10-Q: Lincoln National Q3 2025 Earnings: Net Income Rebounds

Lincoln National Corporation reports a significant rebound in net income for Q3 2025, driven by favorable annuity product features and reduced reinsurance-related fair value changes.

Summary

• Net income for the third quarter of 2025 was $445 million, a substantial improvement compared to a net loss of $(528) million in the third quarter of 2024.
• Year-to-date net income for the nine months ended September 30, 2025, was $423 million, a decrease from $1,588 million for the corresponding period in 2024.
• Annuities segment income from operations increased to $310 million in Q3 2025 from $301 million in Q3 2024, primarily due to higher fee income.
• Life Insurance segment income from operations rose to $25 million in Q3 2025 from $22 million in Q3 2024, driven by higher net investment income and expense management.
• Group Protection segment income from operations increased to $149 million in Q3 2025 from $109 million in Q3 2024, supported by higher insurance premiums and net investment income.
• Retirement Plan Services segment income from operations increased slightly to $46 million in Q3 2025 from $44 million in Q3 2024.
• The annual assumption review resulted in an unfavorable impact of $(50) million to net income for Q3 2025, contrasting with a favorable impact of $216 million in Q3 2024.
• Gross unrealized losses on fixed maturity available-for-sale (AFS) securities decreased by $2.0 billion for the nine months ended September 30, 2025.
• A pre-tax gain of $94 million was recognized on the early extinguishment of debt for the nine months ended September 30, 2025.
• Total assets stood at $415,275 million as of September 30, 2025, up from $390,831 million as of December 31, 2024.
• Total stockholders equity increased to $10,452 million as of September 30, 2025, from $8,269 million at year-end 2024.
• The company issued 18,759,497 shares of common stock to Bain Capital Prairie, LLC for $825 million on June 5, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated a strong rebound in net income for the quarter and improved operating results across most segments, coupled with a significant capital raise. However, year-to-date net income is down, and the annual assumption review had an unfavorable impact, indicating mixed performance and ongoing challenges.

Positives

• Net income significantly improved to $445 million in Q3 2025 from a loss of $(528) million in Q3 2024, indicating a strong quarterly turnaround.
• Annuities income from operations increased to $310 million in Q3 2025, driven by higher fee income from increased average daily separate account balances.
• Life Insurance income from operations increased to $25 million in Q3 2025, benefiting from higher net investment income and effective expense management.
• Group Protection income from operations rose to $149 million in Q3 2025, supported by growth in business in force, persistency, and higher net investment income.
• Gross unrealized losses on fixed maturity AFS securities decreased by $2.0 billion for the nine months ended September 30, 2025, reflecting improved investment portfolio valuation.
• A $94 million pre-tax gain was recognized on the early extinguishment of debt for the nine months ended September 30, 2025, enhancing financial flexibility.
• The Bain Capital transaction provided $825 million in new capital, which is expected to be deployed towards strategic priorities and growth initiatives.
• Total stockholders equity increased by $2,183 million to $10,452 million as of September 30, 2025, from $8,269 million at December 31, 2024, strengthening the balance sheet.

Negatives

• Year-to-date net income for the nine months ended September 30, 2025, was $423 million, a significant decrease from $1,588 million in the prior year, primarily due to a loss in net annuity product features and a gain on other non-financial assets in 2024.
• The annual assumption review had an unfavorable impact of $(50) million on net income for Q3 2025, contrasting with a favorable impact of $216 million in Q3 2024.
• Other Operations reported an increased loss from operations of $(99) million in Q3 2025, compared to $(84) million in Q3 2024, indicating continued drag from non-segment activities.
• Net annuity product features showed a pre-tax loss of $(277) million for YTD Q3 2025, compared to a gain of $1,319 million in YTD Q3 2024, driven by capital market impacts.
• Higher transaction costs related to restructuring certain captive reinsurance subsidiaries and persistency optimization in the Life Insurance segment negatively impacted other items.
• The outflow rate for Retirement Plan Services increased to 14% for Q3 2025 and 17% for YTD Q3 2025, primarily due to a large plan termination during the first quarter of 2025.

