LINCOLN NATIONAL LIFE INSURANCE CO /IN/ 2025 Annual Report: A Clear Investor Summary

Lincoln National Life Insurance Company /IN/ (the "Company") delivered a year of significant growth and strategic transformation in 2025. This summary provides a clear, jargon-free overview of the Company's financial performance, strategic direction, and key risks for the fiscal year ending December 31, 2025. We compare 2025 results against 2024 and 2023 to highlight crucial trends and help you make informed investment decisions.

Business Overview: A Leading Provider of Financial Protection and Retirement Solutions

Lincoln National Life Insurance Company /IN/, a subsidiary of Lincoln National Corporation, focuses on providing insurance and retirement solutions. Its core operations include:

• Life Insurance: Offers various life insurance products to individuals and groups, providing financial security.
• Annuities: Provides a range of annuity products (variable, fixed, and indexed) to help clients accumulate and protect retirement savings and generate guaranteed income.
• Group Protection: Delivers group insurance products, such as life, disability, dental, and vision insurance, to employers for their employees.
• Retirement Plan Services: Manages defined contribution plans, primarily 401(k)s, for employers, offering recordkeeping, administration, and investment management services.

The Company serves a broad customer base across the United States through a network of financial professionals, including independent agents, brokers, and its own distribution channels. Its strategy emphasizes delivering value through comprehensive product offerings, strong financial management, and efficient service.

Executive Financial Snapshot: A Year of Strategic Growth and Improved Resilience

Lincoln National delivered a robust performance in 2025, marked by solid revenue growth, increased profitability, a strengthened balance sheet, and a significant strategic divestiture.

• Total Operating Revenues climbed to $20.5 billion in 2025, up 6.8% from $19.2 billion in 2024 and $18.5 billion in 2023. This consistent growth highlights the Company's expanding market presence.
• Consolidated Net Income reached $2.1 billion in 2025, a substantial 40% increase from $1.5 billion in 2024, and a turnaround from a $500 million net loss in 2023. This reflects improved operational efficiency and investment performance.
• Diluted Earnings Per Share (EPS) mirrored this success, rising to $11.50 in 2025 from $8.20 in 2024 and a loss of $2.70 in 2023.
• Operating Cash Flow remained strong, generating $3.8 billion in 2025, compared to $3.5 billion in 2024 and $3.2 billion in 2023, providing ample liquidity for operations and strategic initiatives.

Strengthening the Balance Sheet: Building for the Future

The Company's financial foundation significantly improved, reflecting prudent management and favorable market conditions.

• Retained Earnings continued their upward trajectory, growing from $17 billion at the end of 2024 to $18 billion by the end of 2025, a solid 5.9% increase. This indicates consistent profit retention and reinvestment.
• Accumulated Other Comprehensive Income (AOCI), which reflects unrealized gains or losses on investments, dramatically improved. It moved from a negative $2 billion at the end of 2024 to negative $1 billion by the end of 2025. This 50% reduction in unrealized losses primarily stems from rising interest rates positively impacting fixed-income securities' valuation and strong equity market performance.
• Total Assets grew to $320 billion in 2025 from $305 billion in 2024, while Total Liabilities increased to $290 billion from $278 billion. This strengthened Total Shareholder Equity to $30 billion in 2025 from $27 billion in 2024, demonstrating enhanced financial stability.
• Total Debt remained manageable at approximately $12 billion, with a healthy debt-to-equity ratio of 0.40, indicating responsible leverage.

Business Segment Performance: Core Strengths Driving Profitability

Lincoln National's core business segments demonstrated robust net income growth, significantly contributing to the overall positive results.

• Annuities: This key profit driver saw its net income jump from $900 million in 2024 to $1 billion in 2025, an 11.1% increase. Strong sales and effective risk management supported this growth.
• Group Protection: This area also performed exceptionally well, with net income rising from $250 million in 2024 to $300 million in 2025, a strong 20% boost, driven by increased premiums and favorable claims experience.
• Life Segment: This segment contributed $700 million in net income in 2025, up from $650 million in 2024, reflecting stable policy growth and improved mortality experience.
• Retirement Plan Services: This segment generated $200 million in net income in 2025, a modest increase from $190 million in 2024, benefiting from higher assets under management fees.

Investment Portfolio: A Significant Contributor to Earnings

The Company's investment strategy paid off handsomely, bolstering overall profitability.

• Realized Gains: Profits from selling investments increased significantly, with total realized gains from debt and equity securities rising from $58 million in 2024 to $75 million in 2025, a nearly 30% jump. Strategic sales of corporate bonds, residential mortgage-backed securities, and asset-backed securities in a favorable market primarily drove this increase.
• Unrealized Gains: The value of the Company's overall investment portfolio (assets still held) improved dramatically. From an unrealized loss of $500 million in 2023, it swung to an unrealized gain of $500 million in 2024, and then doubled to a $1 billion unrealized gain in 2025. This exceptional turnaround reflects strong performance across equity and fixed-income holdings.
• Total Investment Income: The regular income generated from investments (interest, dividends, and rental income) grew by 8% to $6.5 billion in 2025, up from $6.0 billion in 2024, with increases across fixed-maturity investments, equity securities, and mortgages.

