Earnings Call: Q1 2021

May 6, 2021

Good morning and thank you for joining Lincoln Financial Group's First Quarter 2021 Earnings Conference Call. At this time, all lines are in a listen only mode. Later, we will announce the opportunity for questions and instructions will be given at that time. Now I would like to turn the conference over to the Vice President of Investor Relations, Al Capricino. Please go ahead, sir. Thank you, Catherine. Good morning, and welcome to Lincoln Financial's Q1 earnings call. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, deposits, expenses, income from operations, Share repurchases and 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 actual results to differ materially from current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued yesterday as well as the details in our 2020 Annual Report on Form 10 ks, 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 this date. We appreciate your participation today and invite you to visit Lincoln's website, at www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include full reconciliations of the non GAAP measures used on this call, including adjusted return on equity and adjusted income from operations or adjusted operating income to the most comparable GAAP measures. Presenting on today's call are Dennis Glass, President and Chief Executive Officer and Randy Freitag, Chief Financial Officer and Head of Individual Life. After their prepared remarks, we will move to the question and answer portion of the call. I would now like to turn the call over to Dennis. Thank you, Al. Good morning, everyone. Lincoln had a strong start to the year against an improving but still challenging environment. We have continued to execute our reprice, shift and add new product strategy, manage expenses, improve the customer experience and maintain a strong balance sheet. 1st quarter earnings were affected by elevated pandemic related claims in our Life and Group businesses, though this was partially offset by another quarter of strong returns from our alternative investment portfolio. We are pleased with the earnings power Lincoln showed in the quarter and the outlook for our business is positive. Now let me touch on the major initiatives that are helping bolster our franchise and earnings power. 1st, as a result of our proactive and disciplined repricing actions, we are achieving targeted returns in each of our businesses. As a result of our reprice shift and add new product strategy and the fact that several peers followed our repricing actions, our sales pipelines had begun to expand and we expect continued sales recovery in the upcoming quarters. We're introducing 8 new products in the first half of this year, which increased consumer choice, broaden the product portfolio and enable our participation in more market segments. Our new product strategy also gives us a great deal of optionality. If interest rates remain low, Our newly launched products will remain attractive given their strong consumer value propositions driven by their innovative product design. If rates continue to rise, in addition to these newer products, some offerings already on our shelf would once again resonate with consumers and that would also be beneficial to Lincoln's sales results. 2nd, we are focused actions to increase productivity across our manufacturing, operations and distribution organizations, while enhancing the customer and partner experience. We continue to report declining expense ratios in most of our businesses, while at the same time investing in client facing digital tools. Our demonstrated expense management capabilities will guide us as we start another meaningful expense savings program later this year. 3rd, We have successfully focused on improving the balance sheet, both our RBC ratio and cash at the holding company have increased and remained above target, giving us the confidence to increase our share repurchase pace. Furthermore, as we evaluate risk transfer deals, we would expect for this to provide additional upside potential to our capital deployment if finalized. Now turning to the business segments. Starting with Annuities, We continue to successfully leverage our industry leading manufacturing capabilities to create new customer value propositions and expand our already broad product portfolio. Last year, we established ourselves as a leader in indexed variable annuities. This year, we are seeing growth in both IVAs and traditional variable annuities without living benefits, with total sales of nonliving benefit VAs up 44% versus the prior year quarter and 9% sequentially. Growth in these products combined with continued market demand for Guaranteed Living benefits led to total VA sales growth both versus the prior year quarter and sequentially. We had projected sales to begin the year at a similar pace to that seen in the Q4 and build over the course of the year as we benefit from products introduced both this year and last, and we are pleased to see that sales growth is ahead of our expected pace. In fact, this was the Q1 in a year that we saw sequential sales growth across all product categories in the annuities business. While we experienced negative Net flows in the quarter, this is a direct result of management's actions to maintain rigorous return standards and to allow us to continue to direct capital to the highest and best use. In 2021, we expect that earnings to continue to