Risks

• Weak general economic and business conditions may affect demand for products, account balances, investment results, guaranteed benefit liabilities, premium levels, and claims experience.
• Adverse global capital and credit market conditions may affect the ability to raise capital, cause impairments on investments and intangible assets, and impact financial condition.
• The inability of subsidiaries to pay sufficient dividends to the holding company could harm the holding company's ability to meet its obligations.
• Legislative, regulatory, or tax changes, both domestic and foreign, could affect product costs, demand, required reserves/surplus, business conduct, and reinsurance arrangements.
• New and emerging rules relating to privacy, cybersecurity, and artificial intelligence may lead to increased compliance costs, reputation risk, and changes in business practices.
• Increasing scrutiny and evolving expectations regarding environmental, social, and governance (ESG) matters may adversely affect reputation and the investment portfolio.
• Actions taken by reinsurers to raise rates on in-force business could increase costs.
• Declines in or sustained low interest rates could reduce investment income, interest margins, and demand for products.
• Rapidly increasing or sustained high interest rates may negatively affect profitability, investment portfolio value, capital position, and cause policyholders to surrender policies.
• Ineffectiveness of risk management policies and hedging strategies could lead to significant unplanned fluctuations in earnings.
• Deviation in actual experience regarding future policyholder behavior, mortality, morbidity, interest rates, or equity market returns from assumptions used in pricing and reserving may reduce future earnings.
• Changes in accounting principles may affect consolidated financial statements.
• Lowering of debt or insurer financial strength ratings could adversely affect capital raising ability, liquidity, and financial condition.
• Significant credit, accounting, fraud, corporate governance, or other issues may adversely affect the value of financial assets and counterparties.
• Interruption or failure of telecommunication, information technology, or other operational systems, including cyberattacks, could disrupt business operations.
• The effect of acquisitions and divestitures, restructurings, product withdrawals, and other unusual items may lead to unforeseen liabilities or operating difficulties.
• The inability to realize or sustain the benefits expected from strategic initiatives, or greater than expected investments in them, could impact performance.
• The adequacy and collectability of reinsurance obtained is a risk.
• Pandemics, acts of terrorism, war, or other man-made and natural catastrophes may adversely impact policyholder claims and the cost/availability of reinsurance.
• Competitive conditions, including pricing pressures, new product offerings, and new competitors, may affect premiums and fees.
• The unknown effect on businesses resulting from evolving market preferences and changing client demographics.
• The unanticipated loss of key management or wholesalers.
• Ongoing legal and regulatory proceedings, including class actions related to cost of insurance rates and ERISA fiduciary duties, could result in very large and/or indeterminate damages.
• Tax assessment proceedings, such as the one with the Township of Radnor, could result in additional tax liabilities.
• State guaranty fund assessments could levy additional costs on the company.

Future Outlook

The Federal Reserve announced a 25 basis point reduction in the federal funds rate target range to 4.00% to 4.25% in Q3 2025, with an additional 25 basis point reduction in October 2025 to 3.75% to 4.00%. The balance sheet reduction program will end effective December 1, 2025. The company expects to deploy capital from the Bain Capital transaction towards strategic priorities including growing spread-based earnings, advancing portfolio management and asset sourcing capabilities, and optimizing its legacy life portfolio.

Management Comments

• We currently expect to be able to meet the holding company's ongoing cash needs.
• We believe we have appropriate capital to operate our business in accordance with our strategy.
• We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows or other changes that may cause interest rate spreads to differ from our expectations.
• Our variable annuity hedge program mitigates the risk to LNBAR from guaranteed benefit riders and continues to focus on generating sufficient income to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital.

Industry Context

The Federal Reserve's recent interest rate reductions and the planned cessation of its balance sheet reduction program signal a shift towards a more accommodative monetary policy. This environment could influence the company's investment income and interest margins, potentially impacting profitability and product demand, particularly for spread-based offerings. The broader economic landscape, characterized by a softening labor market and persistent inflation uncertainty, remains a critical factor shaping these monetary policy adjustments and the financial services industry at large.

Comparison to Industry Standards

• The company generally uses the S&P 500 Index as a benchmark for the performance of its separate account balances, although policyholder investments vary across different options.
• The average credit quality of the fixed maturity AFS securities portfolio was Aas of September 30, 2025, with 96.7% rated investment grade, which is consistent with low credit risk standards (BBBor higher by S&P/Baa3 or higher by Moody's).

