy for free cash flow? I think last quarter, you had mentioned that kind of any excess generation in subsidiaries would be upstreamed, but any other considerations in the quarter when we think about free cash flow?

Yes, good question. So I would say a couple of things. First of all, you're right, the holding company cash increased to over $800 million, net of the prefunding for the quarter. It's the highest it's been in a long time. We talked about this last quarter where as free cash flow is being generated, you will see an increasing amount of that move to the holding company. I think as it relates to the quarter-to-quarter dynamics, though, just keep in mind that we tend to take dividends from LPine and [ LNCAR ] at least last year in the back half of the year. So we would expect that trend to continue.

And then there's also always going to be some variation quarter-to-quarter as it relates to free cash flow relative to GAAP because of things like taxes or how seasonal expenses might be dealt with between the 2. But at the end of the day, when you step back, the earnings growth came through at 16%. The free cash flow conversion continues to look strong relative to the guidance that we had talked about a quarter ago, and you're starting to see more of that move to the holding company.

Got it. And I guess just the second one, good to see favorable alts returns in the first quarter. Chris, I think in your prepared remarks, you mentioned there could be some variability in 2Q. That makes sense. But do you have any kind of early view on alts returns for the second quarter or how you think that ought to trend through the rest of the year?

It's too early, Wes. But I think the comments that I made in the prepared remarks are just a reminder that the portfolio is on a lag. And so if you think about what happened in first quarter, you would imagine any volatility that would play through would come through next quarter. Obviously, this quarter, in public markets, you're seeing positive performance. And so there's always just that lag.

I do think it's important, though, to step back when you think about our alts portfolio. It really has been a significant contributor over the last few years. And frankly, it's a testament to the way that portfolio has been built. And so when there is volatility in the markets, it can have an impact, but I also wouldn't think of it as S&P beta, if you will. It's about $4.2 billion in size. We've done about 10% returns with relatively minimal volatility over the past couple of years. And the point on the way the portfolio is constructed, and this is true for our general account as a philosophical perspective, but it's extremely diversified, right? And so we get questions about the alts portfolio from time to time. $4.2 billion, you could think of it as 40% in private equity, 20% in growth equity, 20% in real assets. So think of things like infrastructure and energy and then 20% in other strategies, so hybrids or hedge funds.

From a fund perspective, there's over 400 funds. So when you think about the diversification, that's, call it, $10 million per fund. And then if you just think about the way that portfolio construction works, from a position perspective, there's probably over 4,500 portfolio companies, so $1 million average size. So it's an extremely diversified portfolio. And the reason I make this point is because when you look back historically, depending on the macro environment, different parts of the portfolio are going to perform well and some parts of the portfolio are going to underperform. So the diversification is a real point, both from a strategy perspective, an asset class perspective and a size perspective. And frankly, it's been a really strong performer for us over the past couple of years.

Your next question comes from the line of Ryan Krueger with KBW.

My first question was on disability. Could you help us size the PFML impact on either in dollars or on the disability loss ratio? And then if we were to exclude that, like where is disability at this point relative to your longer-term expectations? Have we basically removed all of the favorability you had been mentioning from the macro environment and now we're more at a stable state? Or is there's still some favorability you're seeing?

Yes, good questions. On the first question on PFML, we're not going to size the specific impact. I think it's -- the dynamic there is relatively consistent with what you've heard from others in the industry. Two new states came online that has a near-term impact, but then normalizes throughout the year.

So you will see the normalization of that as you go through the next couple of quarters. The other dynamic, though, if you look at the loss ratio year-over-year, 70% last year, 73% this year. So in addition to the PFML pressure, which again normalizes, the dynamic that we talked about in the second half of last year is continuing, and that's on the claims resolution side. So as you think about as the mix of the block evolves and a greater percentage of the reserves are from more recent years where new claim severities have been favorable, the release of reserves from older high severity claims become less impactful. So that normalization is continuing. It's continuing in line with our expectations. And those expectations were obviously baked into the way we framed the outlook for '26 and '27. That's continuing.

What I would say, though, is that incidence is still really good. And incidence has been normalizing a bit, but relative to the longer-term expectations, both from a frequency and severity perspective for incidents in LTD, in particular, it's still favorable. So to the degree that the macro changes and unemployment becomes more of a dynamic, we would expect to see some change in incidents. But if you think about the 2 main drivers to your disability loss ratio on the LTD side, we are seeing the normalization on the resolution side, while incidence remains strong, but a little bit of a normalization from last year, which were, frankly, record levels.

And then on annuities, if I normalize for the tax item and also the 1Q seasonality, it would seem like you're trending kind of more towards the low end of the 66 to 70 basis point ROA guide you had given last quarter for the medium term. Is there any reason to expect any upward movement there from -- or is that -- or should we think of this more as you're probably running towards that lower end at this point?

Sure, Ryan. So it's 1 quarter. And what I would say is you're right, there's a lot of noise in the numbers. And so there's the tax item, which we mentioned. There's the NII allocation dynamic that we talked about. And then on a year-over-year basis, there is the incremental acquisition expense from retaining the full flow. We've talked about that in the past, and that will be a recurring dynamic. But just when you're looking at the comp year-over-year, keep that in mind.

So if you think about the underlying drivers beyond that, markets were not a tailwind for VA this quarter. When you think about the VA block, call that an 80 basis point ROA block of business, and you have the combination of outflows and fees and assessments and so forth running at about 10% a year. So for that 80 basis point large block to maintain its earnings trajectory, you need a similar level of earnings growth on an annualized basis.

And so this quarter, when you don't have the market tailwind, you see that pressure come through a little bit more. That outflow rate has been relatively consistent the past couple of years. It's in our expectations. And as we talk about all the time, the volatility just comes from what's happening on the account value side for markets.

On the spread side, the good news is we're continuing to see good spread income growth there. You can see some of that flow through in the P&L. I would also mention as a reminder that the NII allocation when you look year-over-year, you have to adjust for that. But as the account value grows for the spread income business, 2 dynamics will happen. One is you'll just get the greater lift of earnings, but from an ROA perspective, as you're building those blocks, the incremental return expansion comes over time because you've got some nondeferrable acquisition expenses. You have the expectation that your spreads expand over time, especially as you get through surrender periods and so forth. So longer term, I think you would expect the ROA of that to -- for the non-VA block to expand as the account balance is growing at the same time. And then you have the VA ROA sort of somewhat dependent on markets, as we've talked about. Very specifically, as you think about 2Q versus 1Q, the tax dynamic goes away and then you do have an extra fee.

Your next question comes from the line of Joel Hurwitz with Dowling & Partners.

Chris, first, can you just break down the loss in other ops. It seemed a bit elevated. Just walk us through the moving pieces of spreads in that legacy business you guys called out and expenses.

Yes. It's relatively straightforward. There is a legacy block that has assets against it. There's some equity sensitivity in the legacy block. And so the assets have some equity component in the account values. And over time, as markets have performed well, the excess on the asset side has grown. And so what happens is in periods of volatility in the markets, you can have a little bit of a drag there, and that's the majority of the difference year-over-year. There was the net investment income allocation change. We talked about that for annuities. We also mentioned at the time that there would be a more minor impact for other operations. It's about $20 million annually in other ops, so about $5 million a quarter. So once you adjust for those 2 things, the other ops income number is pretty straightforward.

Got you. And then just shifting to annuity sales. Can you unpack more what you saw in fixed annuities? It was a step down from prior quarters. It sounds like, right, I think, Ellen, you said FIAs were up 90% year-over-year. But how did that compare to the last couple of quarters as you started to sort of ramp that business up?

That's right. So first of all, if you take a step back and what you see in the first quarter just overall in terms of our annuity business is delivering on the framework that we laid out in our fourth quarter call. So as it relates to fixed annuity in particular, and one of the things that we said is that we see the greatest runway there over time and that we, as we move into 2026, are focusing on FIA over price-sensitive MYGA.

And keep in mind a couple of things here. One is that in fixed annuities, as Chris mentioned, we are now retaining 100% of sales following the exit of our external flow reinsurance treaty. And so while we're doing this, you saw this quarter, even though sales were down, that fixed annuity account value growth was up, and we expect it to continue to be up relative to where we were in 2025. So when we look at overall FIA and we see that we're up 90% year-over-year, we really see that in the fixed segment, importantly, this is where we see the most attractive growth opportunity. And some of the reason why is that we are really leaning into where we have differentiated crediting rate strategies, where we have differentiated product features, and that enables us to compete beyond price. And then at the same time, we have the opportunity in FIA to continue to expand from a distribution perspective where we have strategic partnerships, but we have not traditionally been on the shelf for FIA.

And then additionally, one more thing, which is that we're investing in the customer capabilities around digital and things like statement on demand, et cetera. So all places that support us in terms of continuing to grow here. MYGA, at the moment, we are deliberately stepping back. So we are seeing -- and I believe some of our peers have talked about this as well. We really want to compete on features rather than pure rate. And so we're going to selectively be in the market where the value trade is. We have the ability to pivot, and we're always going to make that trade-off. And if we see market conditions or we see something change here, we will, of course, adjust and pivot the strategy accordingly.

Your next question comes from the line of Suneet Kamath with Jefferies.

I guess for Ellen, we're seeing or witnessing the first merger of equals in the annuity space in probably 20 years, I think your company is probably the last one. Just wondering how you're thinking about that transaction? And does it change the need for scale in the business? And ultimately, does this start a wave of consolidation as people try to kind of catch up to size?

Sure. So I agree with you that we haven't seen an MOE of this size in quite some time. And as you all know, we compete with both of these organizations that are part of the merger announcement. And we also, by the way, compete with organizations that are much larger, too. So we feel really comfortable that we're going to be able to continue to compete well. We feel very well positioned. Just in terms of -- recall that several years ago, when we were initially going through our transformation and realignment, we did a broad strategic review. We looked across every business, every product, every segment. We made the decision at that time to sell our Wealth Management business because that was a business for us that we didn't have scale, and we didn't really feel that we had the right to win and really compete in that business.

And we talked about the fact that we have a commitment to the 4 businesses that we're in, all of which, as we've reinforced, are in different stages of their realignment. So we feel really good about our ability to continue to execute and deliver results. And to your point, scale is clearly a factor, and we have scale in our businesses. And at the same time, there are a number of other factors that we think are just critical in terms of success.

Capabilities, and you hear us, we are investing in unique and differentiated product features. We know that we've got a real competitive advantage as it relates to our distribution and proven track record of pivoting, and we're doing that all across the platform. And then you also hear us over and over again talking about all the investment that we're making in capability in ease of doing business with customer. And really, those things go hand-in-hand in terms of really having the right to win, continuing to gain share, continuing to grow the business. So we feel very good around where we are and our ability to continue to compete and importantly, grow the overall earnings trajectory for Lincoln.

Okay. That's helpful. And then I guess for Chris, I don't know if you can provide this, but in terms of the Bain Capital, is -- can you give us a sense of how much of that has been deployed at this point?

So I don't know that I would add a lot to what we said at the fourth quarter. So if you think about it, when we brought in the $800 million, we said we were going to use it for basically 3 primary strategies: number one, grow the fixed annuity account value and spread earnings over time as we exited the flow deal. Number two, continue to scale the institutional funding agreements; and number three, optimize the legacy Life block.

So as you think about where we were at the end of the year, we had talked about the fact that we exited the flow deal and we had, call it, a quarter and a month worth of flow. that was being capitalized and will produce strong spread earnings over time. As you think about the rest of this year, we'd obviously earmarked for the remainder of that to run through from a comp perspective. And then we've been doing funding agreements when the markets are supportive, as you know.