benefit from our high quality in force book that generates consistent cash flows and returns and provides excellent value for customers. In Retirement Plan Services, we once again reported strong results driven by our digitally optimized model. This model, where high-tech enables high touch, differentiates us in the virtual environment. Our innovative product development capabilities are driving results and we are excited about the continued success of our target date fund alternative, YourPath, as well as the recent launch of Income America, an innovative and simplified income solution for retirement plan participants. Although total deposits were down slightly compared to the very We reported positive net flows once again this quarter. And while flows can be lumpy, We expect this momentum to persist as we remain well positioned in our target markets. It was another excellent quarter for the Retirement Business, and we expect to benefit from the tailwinds of an improved economic backdrop, our ongoing investments in the customer experience and our expanding set of solutions aimed at helping Americans secure their retirement. Within the life insurance business, we are positioning ourselves for growth through product innovation and distribution expansion. Sales in the quarter were flat sequentially, but we expect will ramp up over the course of the year as we begin to reap the benefits of solutions we've recently launched into the market. We're seeing good momentum with some key new product rollouts. Our expanded DUL offerings continue to gain shelf space and our innovative MoneyGuard Market Advantage product is appealing to new market segments. Additionally, we are beginning to attract a broader range of advisors with nearly a quarter being producers who had not previously sold a MoneyGuard product. These new products, coupled with our Existing life offerings and the industry's strongest distribution force position Lincoln for long term success at attractive returns. Additionally, we are expanding our strong distribution network by adding our life insurance products to the shelf of a large P and C insurer where we have an existing Annuity Distribution Partnership. We are seeing good early momentum, particularly with our Term Xcel solution, which is a fully digital experience and is enabling us to reach a different customer segment. I'm pleased with the solid results the life insurance business reported. I'm also excited that Lincoln is introducing products with new value propositions that are resonating with customers and helping to drive future growth. Lastly, on Group Protections. Premiums rose more than 2% over the prior year quarter and nearly 7% sequentially, Driven by improved persistency, price increases and organic growth resulting from the economic recovery, Sales in what is typically a seasonally smaller quarter were down versus the strong prior year quarter. However, Underlying drivers were positive as 2 thirds of our sales were employee paid products. As we communicated last quarter, we are taking actions to increase Group Protection margins. We are already seeing improved results as factors such as pricing actions, higher persistency and investments in our claim organization have put our margin, excluding the pandemic and excess alternatives income in the lower end of our targeted range. We continue to expect further expansion building gradually towards the upper end of our 5% to 7% margin target. Briefly on investment results. As I mentioned earlier, our portfolio is performing quite well. Overall credit quality remains high and has continued to improve in recent years, driven by our high quality new money purchases and proactive derisking. 96% of our fixed income assets are investment grade with 59% rated A or higher. Our well diversified commercial mortgage loan book has Continued to perform well during the pandemic with virtually no credit losses and minimal loan modifications. Additionally, our alternatives performance was once again strong, driven by our portfolio construction that emphasized buyout and growth equity strategies with a quarterly return of 8%, significantly exceeding our long term target quarterly return of 2.5%. In closing, I would note Sales momentum is building at attractive returns driven by new product introductions that resonate with our customer and expanded shelf space across distribution channels. Continued equity market tailwinds should boost earnings from fees on assets under management in the annuities and RPS businesses. The outlook for the life insurance business is strong as our new products are starting to take hold in the market. Group Protection's underlying profitability is experiencing an ongoing recovery. Expense savings initiatives will continue to contribute to earnings growth and our robust balance sheet, High quality investment portfolio, strong free cash flow generation and capital ratios as well as the opportunity to execute risk Transfer deals all leave Lincoln in an excellent position to fund expected sales growth while increasing our capital deployment. Based on these positive trends, 2021 is shaping up to be a successful year, and I expect we'll improve on this quarter's results. I will now turn the call over to Randy. Thank you, Dennis. Last night, we reported 1st quarter adjusted operating income of $350,000,000 are $1.82 per share. There were no notable items within the current or prior year quarter. However, this quarter's result was impacted by a number of items. First, pandemic related claims reduced earnings by $222,000,000 or $1.15 per share. 