Management Changes

Corporate Governance

Legal Proceedings

• Glover v. Connecticut General Life Insurance Company and The Lincoln National Life Insurance Company: Provisional settlement of $147.5 million pre-tax cash payment for class members received final approval on June 16, 2025, and the case was dismissed on June 18, 2025. This settlement is subject to appeal by plaintiffs in related cases (Iwanski, TVPX ARS INC., and Vida).
• Iwanski v. First Penn-Pacific Life Insurance Company, TVPX ARS INC. v. The Lincoln National Life Insurance Company, and Vida Longevity Fund, LP v. Lincoln Life & Annuity Company of New York: These putative class actions, alleging excessive non-guaranteed cost of insurance charges, are encompassed by the Glover settlement and are currently stayed pending the outcome of the appeal.
• Angus v. The Lincoln National Life Insurance Company: A putative class action alleging excessive non-guaranteed cost of insurance charges, which the company is vigorously defending.
• Consolidated civil actions (EFG Bank AG, Cayman Branch, et al.; Brighton Trustees, LLC, et al.; Ryan K. Crayne) alleging breach of contract due to increased non-guaranteed cost of insurance rates, which the company is vigorously defending.
• Wells Fargo Bank, N.A. v. The Lincoln National Life Insurance Company: This case was fully and finally settled on October 7, 2025, and dismissed with prejudice.
• Henry Morgan et al. v. Lincoln National Corporation et al.: A putative class action alleging misleading and deceptive insurance products (OptiBlend) with investment product attributes, asserting claims of Texas Deceptive Trade Practices Act violations, common-law fraud, negligent misrepresentation, and aiding and abetting fraud. Motions to dismiss are pending, and the company is vigorously defending.
• Donald C. Meade v. Lincoln National Corporation, Ellen Cooper, Dennis Glass, and Randal Freitag: A putative class action alleging materially false/misleading statements regarding Guaranteed Universal Life policies and lapse rates. The amended complaint was dismissed, and the plaintiff filed a Notice to Appeal on September 25, 2025. The company is vigorously defending.
• In Re Lincoln National Corporation Stockholder Derivative Litigation (Hollin and Wiersum cases): Consolidated derivative actions alleging breaches of fiduciary duties and federal securities law violations, currently stayed pending resolution of the Meade matter appeals. The company is vigorously defending.
• In Re Lincoln National Corporation Shareholder Derivative Litigation (Morgan and Rosenthal cases): Consolidated derivative actions alleging breaches of fiduciary duties for failing to comply with federal securities laws and misstating financial results, currently stayed pending resolution of the Meade matter appeals. The company is vigorously defending.
• Kelly Grink v. Virtua Health and Lincoln National Corporation et al.: A putative class action alleging breach of fiduciary duty and prohibited transactions under ERISA related to fixed annuity options in defined contribution plans. A motion to dismiss has been filed, and the company is vigorously defending.
• Maria Laurino and Ricardo Miller v. The Valley Hospital and Lincoln National Corporation and The Lincoln National Life Insurance Company, et. al.: A putative class action alleging breach of fiduciary duty and prohibited transactions under ERISA related to fixed annuity options in a 401(k) plan. The company is vigorously defending.
• Lincoln National Life Insurance Company v. Township of Radnor: A tax assessment proceeding where the trial court entered judgment in favor of LNL on July 16, 2025. The Township filed a post-trial motion and a notice of appeal on August 15, 2025. LNL's motion to strike the Township's post-trial motion was granted.
• Reinsurance Disputes: The company may face legal proceedings from reinsurers seeking rate increases on certain yearly renewable term agreements.
• State Guaranty Fund Assessments: An undiscounted expected liability of $63 million for state guaranty fund assessments was reported as of September 30, 2025, with a related receivable for expected future state premium tax recoveries of $100 million.

Related Party Transactions

• On June 5, 2025, the company closed a stock purchase agreement with Bain Capital Prairie, LLC, a newly formed subsidiary of Bain Capital. This involved the issuance of 18,759,497 shares of common stock for $825 million.
• The Purchase Agreement grants Bain Capital Prairie, LLC the right to designate one observer to the Board, and after the first anniversary of the closing, the right to replace such observer with a voting member of the Board, subject to certain conditions and Board approval.
• The agreement also includes certain limitations on Bain Capital Prairie, LLC's ability to transfer common stock, purchase additional common stock, and take certain other actions with respect to the Company and its common stock, along with a voting agreement.

Stakeholder Impact

• Shareholders: Benefited from a significant rebound in quarterly net income and a substantial capital infusion from the Bain Capital transaction. However, year-to-date net income is lower, and ongoing litigation and an unfavorable annual assumption review introduce uncertainty.
• Policyholders: Directly impacted by the settlement of cost of insurance litigation, with a $147.5 million pre-tax cash payment for class members. Potential changes in crediting rates due to the interest rate environment could also affect them.
• Employees: Affected by severance expenses related to workforce realignment initiatives.
• Creditors: The company's debt repayment and early extinguishment activities, along with efforts to maintain strong credit ratings, are positive for creditors.
• Regulatory Bodies: The company is subject to ongoing inquiries, examinations, investigations, and audits from various regulatory authorities, including state insurance departments, the SEC, and FINRA.

Next Steps

• The Federal Reserve will end its balance sheet reduction program effective December 1, 2025.
• The company will perform its annual quantitative goodwill impairment test as of October 1, 2025, during the fourth quarter of 2025.
• The company is evaluating the impact of ASU 2024-03 (effective January 1, 2027) and ASU 2025-06 (effective January 1, 2028) on its consolidated financial statements.
• The company expects to deploy capital from the Bain Capital transaction towards strategic priorities including growing spread-based earnings, advancing portfolio management and asset sourcing capabilities, and optimizing its legacy life portfolio.
• The company will continue to vigorously defend ongoing legal proceedings, including appeals related to the Glover settlement and other class actions.

Key Dates

Recommendation

While the company demonstrated a strong rebound in net income for the quarter and improved operating performance across most segments, the year-to-date net income remains significantly lower than the prior year. The unfavorable impact from the annual assumption review and ongoing litigation, particularly the appeals related to the cost of insurance settlement, introduce uncertainty. The capital raise from Bain Capital is a positive strategic move, but its full impact on future performance and the optimization of the legacy life portfolio needs time to materialize. Given the mixed results and pending legal and operational adjustments, a 'hold' recommendation is prudent for a seasoned investor, awaiting clearer trends and resolution of key uncertainties.

Keywords

Insurance, Annuities, Life Insurance, Group Protection, Retirement Plan Services, SEC Filing, Financial Results, Q3 2025, Net Income, Capital Raise, Debt Extinguishment, Investment Portfolio, Risk Management, Policyholder Liabilities, Derivatives, Reinsurance, Market Risk Benefits, Shareholder Equity, Interest Rates, Litigation