So from a cadence perspective of deployment, I think the spread income side of things continues at the pace that we had expected. The bigger variable as it relates to the use of proceeds as it relates to optimizing the Life portfolio, we mentioned in the fourth quarter that we restructured a number of the legacy life captives. We used some of the capital for that, really good return, both GAAP and even more so on the free cash flow side. And then we discussed the fact that in 2026 and 2027, we would look at a number of different actions, some external, some internal, to deploy more of that capital towards either repositioning the life portfolio asset base or looking at an external risk transfer deal. And obviously, we're still working through all of that.

So we like the trajectory of the deployment. There's the pace of account value growth that we're seeing on the fixed annuity side. We had the big first step on the life side with the captive. And really from here on out, it's making sure that we're being diligent on how we think about using the proceeds to execute on some of the life actions.

Your next question comes from the line of Tom Gallagher with Evercore.

Just 2 competition questions. The -- so Ellen, I think you were partly referencing the first one in your answer a few minutes ago. But on the Apollo call yesterday, they mentioned irrational competition in the annuity market coming from incumbent insurers, not from the new PE-backed entrants. And I certainly hope it's not you guys they're referencing because you did have good FIA growth, but you were mentioning MYGA is where you're seeing the most competition or at least aggressiveness in the market where you pulled back actually. But what are you seeing competitively that you think might explain this commentary and irrational competition from incumbents?

So I obviously can't speak to the comment of another peer. But having said that, we know that there are certain pockets of the annuity product segments where it's a pure price competition play. And one of those examples at the moment is MYGA. And we see pockets of this, and we've referenced this in previous calls. There are pockets of this on the RILA side as well as we see more competitive entrants. And one of the ways that we are focused on differentiating and ensuring that we are achieving the risk-adjusted returns that are critical for us in terms of growing this business is differentiated product features and really having a deliberate focus on the more profitable segments of this market.

So you're going to hear us over and over again reinforcing this fact that we are not focused on top line growth. We are focused on balancing growth with profitability, with capital efficiency as we continue to grow here, and we're leveraging the strength of our distribution franchise to pivot across products. You've seen us do this many times before, and we're going to stay focused there to make sure that we are ensuring that we're building the durability for this business going forward.

Got you. My follow-up is a question on competition in the Group Protection business. So your large case lapse that you referenced, was that more you needed rate, you were looking to reprice and as a result, you lost it? Or would you say that was more aggressive pricing from competitors or some other reason that you thought you lost that? And I'm just curious if that informed you about where you currently see competition in that market.

So Tom, you've repeatedly heard us talking about the fact that we are prioritizing margin expansion over top line growth across all of our businesses, but in group in particular. And so with one large customer, you can assume that it holds true here as well. So importantly, our in-line, our persistency was in line ex the one large case.

And while we saw premium growth of 2%, there are a couple of things that I want to emphasize here year-over-year. One is that we feel very comfortable with the medium-term outlook that we laid out for all of you last quarter, expecting premium growth to be in the 3% to 6% range over the medium term. And then you've also heard us talk about the fact that we are leaning into the most attractive margin and fastest-growing segments in our group business, the local markets and also continuing to expand supplemental health. And we saw local market premium growth deliver its strongest growth that we've seen in nearly a decade. And as it relates to supplemental health, that premium grew 28%. So we feel really good about where we are. And again, we'll continue to prioritize margin over top line growth.

Thank you for joining us this morning. We're happy to address any follow-up questions you may have. Please e-mail us at [email protected].

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Lincoln Financial Fourth Quarter 2025 Earnings Webcast. [Operator Instructions] I would now like to turn the conference over to John Muething, Head of Investor Relations. John, go ahead.

Good morning, everyone, and welcome to our fourth quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website, www.lincolnfinancial.com.

These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results. including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, liquidity and capital resources as well as any statements regarding our 2026 and medium-term outlook and future strategic initiatives are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC. These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me turn the call over to Ellen. Ellen?

Thank you, John, and good morning, everyone. Thank you for joining our call today. Our fourth quarter performance was strong with adjusted operating income increasing 31% year-over-year and our full year adjusted operating income increasing to its highest level in 4 years, underscoring the progress we have made as we advance our strategy with discipline and focus across Lincoln. .

This was also our sixth consecutive quarter of year-over-year adjusted operating earnings growth with solid performance across the business, aligned with our objective of further diversifying our mix. These results were supported by the continued advancement of our strategic realignment, operational execution and a more resilient capital foundation.

Before I walk through the quarter's highlights, I want to step back and reflect on what we have accomplished since we began this journey at the beginning of 2023. Over the course of the past several years, we remain focused on executing against the strategic priorities we laid out to evolve the direction of the company with a focus on increasing our risk-adjusted return on capital reducing the volatility of our results and growing our franchise.

The fundamental principles of foundational Capital, a more efficient operating model and our efforts to drive profitable growth are coming through in our results with clear evidence of building broad-based momentum balanced against a strategic awareness of where more work needs to be done.

With that context, I'll briefly frame our progress against the three priorities that continue to guide our strategy. Following several years of strengthening the balance sheet, our capital foundation remains durable and resilient. Capital levels remain well above our established buffer, and our leverage ratio has meaningfully improved.

With this foundation firmly in place, we remain focused on continuing to improve returns on capital and to manage capital with greater flexibility over time. We also made meaningful headway in optimizing our operating model, creating a more efficient and scalable organization. We have sustained expense discipline, combining prior firm-wide actions with continued targeted initiatives this year, and we see additional targeted opportunities ahead while continuing to invest strategically to support our long-term priorities. We are also making operational enhancements, streamlining processes to support employee productivity and efficiency enhancing digital and automated capabilities to better serve our customers and evolving our distribution strategy to strengthen our go-to-market approach.

Our investment strategy has been further refined expanding our asset sourcing capabilities and leveraging our external partnerships to enhance ongoing risk-adjusted yields. The role of our Bermuda affiliate expanded over the year and we will continue to leverage it to enhance capital efficiency in support of our broader strategy.

Collectively, these actions build upon the more stable foundation we have established reinforcing more efficiency and sustainability of performance.

Lastly, over the course of the year, we advanced profitable growth across the enterprise with clear progress across each business. Some businesses are further along in their strategic realignment and their performance reflects that while others are at earlier stages.

Across the company, our emphasis is on products and segments with higher risk-adjusted margins more stable cash flows and greater capital efficiency to strengthen the resilience of the business over time. The cumulative impact of these actions is translating into stronger core capital generation for the company which in turn supports capital deployment that sharpens our competitive advantages, reinforces our strategic moat and supports long-term free cash flow generation.

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. Our momentum continues to build. Our progress is increasingly evident and we remain focused on the path ahead.

Let me turn to our businesses where I will walk through our results and how we are positioning each to continue building on our progress in the years to come.

Starting first with Annuities. We are a leader in this market, offering a broad set of products across RILA, fixed and variable annuities, both with and without living benefits, enabling us to meet customers across different needs and market environments. Our deep, long-standing distribution relationships and consultative approach continue to broaden our reach and strengthen our position.

Over the past 2 years, we have built important infrastructure to support this business, including our Bermuda affiliate, expanded investment platform and enhanced product features. These capabilities support our go-to-market strategy and position our annuities business for sustained success in an evolving market.

In 2025, we delivered strong annuity sales with total volumes up 25%. Approximately 2/3 of those sales came from spread-based products, consistent with our strategy to evolve toward a more balanced and less market-sensitive mix over time.

Full year RILA sales increased 35% in 2025, reflecting our differentiated product features that continue to resonate with customers. Fixed annuity sales increased 11%, underpinned by the capabilities we've built to support a consistent presence. Full year variable annuity sales increased 27% year-over-year as our product offerings, coupled with the favorable market environment, supported sales growth in variable annuity with and without guaranteed living benefits.

2025 sales volumes, in part reflected a strong market environment and customer demand. In 2026, we remain focused on balancing profitability, capital efficiency and lower market sensitivity over time, prioritizing profitable growth over top line sales growth. I'll speak to each of our annuity product segments to provide additional context.

For variable annuities, we expect 2026 volumes to be intentionally lower and more closely aligned with pre 2025 levels as part of our effort to reduce exposure to market sensitivity over time.

In fixed annuities, we are now retaining 100% of sales following the exit of the external flow reinsurance treaty. Looking ahead, sales levels will continue to reflect market dynamics as we advance our profitable growth priorities, and we expect our fixed annuity account values to increase relative to 2025.

Within the fixed annuity category, we see attractive growth opportunities in fixed indexed annuities where differentiated crediting rate strategies and product features support our return objectives and allow us to compete beyond price.

In RILA, customer demand continues to expand alongside increasingly competitive dynamics. Our approach remains anchored in disciplined target return thresholds, differentiated product features and a deliberate focus on more profitable segments of this market factors that directly inform where we choose to compete.

As a result, sales levels may remain broadly consistent with the past 2 to 3 years as we see greater longer-term growth opportunity in fixed annuities relative to RILA. Importantly, our position as a leading annuity provider with a diversified set of product capabilities supported by a broad distribution footprint gives us the flexibility to reallocate capital efficiently toward the opportunity set offering the most attractive returns as market dynamics evolve.

We also remain focused on broadening our distribution partnerships across the annuity market aligned with a disciplined focus on segments that support higher risk-adjusted returns on capital and profitable growth. At the same time, we're expanding our product offerings and continuing to build digital tools and capabilities that enhance the value we deliver to our partners particularly in areas where we see the strongest opportunities and can compete beyond price.

Taken together, these dynamics underscore a disciplined framework for allocating capital across the annuity platform toward higher risk-adjusted return opportunities supported by product breadth, distribution strength and prudent capital deployment.

Earnings to Life. We continue to make meaningful progress repositioning the business over the course of the year. Our efforts have been focused on improving the performance of the in-force block and pivoting the new business franchise toward accumulation and protection products with more balanced risk profiles that support stable cash flows.

At the same time, we have advanced the modernization of our infrastructure and further optimized our distribution footprint to get closer to the point of sale. The strength of our distribution platform has enabled us to deepen relationships with key partners and expand our reach into markets where we see attractive growth opportunities. These actions are supporting both improved financial outcomes and stronger sales momentum.

For the full year, excluding the impact of our annual assumption review, earnings improved meaningfully Sales for the year were up approximately 50% versus the prior year. Full year core Life sales, which exclude executive benefits, increased 4% compared to the prior full year. It is worth noting that fourth quarter's core Life sales included some larger cases, which can vary from period to period. We expect core Life sales to grow in 2026 but from a baseline more in line with the earlier quarters of 2025 as we continue to prioritize profitable growth for the business.

Executive Benefits had a record year with sales of $265 million up from $59 million in 2024, reflecting the foundational investments we have made in this business centered around product capabilities, distribution relationships and our service model. While large case activity will naturally vary, we are encouraged by the trajectory we are building in this segment and expect to have a consistent presence in this market going forward.

From a franchise perspective, we continue to strengthen the new business momentum across our targeted product lines. Execution against our strategy remains focused on repositioning sales towards solutions with more favorable risk characteristics improving the financial professional experience through digital tools and operational excellence and expanding distribution reach through targeted product launches. Together, these efforts are reinforcing the trajectory of the Life business and supporting a more consistent contribution over time. Overall, we are pleased with the progress we made in Life this year and where this business is positioned heading into 2026.

In Group Protection, we continue to execute effectively against a targeted strategy to deliver value across three distinct market segments: local, regional and national with an emphasis on the fastest-growing markets, local markets and supplemental health.

Group delivered another outstanding year with strong earnings and premium growth and full year sales largely in line with the prior year. Full year earnings, excluding the impact of our annual assumption review, increased 16% year-over-year. Full year premium growth of nearly 7% was broad-based, with growth across all products and segments driven by strong sales and persistency along with disciplined pricing. Full year sales, as mentioned previously, were roughly in line with last year's results with growth in local and regional markets and supplemental health sales increasing over 40%, further diversifying the book.

Overall, this strong performance reflects deliberate choices in how we are tailoring products and services by segment, supported by continued investment in the capabilities and infrastructure that support our customers to manage their benefits more effectively.

