LINCOLN NATIONAL CORP 10-K Analysis & Summary – 2/21/2025

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Lincoln National Corporation

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Lincoln National Corp reported a net income of $3.275 billion for 2024, a significant improvement from the previous year. The company faces ongoing challenges related to market volatility, regulatory changes, and the life insurance segment.

ELI5:

Lincoln National, an insurance company, made a lot more money in 2024 than it did the year before. They still have some problems to deal with, like changes in the market and new rules.

Accession #:

0000059558-25-000023

Published on

March 16, 2025

Analyst Summary

Net income of $3.275 billion for 2024, a significant improvement from the net loss of $752 million in 2023.
Improved performance in the Annuities segment, with income from operations increasing to $1.160 billion.
Strategic actions, including the sale of the wealth management business, contributing to a gain of $582 million.
Loss Ratio (Group Protection) improved from 82.5% in 2022 to 71.9% in 2024.
Operating Profit Margin: 21.81%
Net Profit Margin: 17.76%
Return on Assets (ROA): 0.84%
Return on Equity (ROE): 39.61%
Basic EPS: $18.66
Diluted EPS: $18.41
Debt-to-Equity Ratio: 0.71
Debt-to-Assets Ratio: 0.015
Interest Coverage Ratio: 13.54
Asset Turnover: 0.047
Price-to-Earnings Ratio (P/E): 2.01
Price-to-Book Ratio (P/B): 0.77
Price-to-Sales Ratio (P/S): 0.35
Enterprise Value to EBITDA (EV/EBITDA): 1.49
Revenue Growth: 15.07%
Net Income Growth: -535.50%
EPS Growth: -479.27%
Separate account net flows were $(9,308) million in 2024.

Opportunities and Risks

Interest Rate Sensitivity: LNC remains vulnerable to changes in interest rates.
Equity Market Volatility: Fluctuations in equity markets can affect fee income.
Regulatory Changes: New regulations could increase capital requirements.
Cybersecurity: The company faces ongoing risks related to data breaches.
Strategic Actions: Management’s focus on expense management could drive future performance.
Wholesale Distribution: LNC’s strong wholesale distribution network provides access to key markets.
Product Innovation: The company’s ability to adapt its product offerings could drive sales.

Potential Implications

Company Performance

Management’s focus on expense management, capital efficiency, and profitable growth could drive future performance.
The company’s ability to adapt and innovate its product offerings could drive sales and improve profitability.

Lincoln National Corp (LNC) 10-K Report Analysis – FY 2024

Executive Summary

This report analyzes Lincoln National Corp’s 10-K filing for the fiscal year 2024. Key findings include a return to profitability driven by improvements in the annuities segment and strategic actions taken by management. However, challenges remain in the life insurance segment, and the company faces ongoing regulatory and market risks. Overall, the report suggests a cautious “hold” rating, pending further evidence of sustained profitability and effective risk management.

Company Overview

Lincoln National Corporation (LNC) is a holding company operating in the life insurance and retirement solutions industry. It provides a range of products including annuities, life insurance, group protection, and retirement plan services. Recent significant developments include the sale of the wealth management business and strategic actions to improve capital efficiency.

Detailed Analysis

Financial Performance

LNC reported a net income of $3.275 billion for 2024, a significant improvement from the net loss of $752 million in 2023. This turnaround was primarily driven by:

Improved performance in the Annuities segment, with income from operations increasing to $1.160 billion.
Strategic actions, including the sale of the wealth management business, contributing to a gain of $582 million.
Favorable changes in the fair value of reinsurance-related embedded derivatives.

Segment Analysis

Annuities

The Annuities segment showed strong performance, driven by higher fee income from increased average daily separate account balances. However, net investment income was slightly lower due to certain reinsured portfolios.

Life Insurance

The Life Insurance segment continued to face challenges, reporting a loss from operations of $63 million. This was partially offset by lower benefits and policyholder liability remeasurement losses, but also impacted by lower net investment income and fee income.

Group Protection

The Group Protection segment demonstrated improved profitability, with income from operations increasing to $425 million. This was driven by higher insurance premiums and lower benefits, indicating better risk management and pricing strategies.

Retirement Plan Services

The Retirement Plan Services segment experienced a slight decrease in income from operations, primarily due to lower net investment income and higher commissions.

Key Ratios and Trends

Loss Ratio (Group Protection): Improved from 82.5% in 2022 to 71.9% in 2024, indicating better claims management and pricing.
Outflow Rate (Annuities): Increased to 11% in 2024, driven by higher full surrenders due to the elevated interest rate environment.