2nd, Results benefited from strong performance in the alternatives investment portfolio, boosting earnings by $84,000,000 were $0.43 per share above target. 3rd, there was $11,000,000 were $0.06 per share of unfavorable tax adjustments. Finally, within the other operations segment, There was $11,000,000 or $0.06 per share of expense variability related to elevated deferred compensation costs resulting from the increase in Lincoln share price during the quarter. Adding these items together, it was no doubt an Extremely strong quarter that highlights our underlying earnings power. Net income totaled $225,000,000 or $1.16 per share, with the difference between net incomes and adjusted operating income, primarily being driven by $144,000,000 non economic loss for variable annuity nonperformance risk. The VA hedge program performed exceptionally well with 99% effectiveness in the quarter. Moving to the performance of key financial metrics compared to the prior year quarter. Adjusted operating revenue increased 6% with operating revenue growth in each of our 4 business segments. Average account values increased 15%. The expense ratio declined in all businesses, except group protection where it remained flat. And book value per share excluding AOCI stands at $72.36 an all time high. Now turning to segment results, starting with Annuities. Operating income for the quarter was $290,000,000 compared to $261,000,000 in the prior year quarter. The increase was primarily due to higher account values driven by growth in the equity markets as favorable alternatives investment income was offset by $9,000,000 of the unfavorable tax adjustment that I noted upfront. Average account values of $160,000,000,000 increased 16% year over year and 6% on a sequential basis. As equity market strength over the past year more than offset negative net flows. This contributed to a 7 points sequentially, primarily driven by non economic change in the spread calculation methodology. G and A expenses net of amounts capitalized decreased 3% from the prior year quarter, leading to a 100 basis point improvement and the expense ratio. Return metrics remained solid despite fewer fee days in the quarter, with return on assets coming in at 72 basis points and return on equity at 22.9%. Risk metrics on the VA book continue to demonstrate quality of our in force business, with the net amount of risk at 64 basis points of account values for living benefits and at 36 basis points for death benefits. Growing account values, quality book of business and expense discipline are all indicators of strong future performance from the annuity business. Retirement Plan Services reported operating income of $57,000,000 compared to $40,000,000 in the prior year quarter, driven by higher account values, expense management and favorable alternative investment performance, which more than offset spread compression and $2,000,000 of the unfavorable tax adjustment. Deposits totaled $2,600,000,000 and net flows continue to be positive was $347,000,000 in the quarter, consistent with recent periods. These positive flows, combined with favorable equity markets, drove average account values up 18% over the prior year quarter. G and A expenses net of amounts capitalized were down 4% compared to the prior year quarter, driving a 3 20 basis point improvement in the expense ratio. Base spreads, excluding variable investment income, compressed 12 basis points versus the prior year quarter, back in line with our stated 10 to 15 basis point range as credit and rate actions take hold. The Retirement business started the year with strong results, including a 25 basis point ROA with continued momentum in flows and expense management serving as positive drivers going forward. Turning to life insurance. We reported operating income of $107,000,000 While down from $171,000,000 in the prior year quarter due to the pandemic, these results were solid and reflect strong underlying business drivers. This quarter's earnings included $132,000,000 of excess pandemic related mortality, partly offset by $59,000,000 of favorable alternative investment experience. Underlying earnings drivers continue to show growth with average account values up 10% and average life insurance in force up 8% over the prior year. G and A expenses net of amounts capitalized decreased 2% from the prior year quarter, leading to a 60 basis point improvement in the expense ratio. Base spreads declined 2 basis points compared to the prior year quarter, better than our 5 to 10 basis point expectation. Outside of the impacts from the pandemic, The life insurance business had a strong quarter and key growth drivers remain positive. We expect pandemic headwinds to over the course of the year as vaccines are more widely rolled out. This combination of underlying growth and improving mortality results positions us nicely for improved results looking forward. Group Protection reported a loss from operations of $26,000,000 compared to operating earnings of $40,000,000 in the prior year quarter, with the decrease driven by $90,000,000 of pandemic related claims, with $61,000,000 of direct COVID-nineteen mortality, dollars 7,000,000 of morbidity and $22,000,000 of indirect mortality. This was partially offset by $6,000,000 of favorable alternative