As we look to 2026, we expect to build on this momentum as we continue to diversify the business with growth increasingly driven by strong persistency and disciplined premium growth.

With that context, I'll walk through how this translates across our local, regional and national segments. In local markets where we see the strongest margin profile, we are focused on accelerating growth by delivering bundled solutions that emphasize ease of doing business, leveraging our focused local distribution footprint.

In regional markets, we are reinforcing stronger strategic broker partnerships and expanding our technology integrations and digital capabilities to better support employers and their benefit decisions.

In national accounts, where clients demand robust capabilities, we are tailoring products and services enabled by our integrated technology and streamlined processes leveraging both our market-leading lead management expertise and deep broker relationships.

And across all of our segments, supplemental health remains a key priority. Across each segment, the focus remains on disciplined execution and serving customers while supporting sustainable growth over time.

Overall, the fundamentals of this business remain strong and group is well positioned as we move forward. Turning to retirement plan services. For the full year, earnings were relatively steady with modest pressure reflecting ongoing headwinds, including participant outflows.

At the same time, we continue to see strong sales and total deposits, underscoring that our value proposition is resonating with customers and that our focus on participant outcomes is gaining traction. As we begin the next phase of our realignment work, our focus is on sharpening where and how we compete. We see opportunity to build on our strength in the more profitable parts of the market, including leveraging our distribution footprint and supporting growth in higher-margin areas such as the small market segment.

Looking ahead, our priorities are centered on improving the earnings profile of the business over time by expanding revenue sources within the existing customer base, broadening products and services where customer demand is strongest and taking targeted actions to improve operating efficiency.

We also see opportunity to further optimize the investment strategy to support our stable value offerings. While this work will take time, the momentum we're seeing with customers reinforces our confidence in the strategic direction and our ability to steadily improve the quality and durability of earnings in this business over time.

Stepping back, we're pleased with the progress we've made. Today's results demonstrate disciplined execution as we continue to shape the enterprise, strengthen the earnings profile and improve the durability of the business.

At the same time, we recognize there is more work ahead. We're 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 across the enterprise.

As we enter 2026, we do so with clarity on our priorities, momentum in our results and confidence in what we're building. We remain focused on delivering against our objectives and continuing to build long-term shareholder value over time. With that, let me turn the call over to Chris to discuss our fourth quarter and full year results and our outlook. Chris?

Thank you, Ellen, and good morning, everyone. Our fourth quarter results represent another quarter of strong execution and meaningful progress on our strategic priorities, delivering adjusted operating income growth for the sixth consecutive quarter.

For the full year, 2025 marks our third consecutive year of growth, with each of our businesses contributing to a result that reinforces the broader momentum we have built across the enterprise. Alongside solid earnings, we continued our emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln's ability to deliver attractive risk-adjusted returns and positioning the company for sustained long-term success.

This morning, I'll focus on three areas. First, I'll review our fourth quarter and full year results, including our segment level financial performance. Second, I'll provide an update on our investment portfolio. And third, I'll offer an update on our capital position and our outlook.

Let's begin with a recap of the quarter. This morning, we reported fourth quarter adjusted operating income available to common stockholders of $434 million or $2.21 per diluted share. There were no significant items in the quarter. Our alternative investments portfolio delivered an annualized return of nearly 12% for the quarter or $124 million. On an after-tax basis, this was approximately $16 million above our target or $0.08 per diluted share.

Excluding the impacts of significant items in each year, full year 2025 adjusted income from operations available to common shareholders was over $1.5 billion, a 23% improvement compared to 2024. This result reflects strong execution across our businesses with year-over-year earnings growth driven by favorable underwriting experience in Life and group protection, continued spread expansion and the benefit of higher equity markets.

Turning to net income for the quarter. We reported net income available to common stockholders of $745 million or $3.80 per diluted share. The difference between GAAP net income and adjusted operating income was driven primarily by the positive movement in market risk benefits amidst slightly favorable interest rates and modestly higher equity markets. Our hedge program continues to perform in line with expectations.

Now turning to our segment results, starting with group protection. Group delivered another strong quarter, capping a record year Fourth quarter operating income was $109 million, up from $107 million in the prior year quarter, and the margin was 7.9%. The modest improvement in earnings year-over-year was driven by the Disability loss ratio improving to 73.6% from 75% in the fourth quarter of 2024. This improvement reflected favorable new claim severity, partially offset by lower recoveries and smaller average resolution amounts.

As discussed last quarter, we typically experience seasonal pressure in our Disability loss ratio from the third to fourth quarter and that did materialize within expectations. However, the favorable severity in our new and in-force claims more than offset the seasonal headwinds, ultimately resulting in a decreasing sequential loss ratio.

Partially offsetting the improved Disability result was a normalization in our group Life loss ratio. The fourth quarter Life loss ratio of 67.9% was higher than the record low 64.7% in we delivered a year ago, though it remains favorable compared to historical experience and reflects the continued benefit of our disciplined pricing actions.

Touching briefly on the full year. Excluding the impact of our annual assumption review, Group delivered operating earnings of $493 million, up 16% from $426 million in 2024 and the margin improved to 9% from 8.3%. Improvement was broad-based, driven by premium growth of 7%, continued favorability in both Life and Disability experience and meaningful growth in our supplemental health business.

As we look to 2026, we expect to sustain the momentum we have built. 2 years ago, we outlined an objective of achieving an 8% margin by the end of 2026. We have now achieved that target in each of the last 2 years, our goal remains to continue operating at 8% or above.

External factors may create some variability from quarter-to-quarter, but the fundamentals of this business are strong. We expect continued earnings growth supported by disciplined execution of our strategy, including pricing discipline on new business and renewals and diversification into higher-margin market segments and products.

Overall, group's 2025 results continue to reflect the strong progress in our strategy to expand this business into a larger and more profitable part of our enterprise.

Now turning to annuities. Annuities delivered operating income of $311 million for the quarter. Normalizing for approximately $8 million of favorable payout annuity mortality experience, Underlying earnings were approximately $303 million, broadly in line with the prior year quarter. The result reflects higher spread income and higher average account balances, partially offset by continued traditional variable annuity outflows and higher expenses associated with retaining 100% of our fixed annuity flows following the exiting of our external flow reinsurance agreement in September. The sequential expense impact of full retention was roughly $5 million in the quarter. Ending account balances net of reinsurance, reached a record $175 billion up 7% from the prior year quarter with growth across all products.

Turning to spreads. Spread income continued to grow, with spread-based products now representing 30% of total annuity account balances net of reinsurance up from 27% a year ago. RILA account balances increased 15% over the prior year quarter, representing 22% of total account balances net of reinsurance. Fixed annuity account balances increased 20% year-over-year, reflecting the first full quarter of retaining 100% of our fixed annuity sales.

From a net flows perspective, net outflows improved year-over-year as net flows into spread-based products exceeded $1 billion for the quarter. Variable annuity net outflows continued at a pace consistent with recent quarters with higher equity markets contributing to higher account balances available for withdrawal.

On a full year basis, Annuities delivered operating earnings of approximately $1.2 billion, modestly higher than the prior year, driven primarily by higher average account balances. This result came despite the ongoing shift in business mix towards spread-based products, which carry a lower ROA, but more stable earnings over time than traditional variable annuities. The continued shift towards spread-based products, combined with the full retention of our fixed annuity economics, builds the in-force base that will support durable earnings and free cash flow generation over time.

As we look to 2026, in the first quarter, we expect sequential pressure on earnings due to 2 fewer fee days and the resetting of favorable mortality experience from this quarter. Additionally, as part of our annual review of allocations, beginning in 2026, we will reallocate net interest income earned on collateral posted in connection with our index credit hedging strategies from Annuities operating income to nonoperating income. As our RILA business has grown, so have the associated collateral balances, making the related net interest income more meaningful.

Moving this income to nonoperating income provides a cleaner view of underlying annuities operating performance. While this item can be variable over time given the nature of the underlying collateral balances, as a frame of reference, had this reallocation been in place during 2025, and it would have shifted $50 million of annuities operating income to nonoperating income on an annual basis. Importantly, this is an allocation refinement. There is no change to underlying economics or free cash flow.

Overall, the underlying trajectory of the business remains sound, and we remain confident in our ability to deliver stable, attractive returns over the long term.

Retirement Plan Services reported operating income of $46 million for the quarter, up from $43 million in the prior year quarter. The improvement was driven by favorable equity markets and spread expansion partially offset by pressure from outflows over the past 12 months and higher expenses. Account balances benefited from equity market performance with average balances increasing nearly 9% year-over-year to $124 billion. Base spreads were 110 basis points, up from 101 basis points in the prior year quarter. The expansion reflects the benefit of deploying new money at rates above the existing portfolio yield.

Net outflows totaled approximately $1 billion for the quarter primarily driven by participant withdrawals and pressured by known plan terminations, the majority of which were not meeting our profitability targets. We remain focused on retaining profitable business and maintaining pricing discipline on both new and recurring business.

Turning to full year results. Retirement Plan Services delivered operating earnings of $163 million, flat compared to the prior year. While outflows earlier in the year created headwinds, these were largely offset by favorable equity markets and spread expansion.

As we look to 2026, we expect net flows to remain negative as we continue to prioritize profitability over retention of business that does not meet our return targets. We see opportunity to improve returns through targeted expense efficiency actions and investment portfolio optimization and we remain confident in our ability to deliver sustainable earnings growth in this business over time.

Lastly, turning to Life Insurance. Life delivered operating earnings of $77 million for the quarter, a meaningful improvement compared to an operating loss of $15 million in the prior year quarter. The improvement was broad-based, driven by improved mortality higher alternative investment returns and the execution of our captive consolidation. Mortality results for the quarter were in line with our expectations. You may recall that the fourth quarter of 2024 was pressured by elevated mortality driven by an outsized impact from severity in our universal Life block. We saw that dynamic normalize this quarter, which was the primary driver of the year-over-year improvement.

Turning to expenses. Despite stronger sales and higher variable compensation in the quarter, the actions we have taken over the course of the year allowed us to hold expenses flat year-over-year. Maintaining expense discipline remains critical to supporting earnings improvement in this business.

Touching briefly on the full year. Excluding the impact of our annual assumption review, Life delivered operating earnings of $146 million compared to an operating loss of $71 million in the prior year an improvement of over $200 million. The improvement was driven primarily by favorable mortality compared to unfavorable mortality in 2024, higher alternative investment returns and the expense discipline we have maintained throughout the year. These results reflect the ongoing progress we have made in stabilizing and improving the trajectory of this business. As we look to 2026, we expect continued progress.

As a reminder, the first quarter is typically our lowest earnings quarter for Life, reflecting unfavorable mortality seasonality and a step down from the higher fee income we earn in the fourth quarter. You'll see these seasonal patterns outlined in our earnings supplement.

Beyond those near-term dynamics, we are focused on rebuilding sales momentum with an emphasis on products that generate more stable cash flows and attractive risk-adjusted returns. And we will continue to optimize the free cash flow profile of this business by remaining disciplined on expenses, optimizing the investment portfolio and the potential for external risk transfer. We are confident in the trajectory of this business as we continue working towards positive underlying free cash flow.

Turning now to expenses. As we signaled last quarter, fourth quarter G&A expenses increased both sequentially and year-over-year. The sequential increase was primarily driven by higher variable compensation reflecting the strong sales volumes we achieved during the quarter.

On a year-over-year basis, the increase also reflects continued investments in our businesses, including in annuities where we are now fully retaining our fixed annuity flows and in Group Protection, where we continue to execute on our technology road map, including modernizing our claims platform.