Risk and Opportunities

Risks

Interest Rate Sensitivity: LNC remains vulnerable to changes in interest rates, which can impact spreads and policyholder behavior.
Equity Market Volatility: Fluctuations in equity markets can affect fee income and the profitability of products with guaranteed benefits.
Regulatory Changes: New regulations and supervisory policies could increase capital requirements and reduce profitability.
Cybersecurity: The company faces ongoing risks related to data breaches and cyberattacks.

Opportunities

Strategic Actions: Management’s focus on expense management, capital efficiency, and profitable growth could drive future performance.
Wholesale Distribution: LNC’s strong wholesale distribution network provides access to key markets.
Product Innovation: The company’s ability to adapt and innovate its product offerings could drive sales and improve profitability.

Uncommon Metrics

The report highlights the importance of monitoring the net amount at risk (NAR) for guaranteed benefits, as well as the impact of reinsurance transactions on key financial metrics.

Conclusion and Actionable Insights

Lincoln National Corp has shown signs of recovery in 2024, driven by strategic actions and improved performance in certain segments. However, the company faces ongoing challenges related to market volatility, regulatory changes, and the life insurance segment. A “hold” rating is recommended, with a focus on monitoring the company’s ability to sustain profitability, manage risk effectively, and navigate the evolving regulatory landscape.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Not applicable for financial service companies like LNC.
Industry: Industry averages are not directly comparable as gross profit margin is not a primary metric for insurance companies.

Operating Profit Margin

Ratio/Metric: Operating Income / Total Revenues = $4,022 / $18,442 = 21.81%

Net Profit Margin

Ratio/Metric: Net Income / Total Revenues = $3,275 / $18,442 = 17.76%

Return on Assets (ROA)

Ratio/Metric: Net Income / Total Assets = $3,275 / $390,831 = 0.84%

Return on Equity (ROE)

Ratio/Metric: Net Income / Total Stockholders’ Equity = $3,275 / $8,269 = 39.61%

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric:
- Basic EPS: $3,184 / 170,597,104 = $18.66
- Diluted EPS: $3,187 / 173,080,425 = $18.41

Liquidity

Current Ratio

Ratio/Metric: Current Assets / Current Liabilities. Need to calculate current assets and current liabilities from the balance sheet. Based on available data, this is difficult to accurately determine.

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Inventory is not applicable. Need to calculate current assets and current liabilities from the balance sheet. Based on available data, this is difficult to accurately determine.

Cash Ratio

Ratio/Metric: Cash and Invested Cash / Current Liabilities. Need to calculate current liabilities from the balance sheet. Based on available data, this is difficult to accurately determine.

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Debt / Total Stockholders’ Equity = $5,856 / $8,269 = 0.71

Debt-to-Assets Ratio

Ratio/Metric: Total Debt / Total Assets = $5,856 / $390,831 = 0.015

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Operating Income / Interest Expense = $4,022 / $297 = 13.54

Activity/Efficiency

Inventory Turnover

Ratio/Metric: Not applicable for financial service companies like LNC.

Days Sales Outstanding (DSO)

Ratio/Metric: Not directly applicable for insurance companies.

Days Payable Outstanding (DPO)

Ratio/Metric: Not directly applicable for insurance companies.

Asset Turnover

Ratio/Metric: Total Revenues / Total Assets = $18,442 / $390,831 = 0.047

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS = $37.55 / $18.66 = 2.01

Price-to-Book Ratio (P/B)

Ratio/Metric: Market Cap / Book Value of Equity. Book Value of Equity = $8,269 million. Market Cap = $37.55 * 170,380,646 = $6,398 million. P/B = $6,398 / $8,269 = 0.77

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Total Revenues = $6,398 / $18,442 = 0.35

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: EV = Market Cap + Total Debt – Cash = $6,398 + $5,856 – $5,801 = $6,453 million. EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization. Depreciation and Amortization is not readily available. Approximating EBITDA with Net Income + Interest + Taxes = $3,275 + $297 + $747 = $4,319 million. EV/EBITDA = $6,453 / $4,319 = 1.49

Growth Rates

Revenue Growth

Ratio/Metric: ($18,442 – $16,027) / $16,027 = 15.07%

Net Income Growth

Ratio/Metric: ($3,275 – (-$752)) / (-$752) = -535.50%

EPS Growth

Ratio/Metric: ($18.66 – (-$4.92)) / (-$4.92) = -479.27%

Other Relevant Metrics

Separate Account Net Flows

Ratio/Metric: Separate account net flows were $(9,308) million in 2024. This indicates a significant outflow from separate accounts.

Commentary

Lincoln National Corporation’s financial performance in 2024 shows a significant rebound with a net income of $3,275 million compared to a net loss in the previous year. The company demonstrates strong profitability metrics, including a net profit margin of 17.76% and a ROE of 39.61%. Revenue growth was also positive, increasing by 15.07%. However, the negative net flows in separate accounts and the high level of debt should be monitored closely.