investment experience. The reported total loss ratio was 86.8% in the quarter, 1 percentage point better sequentially as an increase in the life loss ratio was more than offset by improvement in the disability loss ratio. Excluding pandemic related claims from both periods, the total loss ratio was 76.6% for the quarter, down 2.3 percentage points sequentially. Expense ratio remained flat year over year as increases in G and A expenses, net of amounts capitalized, related to investments we have made in our claims organization were offset by premium growth. Excluding pandemic related claims, the business had solid results, which as Dennis mentioned, put us back in the low end of our target margin range. While pandemic impacts continue to be a headwind, we are optimistic about the outlook for the business as improving unemployment rates coupled with vaccine rollouts should provide tailwinds going forward. Turning to Capital and Capital Management. We ended the quarter $10,700,000,000 of statutory surplus and estimate our RBC ratio at 4.64%, up 13 percentage points from year end. As a reminder, this includes 24 percentage points from non economic goodwill associated with the Liberty acquisition that we expect will go away by year end. Cash at the holding company stands at $758,000,000 above our $450,000,000 target as we have pre funded of $300,000,000 2022 debt maturity. We deployed $105,000,000 towards buybacks this quarter, slightly above the $100,000,000 we targeted. Given our strong capital position, improving capital market and health trends and our positive business outlook, we expect share repurchase in the 2nd quarter to be approximately $150,000,000 in line with pre pandemic levels. To conclude, This quarter's results included a large impact from COVID-nineteen, but we expect these headwinds to abate over the remainder of the year. Looking past that, we see strong underlying earnings and several positives. Revenue growth in all four businesses a positive outlook for sales looking forward record end of period account values, providing a tailwind to earnings, continued strong expense discipline across the company and a strong capital position, which is contributing to our ability to invest in growth and increase our capital return to shareholders. With that, let me turn the call back over to Al. Thank you, Dennis and Randy. We will now begin the question and answer portion of the call. As a reminder, we ask that you please limit yourself to one question and one follow-up and then re queue if you have additional questions. With that, let me turn the call over to Catherine to begin Q and A. Thank you. Our first question comes from Elyse Greenspan with Wells Fargo. Your line is open. Hi, thanks. Good morning. My first Question, you guys last quarter spoke of your willingness to consider some type of risk transfer transactions with both your annuity and your life Smith, have thoughts or desires changed over the past quarter related to your willingness to consider transactions? And then Could you just update us on a sense of timing or size of deals that you're potentially considering? Yes. Elyse, thank you for that question. And you're absolutely right. In terms of block sales, we're looking at across our Individual Life and Individual Annuity books of business, there is an active market for both of those. Timing is always very difficult to speak to because they're complex transactions, but We have a lot of resources behind this idea and probably will continue to have resources behind this kind of activity for some time. The other area that we're looking at is flow transactions. And just broadly speaking, and we've mentioned this a couple of times, so you know this, we Have done more or as many flow transactions, both in the living benefit space and in the fixed annuity space as Most companies have. We, of course, have done a block transaction already with the fixed annuity business. So we remain active, remain optimistic. There's a lot of participants in the marketplace. Randy, do you want to add to those comments, please? Elyse, thanks for the question. Probably reiterating a bit of what Dennis said, but there's If you think about the block sale marketplace, we continue to see a lot of interest On the buy side, it's actually regularly received inbound calls. We have a very large Block of in force business across the life and unity business that that buyer base is interested in. And we believe The in force value is not fully reflected in our share price. And so that gives you the underlying thesis for why we are, As Dennis said, allocating significant resources to seeing if something makes sense. So at least we continue to be Very interested in the idea and actively working on it. But I agree with Dennis, it's always difficult to talk about times. Okay, great. And then my second question is on the group business. You commented that you're Working towards the upper end of the 5% to 7% margin target. So just wondering, I had a couple, I guess, questions there. Just if Given that it seems like results ex COVID and ex PII came in within that range and a little bit better than what might have been expected and where you were trending. So can you just give us an update on when you might kind of get towards the upper end of that range? And I'm assuming that also assumes that once we get out of COVID, the indirect mortality, so the $22,000,000 that you saw in the quarter, that, that