Looking ahead, expense discipline remains a strategic priority across the organization. We have made meaningful progress over the past 2 years, and we see continued opportunity to drive efficiency as we advance our transformation. This includes ongoing focus on organizational simplification, leveraging technology to improve productivity and ensuring our expense base is appropriately sized to support our strategic objectives. We are committed to maintaining a disciplined approach to expenses, balancing the investments needed to drive growth with a relentless focus on operational efficiency. This will remain a critical area of focus in 2026 and beyond.

Turning to investments. Our investment portfolio delivered solid results in the fourth quarter reflecting disciplined management and continued execution of our strategic asset allocation initiatives. Portfolio credit quality remains strong with 97% of investments rated investment grade and below investment grade exposure near historic lows.

Overall, credit performance for the full year was solid. New money was invested at a yield of 5.3% for the quarter, approximately 65 basis points above the portfolio yield. For the full year, new money yields averaged 5.7%, approximately 110 basis points of the portfolio yield. Alternative investments generated a return of 3% for the quarter were 12% annualized, above our target of 10%. For the full year, alternative returns of approximately 10% were in line with our annual return target.

We continue to make progress on our general account optimization efforts executing on new money strategies across a variety of asset classes to support our spread-based growth initiatives. These efforts remain an important component of our broader strategy to enhance investment returns and support product competitiveness.

Before turning to the outlook, I wanted to highlight three capital actions that occurred in the fourth quarter. First, we completed the consolidation of several Life insurance captive entities. This simplifies our legal entity structure reduces reserve financing costs and supports improved free cash flow within the Life business.

Second, we received a $75 million dividend from Alpine, our Bermuda-based affiliated reinsurance entity demonstrating its strong capitalization and profitability. We expect Alpine's contribution to grow as we expand its role across additional products.

Third, holding company liquidity ended the year at approximately $1.1 billion, which includes $400 million of prefunding for our senior notes maturing in December 2026.

Net of prefunding, holding company liquidity is approximately $655 million above our historical $400 million to $500 million operating range. With the debt maturity later this year, the preferred securities becoming redeemable in 2027 and as we move closer to increasing capital return to shareholders, this increased liquidity provides the financial flexibility to act on multiple fronts over the next few years, reflecting the progress we've made in strengthening cash flow to the holding company and positioning us well to execute on the capital priorities ahead.

Lastly, I'd like to provide an update on our financial outlook. We began this journey in 2023 with a focus on fortifying the balance sheet, transforming the company to one with a more balanced mix of earnings and profitably growing.

Over the past few years, we have made considerable progress on these efforts, building momentum that positions us well against the goals we set out at the end of 2023. We have provided a number of updates in the outlook section of the investor supplement released this morning that help to frame the progress we've made as well as some goals over the medium term, which we define in the supplement as potential ranges over the next 2 years.

Stepping back, what is clear is that our business mix is evolving with Group Protection now approximately 25% of business unit earnings, up from 18% in 2023. Spread-based annuity account balances net of reinsurance are now 30%, up from 25% in 2023, and our Life business is showing considerable momentum in pivoting their franchise to a product set with more stable cash flows and increased risk sharing.

Additionally, as you can see on Slide 14, we're ahead of schedule on delivering on our financial commitments. From a balance sheet perspective, we restored capital to levels above our 400% target, built a 20-point risk buffer on top of that target and ended last year well in excess of that buffer.

With that growth in capital, our leverage ratio has declined 500 basis points since the end of 2023 and is now back at our long-term target, providing greater financial flexibility and capital support for the future.

At the same time that we've been pivoting our mix and strengthening our balance sheet, we've been growing both our earnings base as well as our ability to convert those earnings into free cash flow.

In 2023, our adjusted operating income was $908 million, and we converted 35% of those earnings into free cash flow. Last year, our adjusted operating income grew to over $1.5 billion or 69% higher than in 2023. Importantly, at the same time as our earnings base was growing, so is our ability to convert those earnings into free cash flow with a 2025 conversion ratio of 45% or 10 points higher than 2023.

So over the last few years, we've made progress on shifting our mix to more capital efficient and less volatile businesses. We've rebuilt our capital to levels well in excess of our targets and we've grown both our earnings base and importantly, our ability to convert those earnings into free cash flow.

As we think about the next few years, we would expect the momentum to continue as we leverage our foundation to profitably grow our franchise maximize value and increase free cash flow. We have a number of levers available to support us on this journey, as shown on Slide 15. For example, we'll continue to focus on our operating model, with targeted actions on expense efficiency and continued optimization of our investment strategies.

We'll also continue to evaluate the potential for external and affiliate reinsurance transactions with a diligent focus on reducing risk and generating economic value. And lastly, we'll continue to strategically grow in products and businesses where we can achieve attractive risk-adjusted returns while shifting our capital allocation should market or competitive dynamics change.

When we look out over the next 2 years, the culmination of these efforts should translate into continued growth in capital generation and free cash flow, which should in turn lead to higher dividends from the operating entities to the holding company as shown on Slide 18.

As this excess capital builds at the holding company, we would eventually then be in a position to increase capital return to shareholders. We continue to see a clear path of opportunity ahead with a leverageable foundation in place an increasingly optimized operating model and disciplined strategic capital allocation we are positioning Lincoln for durable value creation in the years ahead. We thank everyone for listening.

And with that, I'll turn it back to the operator.

[Operator Instructions] And your first question comes from the line of Joel Hurwitz with Dowling & Partners.

So Chris, first want to touch on capital return. If I look at your medium-term guidance, it's for $400 million to $600 million plus of capital return to shareholders, just given the dividend should be around $350 million this year. Is that implying at least $50 million of buyback in '26? Just want to make sure I'm thinking about that correctly.

So thanks for the question. I think what I would say is when you look at the way that we've presented the information and the outlook, we're really talking about a potential range over the next 2 years.

And so if you think about our capital deployment priorities, the first priority hasn't changed. And frankly, we're going to continue to hold a buffer capital in our operating entities, and we'll continue to invest incremental free cash flow that we generate, where we see opportunities. That said, our free cash flow continues to improve. You can see that we've moved more of the free cash flow that we generated this year to the holding company. That's a good sign. It's something you would expect, but the point is the first priority will continue to be to maintain an access within our operating companies and invest where we see attractive returns.

The second priority continues also to be the same, which is we're preparing for the optimal way to deal with the preferred when it's redeemable next year. as you move more capital to the holding company, that gives you more flexibility.

And at the same time, with our leverage ratio back toward is we've got some more flexibility as to how we think about it. So we're still working through what the optimal way to handle the preferred will be. I would imagine we would continue to study that over the course of this year. And then when you think about the fact that even on top of that, we've built the excess capital in the buffer in L&L and Alpine and so forth, we're moving more capital to the holding company. As we deal with the preferred, we will still be in a position where we're generating significant free cash flow and excess capital and our priority would then be to increase the capital return to shareholders. So we're 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 continued to move in the right direction.

Got it. That's helpful. I guess just sticking on capital. If I take the remittances in that medium-term outlook less the holding company expenses, right, that's that implies like $800 million to $900 million of excess cash. Should I just take that versus the capital return is sort of largely for the -- to manage the preferreds in the calls next year? Or is there any other potential uses of that capital at the holding company?

No, I think that's right. If your free cash flow at its simplest form, assuming that you're moving all of the excess capital that you're generating in the year up to the holding company, that would be the difference between those two items, your remittances and your expenses at the holdco, which you could think about as your debt interest, your preferred coupon, plus or minus any NII might earn. But the sum of those two, you should think about under those constraints as being your free cash flow. And then as we build cash and think about deploying it for the preferred in 2027, the other usage of it would be increasing capital return to shareholders.

Our next question comes from the line of Tom Gallagher with Evercore ISI.

Yes, I appreciate Slide 18. I think that clarifies a lot in terms of where the cash flow is going in terms of the components. So Chris, is the best way to think about this I heard what you're saying about the press, and that makes a lot of sense over the next few years. But if the $1.2 billion of sub remittances, is a number that's probably going to grow somewhat. And then assuming you either refinance or pay down the press, then we'd be looking at a lower holdco interest expense bogey heading into, call it, 28%, 29%.

So we're looking at -- when I think about where this is going, and I'm not asking for specific numbers, I want to make sure I'm understanding conceptually where this is going. You probably have something better than $1.25 billion coming in for remittances and you'll have a lower holdco bogey, assuming your interest expenses go down. And then we could be talking about something north of $1 billion of the amount that's available annually for shareholders, unless there's some other component to it that I'm missing? Does that all line up? Or are there other pieces here to consider?

Tom, if you're looking for 2028 and 2029 guidance, I'll have to get back to you. But that being said, yes, I mean, if you think about the fact that you redeem and whether you redeem with all capital or you refinance a piece of it, et cetera, et cetera. That will be a 2027 event, which exactly to your point, there's a $90 million coupon associated with that. So then starting in 2028 your holding company net expense would come down. I would expect over time, as we continue to execute on all the things we've been talking about really thinking about the longer term after the 2-year sort of range that we give here, you would expect remittances to grow. But we're focused right now on '26 and '27, but I think the way conceptually you're thinking about over the long term are the right drivers.

Okay. And then my follow-up, I guess just a question on this redefinition of NII. I heard what you said about the hedging what kind of prompted that change? Is it just that RILA becoming larger and it's like a materiality issue, and you looked at the way peers are treating this. And I presume also since you're redefining earnings a bit lower on an apples-to-apples basis, that would, at the margin make your free cash flow conversion better, all things equal?

So on that last point, yes, but I think that's just definitional, right? I mean we're focused on the absolute dollars of free cash flow when you're comparing it to the GAAP number, yes, that would have a slight positive to it, but that's just, call it, optics I think at the end of the day, every year, we look at allocations, there's another component, which we show in the back where you look at your operating expenses and depending on how some of the drivers move, there's corporate overhead allocations and things like that, where the allocated expenses to the businesses might move around, but that will net to 0 for an operating income perspective.

On this specific issue, Yes, that's exactly right. As RILA has grown over time, there is a component, the majority of the investment income and/or expense related to the collateral is in nonoperating and there was a piece of it that we had looked at that was more specific when we went through how to think about 2026. And as we've committed to, we're trying to be transparent and give all of the clarity as it relates to how we think about the operating income, and this was just a natural part of that.

But you do this every year, you look at the different pieces -- what I would tell you is it wasn't a big driver year-over-year as it relates to growth for '25. So I think the annuities growth number wasn't significantly impacted. But as you look out over the longer term and you think about some of the things that we've talked about wanting to do around giving more explicit spread margin information for annuities. You want to be able to provide the cleanest view possible as it relates to NII and interest credit and so forth.

Your next question comes from the line of Wes Carmichael with Wells Fargo.

My first question was on the Life insurance business. Chris, I think you mentioned some captive consolidation and reducing reserve financing costs. Just wondering if you could talk a little bit more about those actions you've taken, if there's more to do there and the impact on earnings and free cash flow.

Sure. So we alluded to this last year. But if you step back, the other -- the bigger picture comment here is we've been doing a lot over the past couple of years to improve the free cash flow profile of the legacy Life block. And so we've taken out expenses. We did the [indiscernible] transaction, and we've alluded to a number of other projects that we're looking at with the idea of being internal from an internal perspective on an organic basis, we do think that there's a lot we can do to improve the profile there.

The captive consolidation was one of those projects. We completed the in the fourth quarter of this year. And essentially, what it is, is historically, you have a number of legacy Life captives and they can be product specific, you might have some term captives. You might have some well captives and so forth. And so we've seen this across the industry.

But as you think about consolidating those captives, there's a financial benefit given the high financing fees relative to the years ago, contracts that were signed. So by consolidating and restructuring the way those captives work, you're able to save on the financing piece of it.

As specifically for gap in fourth quarter, it was about a $10 million benefit to Life. So if you think about 20 you should get, call it, another $25 million to $30 million in improvement to the Life GAAP earnings. And then I would tell you that on a free cash flow perspective, it will be an incremental benefit on top of that $40 million, call it, GAAP run rate given the fact that you do have some capital optimization when you combine some of those blocks. So I hope that helps. It's in line with the sort of bigger picture projects we've talked about. And as it relates to going forward, we think that there's more that we can do.