Major Strategic Shift: Divestiture of Wealth Management Business

On May 6, 2024, Lincoln National completed the sale of its Wealth Management Business for approximately $700 million, resulting in a pre-tax gain of $150 million. This pivotal strategic decision aimed to:

• Focus on Core Strengths: The divestiture allows the Company to concentrate resources and capital on its higher-growth, more capital-efficient insurance and annuity businesses.
• Optimize Capital: The Company primarily used the sale proceeds to enhance liquidity, reduce debt, and support share repurchases, thereby strengthening the balance sheet and improving shareholder returns.
• Streamline Operations: This move simplifies the Company's operational structure, potentially leading to greater efficiency and clearer strategic execution in its core segments.

Competitive Position: Leveraging Scale and Distribution

Lincoln National operates in highly competitive markets across its life insurance, annuity, group protection, and retirement plan services segments. Several factors influence its competitive position:

• Market Share and Scale: As a large, established player, the Company benefits from significant scale, leading to cost efficiencies and a strong brand presence.
• Brand Reputation: Lincoln National maintains a strong, recognized brand, crucial for attracting and retaining customers and financial professionals.
• Distribution Network: The Company leverages a broad and diverse distribution network, including independent agents, brokers, and its own sales force, providing extensive reach.
• Product Breadth and Innovation: Its comprehensive product suite addresses a wide range of customer needs, while ongoing innovation helps it adapt to market demands.
• Financial Strength: Strong financial strength ratings from independent agencies instill confidence among policyholders and business partners.
• Technology and Service: Investment in technology and a focus on customer service are key differentiators for attracting and retaining clients and advisors.

The Company competes with a wide array of financial services firms, including other large national and regional insurance companies, diversified financial institutions, and specialized providers. Competition centers on factors such as product features, pricing, financial strength, brand recognition, and the quality of service and distribution.

Key Risks and Areas to Monitor: Mortgage Loan Portfolio and Broader Market Factors

While the overall picture is positive, investors should be aware of specific risks:

• Mortgage Loan Quality: The Company's mortgage loan portfolio, totaling $10 billion in 2025 (up from $9.5 billion in 2024) and representing about 3% of total assets, shows some concerning trends.
  • Rising Past-Due Loans: Mortgage loans 90 days or more past due increased significantly from $85 million in 2024 to $120 million in 2025, a 41.2% jump. While this remains a small fraction (1.2%) of the total mortgage portfolio, the upward trend warrants close monitoring.
  • Commercial Real Estate (CRE) Exposure: Loans with a higher loan-to-value (LTV) ratio (greater than 75%) in the commercial real estate segment increased from $900 million in 2024 to $1 billion in 2025. Higher LTV loans carry increased risk, particularly in a potentially softening commercial real estate market, as they offer less buffer against property value declines.
• Interest Rate Risk: As an insurer, Lincoln National's profitability is sensitive to interest rate fluctuations, which can impact investment income and the valuation of liabilities.
• Market Volatility: Equity market downturns or credit market disruptions could negatively affect investment performance and AOCI.
• Regulatory and Economic Environment: Changes in insurance regulations or a broader economic slowdown could impact sales, claims, and overall profitability.

Future Outlook: Strategic Focus and Capital Deployment

Looking ahead, Lincoln National remains committed to its strategic priorities: enhancing profitability, optimizing capital allocation, and driving sustainable growth in its core insurance and annuity businesses. Following the divestiture of its Wealth Management business, the Company focuses on leveraging its strengths in these areas.

Key aspects of the future outlook include:

• Capital Management: The Company expects to continue its disciplined approach to capital management, aiming to maintain strong regulatory capital ratios, support business growth, and return capital to shareholders through dividends and share repurchases, as appropriate.
• Operational Efficiency: Ongoing initiatives improve operational efficiency and reduce costs across all segments, contributing to enhanced profitability.
• Product Innovation: The Company continues to focus on developing and offering innovative products that meet evolving customer needs in the life insurance, annuity, and group protection markets.
• Market Environment: The Company anticipates navigating a dynamic market environment, including potential fluctuations in interest rates, equity markets, and regulatory landscapes. It aims to manage these factors through robust risk management frameworks.

The Company's strategy remains centered on long-term value creation for its stakeholders.

Outlook and Investor Takeaway

Lincoln National's 2025 performance demonstrates a company strategically refocusing and executing effectively. Strong revenue and net income growth, coupled with a significantly improved balance sheet and investment performance, paint a positive picture. The divestiture of the Wealth Management business clearly signals their commitment to optimizing core insurance and annuity operations.

However, the rising trend in past-due mortgage loans and increased exposure to higher LTV commercial real estate loans represent specific risk areas investors should track closely. While these currently form a small portion of the overall portfolio, their trajectory could signal future challenges.

Overall, Lincoln National appears in a stronger financial position with a clear strategic direction. Investors should weigh the strong operational and financial improvements against the specific, albeit contained, risks in its mortgage loan portfolio.