would all kind of go away and normalize once we're done with the pandemic? Yes. At least it's hard to Predict exactly when that top end of the margin will be achieved. In my script, I said Moving from 5% to 7% gradually. I mentioned a couple of initiatives underway, which summary pricing going on As business comes up for renewal, strengthening pricing in some of our new business segments, those take time to enter into the margin because it's new business or renewals for in force business. So, and then we have cost initiatives that are underway. Those also to do that type of thing effectively And to be able to get those numbers, somebody's name on them into our planning So I think Just over time without getting into a quantification of that, It's going to build gradually. And so we're going to start seeing some of that improvement. Elyse, I'll just add a little bit to that, right? It might be beneficial to think about what's happened over the last year. And if you think about The Q1 of last year, we made $40,000,000 This year, we lost $26,000,000 But We also know that this year in the Q1, we had about $90,000,000 of pandemic related impact, right? So absent anything else happening, dollars 40,000,000 last year, A new negative $90,000,000 item you would have expected this to be around negative $50,000,000 and we outperformed that by about $24,000,000 About a quarter of that is the strong Alt's performance I mentioned, but the other three quarters is improvement in underlying profitability The business and that's reflective of renewal price increases, the strong work of the claims team. And we've talked about the investments we're making there. So that's an indication of what we can do in just a year's time. So I hope that helps Elyse. Yes. But then just, you would expect, right, that $22,000,000 of the indirect mortality, right, that that would kind of go away once we're out of the pandemic? Yes, we do, Elyse. This is an interesting topic. We spend a lot of time looking at the overall mortality experience. And so the question is, Why do you believe that indirect component is related to the pandemic? And it's really there are a number of aspects of that. The first thing we look at is just what is the nature of COVID-nineteen. The nature of COVID-nineteen is that While it is more impactful than the flu, it acts like the flu and that it hits people with comorbidities harder. So that's just the nature of COVID-nineteen. We also know that when we look inside of our experience, where this indirect component is coming, It's coming in areas where you would expect the comorbidities to emerge, respiratory and cardiac, which is just like the flu. We also know that when it comes to comorbidities, It's oftentimes the case, and we see this with the flu. It's not flu is rarely noted on the death certificate as the cause of death, but it's oftentimes what Starts the process. So everything that we know about COVID-nineteen, all of our experience is what leads us to really assess this indirect component as related to the pandemic and something we believe will go away when we get this pandemic behind us in the country. Okay. That's helpful. Thanks for the color. Yes. Thank you. Our next question comes from Tom Gallagher with Evercore. Your line is open. Thank you. Dennis, maybe just to start a follow-up on Elyse's question on risk transfer. I guess When you first mentioned considering risk transfer, Lincoln share price was in the 30s, now it's in the 60s. So and realizing you started from a very depressed level to just now a still depressed but less depressed level. When you think about and I realize you're still working on it, but I presume you have some indication of pricing among the various blocks. But is there still a big positive arbitrage when you think about Yes, Tom, you're hitting Squarely, the issue as to why we would do a block sale, which is to direct Capital out of that business life or annuities and into share buybacks. And so both sides of the equation have to work. Where the price is today, based on our valuations of the different blocks, It still works pretty well. And so we're continuing to pursue it. That's clear. And Dennis, would you say, again, more high level, just from a Pricing standpoint, is the pricing most attractive on the life side or the variable annuity side or the fixed annuity side? It varies. But let me right now, we're sort of focused on Individual life because we already done a big fixed annuity block. We're also looking at variable annuity. Again, that's a much more complex transaction. Fewer players would be available on the life side. So again, we're looking at everything. What's the buyer's discount rate expectations? It's obviously And important, in other words, what are they going to want as a return. So I would just say that it's fluid And very fact dependent, but as Randy just said, have pretty large number of blocks On the individual life side that had value in them, those blocks have a characteristic typically of The reserves being backed by our general account and therefore people who have a Asset capability would be buyers. So a lot of considerations, Tom. Randy, do you want to Add or subtract from that, please. No, Dennis, I think you covered it quite nicely. Okay. Thanks guys. Appreciate the color. Thank you. Our next question comes from Humphrey Lee with Dowling and Partners. Your line is open. Good morning and thank you for taking my