And Wes, just to add, in addition to all of the in-force actions that Chris just mentioned, I also want to reiterate some of the comments that we made earlier around all that we've done to completely revamp the new business franchise so that as we think about the ongoing trajectory of the Life business over time, we also firmly believe that we'll continue to see profitable growth there.

So just as a reminder, across the products, we have significantly revamped as we've shifted into, for example, accumulation and more limited guarantee products. And you really start to see that coming through. If you look year-over-year, for example, at our IUL and also at our accumulation VUL from a sales perspective. talked quite a bit about executive benefits. That's another example.

And part of that success is also really leveraging our distribution. So we have -- we talked about getting closer to the point of sale. We are targeting new channels there, such as the producer group and the agency channel. And then additionally, as we think about this business going forward, we've also done a lot as it relates to technology, automation, supporting our producers around e-delivery, pre and post sales, et cetera. So we're excited about what we see. We've made significant improvements to the in-force, and we also see some bright spots over time as it relates to Life new business going forward.

That's all very helpful. My second question, I guess, was just about dynamics in the annuities market. It sounded like, Ellen, from your comments that RILA is maybe is becoming more competitive and maybe pushing you towards fixed and indexed annuities a bit more. So just curious what you're seeing there and maybe the outlook for 2026.

Absolutely. So I'm going to step back for a moment, and I'll talk about all three segments. So first of all, as you know, we're a leader in the annuity market. We've got a broad product portfolio. We're across all the major segments. And we very much leverage the overall product portfolio and our distribution footprint.

So some of what we have been talking about, it's a couple of things. Number one is that we have been focused on lowering our market sensitivity over time. And I'll get to the VA point in a moment. And at the same time, we're focused on balancing profitability, capital and capital efficiency and really -- and growth as well and really thinking about those three components. So what we've seen -- and you see this coming through in our sales. And I have to say that our sales in 2025 were strong. We were very happy with the overall volumes. We're very happy with the returns across each of the product segments. And we also are continuing to just evaluate market dynamics as we go forward as well.

So specifically in RILA, as you know, we have -- we were one of the earlier entrants into the RILA product. We have now significant experience overall in RILA. About 18 months ago, we revamped and refreshed our product. It was very much needed. And you've seen increasing sales there over time.

The addressable market has grown but the competitive landscape has also grown, and we see that increasingly growing as it relates to its competitive nature.

For us, given our strong overall annuity platform, part of what we're focused on there, and we talked about the fact that we can expect in 2026 to see sales growth that would be in line with what we've seen over the last, call it, 2 to 3 years. What we're doing is we're really leaning into places where we have differentiated products, where we have -- whether it's features, whether it's unique crediting features as well.

And then additionally, in our -- along our distribution platform, which is so broad, we also have some places where we have select channels where our product, in particular, is differentiated there. And so these are ways that we're competing beyond price, really focused again on this idea of balancing profitability growth and overall capital efficiency.

And I'll just make a mention for a moment on some of the comments that we made around VA. So VA is a good product. This is another area where market dynamics last year, in particular, the entire industry grew we very much have been focused on continuing to shift the mix, and you've seen our mix shift. And part of that is that we've continued to experience strong outflows and so that the higher sales that we saw this year didn't deviate from our goal of diversifying the mix.

But as -- and in addition, some of the new product features that we launched about a year ago, really supported some of the sales momentum that we saw in 2025. And then, of course, we saw this higher demand. So as we look at 2026, we're going to expect to see that growth moderate as I mentioned, so that our sales will look more similar to pre 2025 levels.

And then the last point that I'll make is as it relates to fixed annuity. Fixed annuity is the one place where we really believe that we have runway to continue to grow. We're going to leverage everything that we've talked about, Bermuda, investment strategy, expanding our overall opportunity there as we continue to have unique sourcing and also expanding both our product capabilities and also distribution as well.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to go back to Slide 18. If I look at the medium-term subsidiary remittances, if I take the midpoint, it's a pretty big jump from the $845 million you did in 2025. And I know that the range is over a 2-year period. But can you unpack what would lead to close to a 50% jump, if I'm thinking about it right?

Yes. I think the central premise there -- I think the central premise there is for the past let's call it, 3 years. As we have grown our free cash flow, we've maintained the vast majority of it in the operating entities, right? And so for all the reasons we've talked about. But going forward, the expectation is, a, that the underlying free cash flow is growing. We've shown the ability to do that. We've talked about the levers that will continue to drive that, but also with where we are from a capitalization perspective, L&L and [ Alpine ] and so forth, we would -- you would expect us to move that to the holding company.

So I think that it's somewhat of a -- we've done what we've said we were going to do in terms of building back capital at the opcos, we're maintaining a buffer. You can see from the RBC slide upfront that we ended the year at [ 439% ]. And by the way, that excludes the remaining Bain proceeds that are earmarked for deployment next year. So you can just think about the fact that as we've been generating incremental free cash flow, you're seeing it come through from an RBC perspective, and there's a similar dynamic in Alpine. So going forward, as the free cash flow continues to be robust, you would expect us to move that to the holding company.

Okay. That makes sense. And I guess, I know you're not going to get too specific on it. But as we think about this $1.2 billion to $1.3 billion, does that have any of the levers in it that you guys have talked about in terms of reinsurance or anything like that? Or is it more sort of normal course? And should we expect there to be a big difference between '27 and '26?

So I think on the first question, what I would say is all of the things that we've been doing over the past couple of years to increase free cash flow, right? And we've talked about the big buckets there dealing with the legacy Life Block optimizing the operating model, being more thoughtful around capital allocation they've been big drivers and the vast majority of them should continue to be drivers to the growth in free cash flow over the medium term. We'll continue to look at our operating model and optimize the strategic asset allocation. We'll continue to look at expenses. We think there's more we can do with Bermuda from a capital allocation perspective, as we've talked about, that's both at a business unit level, if you think about how much group has grown as well as with inside the business units. So if you think about the repositioning in Life. So those dynamics should continue to be tailwinds to free cash flow.

What we're not including, Suneet your specific question, are any other sort of big external things that we've done in the past. And so to the degree that we, for example, look at another external risk transfer deal, that would not be what's implied in the remittances. So it is the natural evolution of the things that we've talked about. We continue to see runway to obviously both grow earnings but then more importantly, grow the ability to convert those earnings into free cash flow. And then if we were to do something else, that would be sort of incremental to these numbers.

And that concludes our question-and-answer session. I will now turn it back over to John Muething for closing comments.

Thank you for joining us this morning. We're happy to discuss any follow-up questions you have. Please e-mail us at [email protected].

Ladies and gentlemen, this does conclude today's call. Thank you for joining, and you may now disconnect.

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time I would like to welcome everyone to the Lincoln Financial Third Quarter 2025 Earnings Webcast. [Operator Instructions]

I would now like to turn the call over to Tina Maddon, Head of Investor Relations. Tina, please go ahead.

Good morning, everyone, and welcome to our third quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used on today's call including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to the most comparable GAAP measures.

Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios share repurchases, liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2024 annual report on Form 10-K most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to update or revise any of them to reflect events or circumstances that occur after today. Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions.

Let me now turn the call over to Ellen.

Thank you, Tina, and good morning, everyone. We appreciate you joining us. We delivered strong financial results in the third quarter, marking our fifth consecutive quarter of year-over-year growth in adjusted operating income and underscoring the broad-based momentum and disciplined execution as we accelerate our strategic priorities. We have remained focused and consistent in advancing our vision for Lincoln, and this quarter is another proof point. Each of our 4 businesses continued to make measurable progress against our transformation road map, translating strategy into results and contributing to the strong fundamentals that are reshaping the company into a more agile, scalable and growth-focused enterprise with durable earnings power and a clear path to building long-term shareholder value.

The core tenets of foundational capital enhanced operational efficiency and a strategy for profitable growth are increasingly evident in our results. We're evolving the direction of the organization with a clear focus on increasing our risk-adjusted return on capital, reducing the volatility of our results and growing our franchise. And we're starting to see the benefits of those actions. Our capital position remains well in excess of our 20 percentage point RBC buffer, and we have made significant enhancements to optimize our operating model, creating a more efficient and nimble organization.

Our businesses have made notable progress on strategies to shift to products and segments with higher margins, more stable cash flow profiles and greater capital efficiency. We see meaningful opportunity ahead and are continuing to invest for future growth. Our businesses operate in attractive, expanding markets where we compete from a position of strength grounded in our trusted brand, leading franchise and clear competitive advantages in distribution, product manufacturing and customer service. Our trajectory continues to accelerate our track record is increasingly clear. And while our progress won't always be linear, we're confident in the direction we're heading and excited about the path forward.

I'd like to briefly comment on our annual assumption review, which continues to be a rigorous and comprehensive process encompassing all key assumptions. The outcome this year reflected some puts and takes, resulting in a small favorable impact to adjusted operating income in the quarter, highlighting the continued alignment between our underlying experience and our go-forward expectations. The process provides a strong foundation for disciplined evaluation and well-structured governance of assumptions.

Now turning to our third quarter performance excluding the impact of our annual assumption review. Each of our businesses generated robust year-over-year results, reflecting continued momentum and execution against our strategic priorities. Key highlights included annuities recording earnings growth driven by higher account balances and strong and diversified sales. Life insurance posted improved earnings supported by stable mortality and operational efficiencies while achieving higher sales driven by executive benefits. Group Protection delivered earnings that were in line with its prior year record third quarter, healthy premium growth and broad-based sales growth across market segments and products.

Retirement Plan Services delivered higher earnings attributable to increased account balances and produced positive net flows in the quarter.

Now turning to our business results, starting with Annuities. Our annuities business continued to deliver excellent year-over-year and sequential sales growth, reflecting sustained progress in our strategy to diversify our new business mix. Reported sales reached $4.5 billion, our fourth consecutive quarter of increased sales with our spread-based products, including fixed annuities and RILA, representing 63% of the new business total. Each of our 3 core product categories, fixed Rila and variable annuities exceeded $1 billion in sales, supporting our focus on building and sustaining a more balanced product mix supporting our strategic and financial goals with strong profitability and capital efficiency and underscoring our differentiated ability to capture customer demand.

Our go-to-market strategy, combined with our breadth of products, deep, long-standing distribution relationships and consultative wholesaler model enables us to broaden our addressable markets and reach more customers seeking to retire with confidence and financial security. Our distribution partners value our customer-centric approach, which equips producers with the insights, tools and capabilities to deliver the right solutions while enhancing their productivity and ease of doing business. As a holistic solutions provider with a product suite that continues to expand, we are positioning our annuities business for further growth. As a leading product manufacturer, we are delivering innovative new features that are meeting evolving customer needs across various environments further distinguishing us in the marketplace.

Our fixed annuity sales increased by 36% year-over-year as we leveraged the foundational product and distribution capabilities we built to sustain a consistent and growing presence in the fixed segment. We also continue to invest in our service model to deliver more seamless value-add capabilities to support our customers. Additionally, during the quarter, we transitioned to fully retaining the flows from our fixed sales, which will enhance the growth of our spread-based earnings over time. Our RILA sales increased 21% year-over-year, a sixth consecutive quarter of sequential growth that reflects our ability to differentiate through distinctive and expanded product features and crediting strategies that resonate with customers. Sales volumes of our traditional variable annuities were also up year-over-year. Our variable product suite offers a broad array of features and benefits that meet customer needs and remain integral to our overall offering.

VAs remain a valuable contributor to our overall product mix, generating strong free cash flow and attractive risk-adjusted returns.

In summary, these results demonstrate the success we are achieving in delivering a diversified product mix that meets customers where they are across different life stages, risk tolerances and economic environments. The strategy to increase the proportion of our spread-based earnings through profitable new business generation translates into more resilient and predictable cash flows over time, while meeting our risk-adjusted return targets and balancing the financial contribution across products. We remain confident in the strategic trajectory within our Annuities business and our ability to leverage our competitive strengths to achieve our profitability objectives.

Now turning to Life Insurance. As I've mentioned on prior calls, we have taken decisive steps to reposition this business for long-term value creation. We have strategically shifted our new business mix to emphasize products that support our strategic objectives, those with growing addressable markets that offer compelling value propositions for our customers enable efficient capital deployment and position us for durable profitable growth. This quarter's results reflect the progress we are making as our strategic realignment continues to gain traction. Excluding the impact of our annual assumption review, Life earnings reached $54 million, marking a significant year-over-year improvement. Sales totaled nearly $300 million with executive benefits accounting for 2/3 of that volume driven by a couple of large cases.

In this product category, we have enhanced our competitiveness through targeted product additions and by strengthening our distribution relationships and expanding our service model, enabling us to deliver a strong quarter for executive benefit sales. While we don't expect this level of sales to repeat in the fourth quarter, given the natural variability in large-case activity, we have built the foundational capabilities to support a growing presence in this segment. We are continuing to invest to ensure a long-term growth path and are encouraged by the results we're seeing. Our other life sales were a well-balanced product mix aligned to our targeted strategy.

The momentum this quarter reflects the effect of the deliberate actions we've taken over the past several years, optimizing our wholesaler footprint emphasizing products with more stable cash flows and enhancing the customer experience. We are continuing to invest in modernizing our service model and advancing our digital offerings to deliver a more integrated customer experience. Through expanded technology, we are differentiating our capabilities to provide real-time insights to support faster, data-driven decisions and position us for sustained growth. In the Life business, we are seeing the early impact of our repositioning efforts and remain steadfast in our commitment to enhance and grow this business and realize its full long-term potential.

Next, turning to our Group Protection business. As mentioned earlier, group's earnings were in line with its prior year record third quarter, although modestly below our expectations. Importantly, the core fundamentals of this business remain strong. We continue to execute on our targeted strategy of delivering value across 3 unique market segments: local, regional and national with an ongoing strategic focus on repositioning this business for sustainable profitable growth, transforming how we operate and delivering reliable quality customer service. We're seeing tangible results from our actions as reflected in our year-over-year 5% premium growth driven by robust sales, strong persistency and pricing discipline across both new and renewal business. Our premium expansion was broad-based with increasing results across all market segments and product categories with supplemental health, a strategic area of focus, increasing 33% year-over-year.

This growth underscores the execution of our strategy to diversify across market segments, expand and deepen the product portfolio and invest in the people, process and technology to create differentiated capabilities that deliver a simpler, faster and more connected customer experience. While the third quarter is typically a seasonally lighter sales period, group delivered year-over-year sales growth of nearly 40% and broadly diversified across market segments and products. In this business, servicing our customers with excellence is a strategic differentiator as we look ahead, we will continue to drive our segment strategy in a profitable and sustainable way by broadening our distribution relationships, expanding our product suite and continuing to expand our digital tools and technology to drive more productivity, efficiency and effectiveness grounded in a strong foundation and disciplined execution from pricing to expansion in growing addressable markets, our group business is well positioned to drive sustainable growth and profitability.

While we expect some variability in results from quarter-to-quarter, the fundamentals are strong, and the long-term trajectory is positive. Now turning to Retirement Plan Services, or RPS. RPS delivered a strong quarter, achieving 5% year-over-year earnings growth and first year sales of $2.4 billion as the robust new business pipeline we previously communicated materialized this quarter. Additionally, total deposits increased 20% year-over-year and net flows were positive, driven by the strong sales momentum in the quarter. Our offerings and our core recordkeeping and institutional markets continue to drive meaningful customer engagement reinforcing our long-term growth potential.

Looking ahead, we will continue to focus on initiatives that will enhance our operational and service capabilities, broaden our product offerings and drive greater efficiency as we pursue sustainable and profitable growth.

In closing, we are moving forward with conviction, intention and collective determination. The progress we have made is evident not only in our financial results, but in the precision of our execution and operating model, we are continuing to refine and fortify and the durability of our capital position. We are expanding our strategic advantage by pivoting toward higher-margin, capital-efficient growth, investing in the foundational core that sharpens our competitive edge and evolving into a more agile, scalable and forward-looking enterprise. Through disciplined transformation, we are building a market-leading franchise equipped to thrive in a dynamic environment align capital with strategic priorities and capture value where we have built scale and momentum. In summary, we are delivering today while advancing the capabilities that will drive tomorrow.

With that, I will turn the call over to Chris.

Thank you, Ellen, and good morning, everyone. Our third quarter results represent another quarter of strong execution and meaningful progress on our strategic initiatives delivering year-over-year adjusted operating income growth for the fifth consecutive quarter. This continued broadening momentum underscores the effectiveness of our strategy and a disciplined approach consistently demonstrated across our businesses. Importantly, each of our businesses delivered stable or improved year-over-year earnings. Alongside this, we maintain a strong emphasis on free cash flow generation and capital efficiency, reinforcing Lincoln's ability to deliver attractive risk-adjusted returns and positioning the enterprise for durable long-term success.

This morning, I'll focus on 3 primary areas: First, I'll discuss our consolidated results for the third quarter, including the outcome of our annual review of reserve assumptions. Second, I'll provide insights into our segment level performance. And third, I'll offer a brief update on our capital position and investment portfolio.

Let's begin with a recap of the quarter. This morning, we reported third quarter adjusted operating income available to common stockholders of $397 million or $2.04 per share. This includes the impact of this year's assumption review which increased adjusted operating income by $2 million or $0.01 per share. Additionally, our alternative investment returns were largely in line with expectations, delivering an annualized return of just under 10% or $101 million. After tax, this was $2 million below our target or $0.01 per diluted share.

Turning to net income. We reported net income available to common stockholders of $411 million or $2.12 per diluted share. The difference between the net income and adjusted operating income was predominantly driven by 2 main factors. First, there was a negative after-tax change of $151 million in the fair value of the GAAP embedded derivatives related to the Fortitude Re reinsurance transaction. This change was primarily driven by the impact of lower interest rates on available-for-sale securities in the funds withheld portfolio backing the agreement with the corresponding offset flowing through accumulated other comprehensive income or AOCI.

Second, more than offsetting this negative was a favorable after-tax impact of $324 million within nonoperating income, driven primarily by the positive movement in market risk benefits amid a stable interest rate environment and higher equity markets. Of note, our hedge program continues to perform well, in line with expectations. As in prior years, the effectiveness of our hedging strategy allowed us to take a $50 million distribution from Linbar this quarter.

Before turning to our segment results, I want to briefly touch on the impacts of our annual review of reserve assumptions on adjusted operating income. As I noted earlier, the overall impact from the assumption review this quarter was minimal, resulting in a $2 million net benefit to adjusted operating income. While there were some positive and some negative adjustments none were material relative to the scope of our reserves. Group Protection earnings benefited from a positive adjustment of $39 million this quarter, driven mainly by updated assumptions in our LTD and Lifelines, reflecting favorable trends we've seen over the past few years. This was offset by modest negative impacts in both our Life and Annuities operating income of $29 million and $8 million, respectively.

As it relates to our life assumptions, the impact this quarter stems from slightly elevated mortality experience within our Universal Life block which was primarily offset by more favorable mortality experience in our term block, consistent with the drivers of our recent results. Importantly, policyholder behavior remains broadly in line with our expectations. The impacts of our annual assumption review on our segment results for this period and the prior year period are detailed in our earnings release issued this morning.

Now turning to our segment results. Excluding the impact of the assumption review, Group Protection operating earnings were $110 million, consistent with the prior year record third quarter, and the margin for the quarter was 8.1%, reflecting a modest decline of 40 basis points year-over-year. The main driver of our results was a moderation in our disability loss ratio, which increased to 76.7% compared to 70.5% in the third quarter of 2024, excluding the impacts of the assumption review. This increase reflected both volatility, specifically 1 month of unfavorable severity in our LTD experience as well as lower LTD recoveries. While we've seen the volatility in severity normalize, the lower LTV recovery rate will likely continue. Over recent years, enhancements in our claims management practices have significantly improved early-stage resolutions.

But as these practices mature, incremental benefits naturally moderate. Offsetting this unfavorability during the quarter was continued favorability in LTD incidents and continued favorability in life results. Group Life results in particular, remained strong year-over-year, delivering the second lowest loss ratio post the pandemic, supported by lower incidents and favorable severity outcomes. Excluding the impact of the assumption review, our life loss ratio improved relative to the favorable prior year quarter, declining to 65.3% compared with 71.8% in the third quarter of 2024. Although quarterly fluctuations in mortality outcomes are expected, this continued strength underscores the effectiveness of our disciplined pricing.

As a reminder, we typically experience seasonal pressure from the third to fourth quarter. Looking ahead and incorporating the third quarter trends and these seasonal factors, we expect to end the full year with a margin in the range of mid- to upper 8%, representing a roughly 50 basis point improvement year-over-year. We remain confident in our strategy, disciplined execution and ability to deliver attractive and resilient long-term performance.

Now turning to annuities. Excluding the impact of the assumption review, Annuities delivered operating earnings of $318 million, up $18 million year-over-year driven by higher average account balances net of reinsurance and continued growth in spread income. Additionally, this quarter's earnings included a benefit of approximately $10 million from favorable expense dynamics, primarily related to expense timing and certain tax items that were partially offset within other operations.

Turning to spreads. Spread income continued to grow, with spread-based products representing 29% of total annuity account balances net of reinsurance, reflecting our commitment to diversifying our annuity business. RILA account balances increased 16% over the prior year quarter, representing 22% of total balances net of reinsurance. Fixed annuity account balances were 11% higher year-over-year as we began retaining all of the fixed business we sold during the quarter. From a net flows perspective, VA net outflows continued at a similar pace as in recent quarters, reflecting the maturity of the block while net flows into spread-based products exceeded $1 billion, further underscoring the success of our strategic diversification efforts.

Overall, our annuities business delivered strong earnings growth reflecting our ongoing efforts to diversify and strengthen the stability of our earnings base in this business. We remain confident that our disciplined approach positions us well to deliver stable, attractive returns over the long term.

Retirement Plan Services reported operating income of $46 million, up slightly from $44 million in the prior year quarter driven by higher account balances amid a favorable equity market backdrop and spread expansion. This was partially offset by pressure from stable value outflows over the past 12 months, although the level of stable value outflows has stabilized in recent quarters. Sequentially, earnings improved by $9 million, the result of favorable equity markets and improved spreads. It's worth noting that this quarter benefited from approximately $2 million of nonrecurring items, primarily driven by net investment income favorability, which had an offset in other operations.

Base spreads were 107 basis points, up from the prior quarter and prior year. The sequential increase reflects normalization following last quarter's onetime administrative adjustment as well as about 2 basis points of benefit from the nonrecurring net investment income dynamic just discussed. On a normalized basis, spreads are broadly consistent with last year's third quarter.

Net inflows totaled $755 million, reflecting strong sales momentum and a robust pipeline noted last quarter. As we look ahead to the fourth quarter, we expect flows to be pressured by a few known plan terminations, the majority of which were not meeting our profitability targets. Account balances benefited from equity market performance with average balances increasing nearly 8% year-over-year. End-of-period balances reached $123 billion, up 5% sequentially. Overall, our third quarter results highlight steady improvement and positive momentum within retirement plan services. While we remain focused on disciplined expense management and continue to target efficiencies aligned with our long-term earnings objectives, it's important to remember that the fourth quarter typically brings a seasonal increase in expenses which we expect to be a modest sequential headwind.