questions. My first question is related to life insurance. So if we were to back out the COVID-nineteen claims and the strong VII in the quarter, I think that will get you to $180,000,000 for the quarter, which seems pretty strong for a normal Q1. Can you talk about some of the drivers that led you to the 180? Humphrey, thanks for the question. It is a strong quarter. It's a little stronger than the Q1 of last year, which was a 171, which It was also a strong quarter. I think it's a big business, Humphrey. And I think it's fair to say that when you think about The pluses and minuses that go on inside of any big business that in the Life business, most of those items fell positive this And that leads to a strong quarter above your expectations. But I also think it's fair to point out that across the broader Lincoln, For instance, in the annuity business, I think it's fair to say that the items fell a little negative. So I think when you think across the broad organization, We're very happy and comfortable with the numbers. But yes, I think it's fair to say just inside of life alone that it was just a strong quarter where things went the way of the life business. So like did you see maybe non COVID-nineteen mortality being favorable or like how should we think about it in terms of I think in the past you shared the kind of actual versus expected for your life business. If you were to exclude COVID, like What would that be in terms of the actual to expected? What we believe, based upon Probably us reading the same stuff, year rate Humphrey, is that we didn't see the normal seasonality Elevated mortality, seasonality that we've seen in the Q1. We saw mortality on an underlying basis, more like we would see in the Q2, if you have come in the Q2. So that's our best estimate. But once again, what typically drives seasonality in the Q1, the biggest driver is the flu. We believe we read the same articles you do that it was a very light flu season because I noted in response to an earlier Flu is actually rarely noted on the death certificate as a cause of death. So we're hypothesizing a bit. But we believe We didn't see the normal level of seasonality in the Q1 that we do in a typical year. Okay. Got it. And then my second question is looking at the auto segments, I was under the impression that the strategic Digitalization expenses were done last year, but it kind of came through I think it's like $13,000,000 this quarter. Should we expect any kind of additional spend in the balance of the year? And then also I think in Dennis' prepared remarks you talked about expecting a meaningful expense saves program to be announced later this year. So I guess, long term long term assets, Should we expect any kind of these type of integration or strategic spend in 2021? Humphrey, apologize if we weren't clear in this. We have a couple more years of the original Project ambition or strategic digitization expense. What we expect is that the net benefit, which was has been growing about $40,000,000 a year, We'll grow that $40,000,000 So yes, there's expenses, but the benefits and you see that 3 of our businesses actually had their expenses decline year over year and group was flat as we invested in claims. So, yes, there is still some expense, but the benefits are growing. The net of those two items should be Roughly an incremental $40,000,000 of benefit this year. We think we have about 1 more year of that net benefit growth across the organization, which will get us into the range that we originally guided to a number of years ago of $90,000,000 to 150,000,000 of net benefits from that original program. And then, as you know, and as Dennis talked about a bit, we are very focused on other opportunities across the organization. Got it. Thank you. Thank you. Our next question comes from Ryan Krueger with KBW. Your line is open. Hey, good morning. I had a follow-up on that. What the other expense opportunity that you're embarking on later this year. Is that related to efforts to preserve the $100,000,000 of Save that you generated last year or is that something new that would be in addition to what you've talked about before? Ryan, again, it's hard to keep all these numbers Clear for the benefit of yourself and others on the phone, but sort of the amount that Randy talked about is separate from the new program. The $100,000,000 that we captured in 2020 and is expected to stay in 2021, remains there and then the savings program would add to Those two items. And we're talking about it. You've seen other companies speak to large scale expense reductions. It's the right thing to do. And we But we never actually size these numbers for our investors until We're prepared literally to put them into a financial forecast with someone's name behind them, When are they going to merge? How much it's going to cost? And we're not going to be in a position to do that until the second half of twenty twenty one to publicly bring that incremental savings into some type of estimate. Got it. That makes sense. Thanks. And then, I guess, Randy, on the annuity ROA, I guess, it was lower than the typical range. I think you may have alluded to some things going against you, but any thoughts on where you'd expect that to trend going forward? Brian, as I noted, when you think about all the businesses, I'd say on balance and annuity business, It was a quarter where things fell a little negative, sort of those pluses and