Beyond expense discipline, we remain focused on initiatives aimed at delivering underlying growth and enhancing the long-term profitability of retirement plan services.

Now turning to Life. Excluding the impact of the assumption review, Life delivered operating earnings of $54 million for the third quarter compared to $14 million in the prior year quarter. The increase was driven by stabilization of our mortality experience, increased investment income and continued expense discipline. Mortality results for the quarter improved compared to the prior year quarter, driven by lower incidents while severity was slightly higher, overall experience was consistent with our expectations.

Turning to expenses. We continue to see year-over-year improvement, driven by disciplined expense management. Net G&A expenses declined 4% compared to the prior year quarter, reflecting continued underlying efficiency. Annualized alternative investment returns for the quarter were roughly 10%, essentially in line with our target but below the 11% return we achieved in the prior year quarter. More broadly, we are beginning to realize the benefits of increased investment income, driven in part by continued growth in alternative investments which remain well aligned with our life liabilities as well as ongoing enhancements to our overall investment profile, all of which should continue to support earnings going forward.

Overall, the strong results this quarter highlight the ongoing progress that we have made in our life business, further validating the strategic initiatives we've implemented to position this business for sustained profitability.

Turning now to expenses. As we've discussed, expense management remains a strategic priority across the organization, and we've made meaningful progress year-to-date. Through the first 3 quarters, we achieved significant improvements in operational efficiency with expenses tracking favorably compared to the prior year. This disciplined approach has been driven both from a total company perspective, and through targeted actions such as within our Life business. However, as is typical, we anticipate that expenses will rise substantially in the fourth quarter in certain areas, largely attributable to higher variable compensation, including the impact of anticipated growth in sales volumes during the quarter. Additionally, certain strategic investments intended to enhance the long-term profitability of our businesses will have a slightly greater impact in the fourth quarter compared to earlier quarters.

Despite this expected sequential increase, our full year expenses will reflect the disciplined actions we've executed this year which we expect will result in relatively flat expenses compared to the prior year despite higher sales and increased volumes. We remain committed to disciplined expense management, ensuring we maintain and build upon our progress in managing the expense base effectively.

Now for an update on capital. We again ended the quarter with an estimated RBC ratio well above our 420% buffer continuing to maintain a strong excess capital position above our target due to the Bain proceeds and growth in retained free cash flow during the year. As we've indicated previously, we expect to deploy this excess capital over the next year as we execute against our strategic objectives. This quarter, we made meaningful progress on 3 specific initiatives: First, we fully transitioned to retaining all of the fixed annuity business we originate with the exiting of our external flow reinsurance agreement. The strategic objective of achieving a more balanced mix of variable and spread annuity earnings will come through various actions with the full retention of existing sales the important first step. Leveraging our Bermuda-based affiliate and a more fully optimized asset allocation framework will allow us to expand profitability while a portion of the proceeds from the Bain transaction currently sitting in excess capital will be deployed to support this retention.

It's worth noting from a GAAP perspective, you'll see slightly higher retained acquisition expenses in the near term which should translate to higher spread income and profitability over time.

Second, we continue to scale our institutional funding agreement program with $1.9 billion in issuance completed year-to-date. As we've discussed previously, FABN and other similar programs are an important growth engine for our spread earnings and will utilize some of our excess capital over the next year or 2. Over the next year, we plan to begin disclosing the specific earnings metrics as we scale the program.

Lastly, optimizing our legacy Life block has been a critical objective that we've been working on for the last 3 years. And as we discussed post the Bain transaction, we are evaluating a number of actions that should enhance the long-term free cash flow from this block. We'll have more to say on this in our outlook discussion next quarter. Looking ahead, we remain committed to a disciplined and balanced approach to deploying our excess capital aimed at enhancing our risk-adjusted returns and positioning Lincoln for sustainable long-term success.

Turning to investments. Our investment portfolio delivered solid results in the third quarter, reflecting disciplined management, effective diversification and ongoing execution. Portfolio credit quality remained strong, with 97% of investments rated investment grade and below investment grade exposure near historic lows. Our partnership with Bain Capital continues to enhance our investment capabilities, and we are already benefiting from increased sourcing flexibility and execution efficiency. Within private credit, we remain comfortable and confident in our long-standing disciplined approach and continue to lean into investment-grade private and structured strategies as we further optimize our investment portfolio while supporting objectives around sales growth, earnings potential and capital generation.

Lastly, alternative investments generated roughly a 2.5% return for the quarter, generally consistent with our long-term expectations and reflecting continued strength across strategies.

In closing, our third quarter results reflect another period of consistent execution and meaningful progress on our strategic priorities. We delivered strong earnings across all businesses, advanced initiatives to diversify and enhance our earnings base and maintained a healthy capital position. These outcomes underscore the effectiveness of our strategy and the disciplined approach we've taken to enhance capital efficiency, free cash flow generation and long-term profitability. While our results will not always be linear, the broader momentum across the enterprise remains clear. The actions we've taken this year position Lincoln for a strong 2025 and we remain focused and on track to achieve the objectives outlined in our 2026 outlook. Our commitment to disciplined execution and balanced capital deployment continues to reinforce our ability to deliver durable, attractive risk-adjusted returns and long-term shareholder value.

With that, let me turn the call back over to Tina.

Thank you, Chris. Let me turn the call over to the operator to begin Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Joel Hurwitz with Dowling & Partners.

Wanted to start on life. So good to see another quarter of improved earnings. Can you unpack the drivers there anything unusual in the quarter? And then there's been volatility over the past several quarters with Life earnings. I believe your 26 guide that you provided a couple of quarters ago suggested earnings may even be above the level we saw in Q3. Any way you could help us understand the earnings power of this business in the near to intermediate term?

Sure, Joel. It's Chris. What I would say is that this quarter was really a reflection of a stable quarter for the life insurance block. If you think about it, there's drivers of volatility that are probably more outsized for that business. As you're well aware, mortality and alternative investment returns as the 2 big ones. And as I said in my prepared remarks, both mortality and all returns came in basically as expected for this quarter. And so it's actually a really nice quarter because you can see it in a stable environment for the big drivers of volatility, what the third quarter earnings power would look like. The reason I emphasize third quarter is because I'm sure you know, there is seasonality in that business. And so third quarter and fourth quarter tend to be, call it, $20 million higher than the average second quarter tends to -- would represent a flat quarter and then first quarter the $40 million worth just given the drivers of mortality.

So you could look at the third quarter as a good run rate once you normalize for seasonality. What I would say as it relates to the drivers because when you do that for this year and last year, you are seeing growth year-over-year, which is positive. It's in line with the expectations that we had set out. And it's driven by the things that we said it would be driven by its increased net investment income Part of that is the growth in the alternative investment income portfolio, not necessarily the rate which has stabilized, but the growth in the balances we've discussed how they are a good long-term fit for the long-duration nature of the liabilities.

And most importantly, you continue to see the expense discipline that we've talked about and that's starting to come through in a more fulsome way. So at the end of the day, a number of those drivers should continue as we look out over the next couple of years. We're excited about the growth potential as it relates to the earnings power of that business. And it's just nice to have a really clean quarter so you can see what the underlying earnings power looks like for a third quarter.

Got it. That's helpful. And then just on capital, with leverage essentially back to your 25% target and a much improved capital position. Where do you guys stand on resuming a share repurchase program?

Yes, Joel, thanks for the question. I think, as you know, we tend to talk in more detail about our capital plans and free cash flow outlook and so forth as part of our fourth quarter earnings call when we give the outlook, what I would say is that relative to the guidance that we put out 2 years ago and then reiterated at the beginning of this year, we are tracking at expectations, if not better, across almost all the metrics. So we feel really good about the direction of the company, both from a GAAP earnings perspective, sales, free cash flow RBC we're obviously working through the deployment of the Bain proceeds over the next year.

And at the end of the day, as we've talked about before, when we get the fourth quarter and give a more detailed look as it relates to how we're thinking about capital and deployment, both internally and for return to shareholders. We'll go through that in more detail.

Your next question comes from the line of Brian Kruger with KBW.

I had a question to start on group with this year's margin expected to come in at the mid- to upper 8% range, is that a good starting point when thinking about going forward? Or -- I mean, because I think you probably still had pretty favorable mortality this year. And it sounds like disability maybe is reverting more to a bit of a lower level. So just trying to think through if that's a good starting point or if we should actually normalize a bit lower going forward, at least in the near term?

Sure. I'll answer your question, and I'll give you more detail maybe than you had asked. But if you step back, let's just start by saying that we're -- we feel really good about the trajectory of group. right? I mean, the business there was a 1% to 3% margin business a couple of years ago. We've improved to over 8% last year. We're going to see another 50 basis points improvement this year. You're seeing premium growth 4% to 5% on average. So the outlook for group hasn't changed. What's happening this quarter is that some of the normalization that we had expected maybe more in 2026, it's just happening a little bit earlier. And I'll unpack all of that. But I just want to reiterate by saying we feel really strong about the trajectory for group and at the end of the day, our outlook has not changed.

So if you step back and sort of unpack this quarter and I'll hit on both disability and life to your question, disability loss ratio is up, call it, 6 points. As you know, disability loss ratios are driven by 2 primary things: the incidents, so the new claims being filed and then the resolutions obviously, the reserves released is claimants return to work. Incidence continues to be very positive. The trend there has been good for a number of years, and we haven't seen any signs of that reverting. It's a positive trend that will revert at some point to a more normalized level. But the incidence trends remain very strong. We would expect that trend to continue into the fourth quarter. Resolutions is where we saw less favorability this quarter, and it's really just -- it's driven by 2 things. So if you think about the 6-point change in the display loss ratio, Half of that, we would say, was driven by severity volatility. And so all that means is that during the month of August, the average size of the claim as it relates to resolutions was lower than we would expect.

That's volatility that happens. We've already seen that revert in September and October. The other half, though, is a normalization of the resolution rate. And it's still really good compared to historical levels, but it is normalizing off of what was an extremely strong 2024 number. And we would expect that trend to continue. As I mentioned, part of the dynamic that's occurred over the past couple of years is we've invested in our systems and our processes. You were seeing resolutions trend lower than we would expect over the long term, the rate being higher. And so what -- when we think about our outlook, 2026, 2027 and beyond, we'd always expected that normalization. So at the end of the day, what I would say is third quarter results had a little bit less favorability as it relates to the resolution rate. That was to be expected at some point. We're seeing it start a little bit earlier.

But then as you look into next year, our expectation hasn't really changed. On the life side, I would say 2 things. One, the results have been pretty good over the past 2 years. Part of that, as we emerge further and further away from the pandemic, you're just seeing mortality improvement, and that's reaching a decent steady state.

But the other thing that's happened, and we've talked a lot about this is that a good portion of our rate increases or the rate actions in general that we've taken over the past 2 or 3 years have really been executed through the life block. So in 2025, we've seen mortality improvement, and we've seen the impact of the rate actions come through. That's contributing to improved loss ratios year-to-date, I think our life loss ratio has improved around 5%. And so that's going to have the favorable mortality in there, the pricing actions. And keep in mind, we also include sub-health in the life loss ratio. We'll look to think about incremental disclosures there over time. But at the end of the day, going forward, while we know there will be some volatility quarter-to-quarter, the results this year have been relatively within our expected range. I would say third quarter was probably at the low end of that range. And as we think about fourth quarter, we are continuing to see some of those positive trends.

And Ryan, I'll also add that as we think about future growth, that we also, as Chris alluded to, and also as you heard in our remarks, continue to also see premium growth. Now we will always continue to prioritize profitable growth over pure top line growth. But if you look at our overall premium growth, and we talked about the fact that we grew 5% year-over-year. And importantly, we are continuing to lean in and we see more opportunity in local markets, which is a higher-margin part of this overall business. We've done an awful lot in the last couple of years to invest in the capabilities there to be able to strengthen our overall relationships with brokers that are also leaning in there and then we see this broadening, expanding opportunity as it relates to supplemental health.

And just to give you a sense, when we look at the overall premium growth year-over-year of 5%, 33% growth year-over-year in supplemental health. And in all cases, we see opportunity to just continue to expand lines of coverage in our regional and in national in that space. So we see that there continues to just be future opportunity to grow as it relates to the group business.

So when you put all that together, Ryan, to answer your question specifically, Yes, there will be some normalization of some of the LTD trends that we've talked about. But offsetting that will be the positive impact from the dynamics Alan just walked through the growth in supplemental health continued repricing -- so I wouldn't say that we're expecting deterioration in our margin. I think that this quarter, we just saw a little bit of that normalization happened earlier.

Great. And I appreciate all those details. One just quick follow-up on disability resolutions. Do you think that -- I mean, do you think it has anything to do with the economy? Or do you think it's more just company specific, given how favorable it had been and just normalizing to a more sustainable level? So I don't know that it really is anything to do with the economy, but I would also say it's more than just company specific, right, Ryan, because there's really 2 dynamics. One has been the increased processes and overall investments in our claims management process. That's certainly I can't speak for our peers. That is a very much Lincoln-specific strategic initiative we've talked about but also as you just think about the fact that incidence rates have been very low over the past 2 years, the composition of your claim inventory has been shifting.

And so as you know, late-stage late duration claims have a lower probability as it relates to being resolved and you work that down -- so as the mix of your inventory changes, just to keep it simple, your rate -- the rate itself will normalize over time. And that's not a Lincoln specific thing, that's an industry thing.

Your next question comes from the line of Suneet Kamath with Jefferies.

I wanted to start with the assumption review. I'm acknowledging that it was fairly minor. Are there any statutory impacts that we should think about and is there any kind of ongoing earnings GAAP impacts that we should think about as well?

Net nothing material. We would spike it out if there was anything to note there.

Got it. And then I guess on the retention of the fixed annuity business, is that something that we're going to actually see in the earnings in the near term here? Or is that it takes some time to sort of develop? Just curious about the cadence of that.

Yes. Good question. So -- and the answer is both, but for different reasons. So what happens is you'll see the account -- the net retained account balances grow, and you will see increase in investment income and increase in interest credited grow. I will say that 1 of the things we're looking at is a spread-based account values become a bigger part of the annuities block. We're going to look to get better disclosure next year to more explicitly spike out some of the individual drivers there. But that aside, what you will see is growth in spread income but that comes in as the assets and liabilities are emerging over the life of the policy.

In the near term, what happens is you actually have slightly higher retained acquisition expenses. So this is 1 of the things that I spiked out in my commentary where because we don't have the flow deal anymore, you don't see the offset as it relates to some of the acquisition expenses. And so that's a slight near-term or headwind to annuities. But then over time, you'll see growth in spread income.

Got it. Is there any way to size that drag?

We'll look to give you more color there as it relates to the fourth quarter outlook. I think we've said before that we were seeing 60% to 70% depending on what time period you're looking at as it relates to fixed annuity flow if you have an estimate for what acquisition expenses are, you could see that. I think in this quarter, we had 1 month of retained actually, I think it was 2 months of retained fixed annuity flow on a 100% basis. So you can look at some of the expense line items there, but we'll get to something more detailed as it relates to the 2026 outlook.

Your next question comes from the line of Alex Scott with Barclays.

First 1 I've got for you is just on the topic of private credit. I'd be interested in what your take is on some of the, I guess, one-offs that have kind of popped up recently. And maybe just out on to that, just your views of potentially growing into private credit as we're looking at the growth in your business, retaining more? I assume that comes with a little more private credit allocation to the Bain partnership -- what is your comfort with the stability of that business and the quality of the assets you're putting on?

Yes. Alex. So as it relates to the one-offs, we don't have a view, we don't really have exposure or an impact from some of the names in the headlines. What I would say is big picture I think when you look at our portfolio relative to others, especially relative to others in the annuity space, we've been somewhat under allocated to different parts of the private credit and structured securities asset classes. We certainly have a good healthy allocation over the past 10 years, but we -- it hasn't been a focus of growth the way that it has for others just given the fact that we haven't been as big in some of the retained spread business historically. So my point is we feel really comfortable with our portfolio. You can look at the investment details that we give each quarter the credit quality is very stable. Our credit losses this quarter, you can see in the investor sub where I think 1 of the lowest quarters with Pasco?

I mean they're very, very de minimis and in line with the past 2 years, let's say. So we don't see any issues as it relates to the existing portfolio as it relates to growing. Look, we're going to be thoughtful about it, right? We're going to apply the same discipline around portfolio construction and risk management that we've done before. And it's something that we think will be a driver, but it doesn't necessarily mean that we're going to be taking outsized risk.

Got it. Helpful. Second 1 I had is on the you mentioned optimizing that block further. And I just wanted to see if you could provide any extra color around some of the things you're considering? Are we talking about things that are more internal or external reinsurance. Any way you can help dimension that for us?

Sure. And again, I think we'll have more to say next quarter when we give our outlook as we do every year. But Alex, what I would do is probably reiterate what we've said in the past. We think there's a number of ways to continue to optimize that block, some external, some internal, We think that the options as it relates to repositioning the asset portfolio would be a driver to free cash flow and NII over time. We've talked a lot about looking at our historical captive framework and looking for efficiencies there. We've talked about the potential to explore another external deal. So I think we went through this when we announced the Bain transaction, but all of those projects are in the work from an exploration perspective, some we think will have real meaningful impact. Some we're still studying. But at the end of the day, part of the capital as it relates to the Bain equity will be deployed to execute on a number of the things that we've discussed.

Your next question comes from the line of Wes Carmichael with Autonomous Research.

I had a question on Alan, your comments just thinking about increasing the risk-adjusted ROE of the company and reducing volatility. Just wondering if there's any kind of new developments in terms of products that you want to lean into there? And I understand you've been growing group protection, but are there other kind of product areas you'd point to where ROE and cash flow are more attractive now?

So we really -- when we think about overall product, first of all, and expansion of product, everything that we're doing inside of each of our businesses is really to support our overall strategic and financial objectives. So the idea of continuing to really lean into places where we see, first of all, growing expandable markets and also additionally stable cash flow and higher risk-adjusted returns. So we really can take it case by case. So for example, we talked about really strong sales in the quarter in life insurance. And 1 of the places there was related to executive benefits. So I want to call out just a couple of things there. We had historically had a presence in executive benefits. But in the last year or so, as we really have been focusing on pivoting the entire life franchise.

We really strengthened our overall offering. We broadened our capabilities there. We continue to deepen our relationships on the distribution side. And we also built some necessary capabilities dedicated resources, and you see that we put up a couple of large cases in the quarter. And at the same time, all of the sales that you see in the in the life portfolio as we continue to build momentum there are all products that we've leaned into, they're really emphasizing more accumulation and more limited guarantees that also will produce stable cash flows. So we have repriced and put up completely new products in the IOL space as an example, accumulation DOL is another example. And we also have a risk-sharing product in our MoneyGuard space. And at the same time, we're building tools that differentiate us for presale and post sale. We've completely optimized the distribution footprint. In our annuity business, 1 of the places where we believe that we're winning.

And 1 of the reasons why we continue to see strong sales, 32% year-over-year sales growth is that in each of our product categories, we're continuing to expand. And there -- we've got unique crediting strategies. We have unique index features. We commented already on Group Protection and really leaning into as an example, supplemental health. And then I'll just call out in Retirement Plan Services. One of the things that is driving our strong sales in the quarter. Our small market sales were up 24%. And there, we're leaning into pooled employer plans, and that has also that some of the higher-margin parts of the Retirement business and our stable value investment only was up more than 2x. And there, we developed a new product as well that was shorter duration. So -- and we will continue because it's part of our competitive advantage to really lean into new product, product expansion, very much listening to the voice of our customer and what the compelling value propositions are and then testing that alongside what meets our strategic and financial objectives.

Got it. And maybe a more detailed question. But I think, Chris, you mentioned a $50 million dividend out of Len bar. I think it's been a little while since you executed on taking money from that. subsidiary, and I appreciate you may want to share more next quarter with the outlook. But is there an annual expected level of dividends out of that sub? And how much, I guess, do you think it might fluctuate if we get a little more volatility with the macro?

So what I would say is the $50 million dividend is consistent with what we took last year. And frankly, to your specific question, we saw a lot of volatility in April and May. And so it's actually a good testament to the effectiveness of the hedge strategy. And the overall dynamics as it relates to the way that we operate our variable annuity risk that we were able to take another $50 million dividend this year. I think longer term, as we build excess capital in different parts of the organization, you would expect to see some growth in dividends. As a reminder, we also have our Bermuda affiliate, which is now over a year in the operational phase. So I would say, over time, I would expect growth in dividends from all of our entities, but the fact is that this year was very in line with last year as it relates to the Lunar dividend.

Your next question comes from the line of Tom Gallagher with Evercore.

Just a few questions on Group Protection. Chris, if I follow what you were saying, it sounds like you think the higher severity trends in disability should improve. But the lower claim recoveries is probably going to continue. And I think you said it was 50-50 in terms of the impact on the loss ratio between those 2 things. So having said all that, is it reasonable to assume the trend into Q4 that's embedded in your guidance should be improvement in the group disability loss ratio by -- if we had to pick a number, something like 3 points, but then partly offset by higher group life loss ratio just because that was so favorable.

Yes. So Tom, what I would say is First point, this is just a nit, but I wouldn't really call the severity impact the trend. It was 1 month, and that can happen from time to time. So for what it's worth, I mean, it was more volatility than the trend. But that's right. I mean you have the math right, it was about half of the disability loss ratio growth due to that dynamic and the other half due to trend. So if you move from third quarter to fourth quarter, as I mentioned in the prepared remarks, we would normalize for that volatility but then you also have seasonality that happens in the fourth quarter relative to third quarter for disability. So just keep that in mind. I would say that a loss ratio that's slightly in line with third quarter to maybe up a little bit, depending on the degree of seasonality would be a decent expectation for the disability loss ratio consistent with what we've seen in the past.

Got you. That's a good point on the seasonality. The -- and then I guess, just a follow-up, what are you guys seeing in pricing now? You've clearly had pretty good growth in Group Protection. What are you seeing on 26 renewals for rate? Are things softening a bit? Are they stable firming?

So Tom, we will continue to message what we've said in the past, which is it is very competitive out there. It always has been, and it's also rational at the same time. We are continuing to see a strong cycle as it relates to going into the fourth quarter. We are going to continue to lean into prioritizing profitable growth over top line growth. And so you'll see us really focusing on leaning into the places, in particular, where we see further opportunity in local markets, as an example, supplemental health, as we called out, earlier. And just in general, we would expect that you may recall that last year's annual cycle was particularly strong and active across the entire industry.

So I think it's fair to expect that you will likely see less activity as we move into the fourth quarter.

Got you. And Ellen, sorry, 1 quick follow-up on that. So you would expect maybe not as strong as sales but then better retention. Is that a way to think about the trade-off of that?

So we have seen much improved persistency, while putting rate increases through at the same time. And I think a lot of this really speaks to all of the infrastructure, technology and customer service capabilities that we have invested in along the way. Just to give you an example, if -- when we create the infrastructure so that we are -- we have technology that is now connecting directly into our customers. And we build an infrastructure with them, and we're supporting them in terms of ease and access. We just become much more of a long-term partner. And so we've invested in that it's supporting us in terms of really being able to have more persistent client base and continuing to build on additional digital tools to enable us to just have longer relationships with our customers.

That concludes our question-and-answer session. I will now turn the call back over to Tina for closing remarks.

Thank you, everyone, for joining our call today. If you have any follow-up questions, please don't hesitate to reach out at [email protected]. Thank you for your time.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.