minuses, and that hurt the ROA a little bit. The other thing is I'd point out is that The Q1 of the year in the annuity business is always the quarter with the fewest number of fee days. And in fact, we actually have one Fewer fee day this year than last year because last year was a leap year. So that typically makes the ROA in the first quarter lower than the other quarters of the year. Looking forward, we'd expect it to grow back into where we've been running for some time, which is In the upper 70s mid to upper 70s. Got it. Thank you. Mhmm. Our next question comes from Jimmy Bhullar with JPMorgan. Your line is open. Hi, good morning. First, I just had a question on the retirement business and your flows have obviously been pretty strong for the last several quarters. Can you talk about what's driving that and what are you seeing in terms of trends on deferrals matching contributions and how that's changed over the past year or so. Yes, Jimmy, I'm not deferrals and matching contributions dropped in 2020 because of COVID, the difficulty in small businesses. And actually, those are beginning to come back with the improving economy. So that's a positive. The activity in 2020, Again, it was a little bit lower because of COVID and people wanting just to sort of sit still and watch and see what was going to happen. And so we're seeing activity on the new business side return to More of what we would expect absent COVID, not 100%, but closer. So We have very strong pipelines in the RPS business. We're seeing More contributions, matching contributions coming back into the market. So overall, it's a pretty favorable environment for our RPS business. And we expect to see that in the numbers in the second quarter, sales and so forth. Okay. And then on your comments on risk transfer, it seems like Part of your interest is just motivated by the valuation or multiple arbitrage And your multiple being low. And obviously, typically, the simpler a block, the easier it is to transact and you get better prices. But If you do something on individual life, as you mentioned, one of the issues would be that your exposure to variable annuities would increase even more. And which is whether it's warranted or not one of the main reasons for the stock trading at a low multiple. So how does that how does the risk Profile of your remaining business figure into your thinking into a potential risk transfer Transaction because I think you seem to be hinting that it's VAs are sort of a low likelihood scenario there. Jimmy, If we look at the source of earnings, we think about liquidity and mortality as a bucket, we think about These are assets under management as appropriate. We look at investment spread. And in terms of that view, there's not going to be a material Changed because of the transaction. If I step back and maybe add something to your question, which is the Not of guaranteed business in our individual businesses that we're writing. You recall, It's been some time since we focused on this, but the company focused on 70% of our Business being non guaranteed and maybe up to 30% guaranteed business, long term liabilities. In the Q1, long term liabilities on the cat percent for non guaranteed business was 90%. And that was really driven by pricing actions. As interest rates dropped, the value proposition For the age of living benefits wasn't as strong until some of those sales fell off a little bit. So So big picture, I don't think risk transfer is going to materially change the source of earnings number. And we're continuing, this I expect continuing to be in that guaranteed versus non guaranteed range, Better than the seventythirty for some time to come, again, driven by the level of interest rates, product designs and All the factors that go into the sales mix. Jimmy, I just may add to that. Just on the whole Topic of variable annuities at Lincoln. I'd point out that the end of the first quarter, $144,000,000,000 of liabilities, what is oftentimes overlooked, So maybe we should spend more time on it is that over 40% of those liabilities, it's about $60,000,000,000 of those liabilities or are VAs without any lending benefit or IDAs. And that percentage was 42% in the 1st quarter is up 5 points over last year and that's all about where we're selling today. So you have a very large Shift on a year over year basis, and I would expect that shift to continue if you just look at the existing sales mix. So let's not conflate that $144,000,000,000 with all being something that has a living benefit tied to it. And then just maybe one more on the shifts away from guaranteed products that you've undertaken It seems like more of a strategic shift, but if the market stays strong and you do get higher interest rates, Do you think you'll be back selling more products with the guarantees with the appropriate prices? Or Do you intend the shift to be more of a permanent change in your strategy? Yes. The answer to that is You're exactly right. The value proposition for long term liabilities is dependent predominantly on interest rates. And we don't see in our forward looking plans interest rates rising so much That you'd see a significant change in the mix towards the seventythirty from the ninetyten. But that's very dependent on mostly interest rates but other factors. We certainly wouldn't Strategically, we want to go above the 30% and I will keep for the foreseeable future, somewhere between The ninety-ten and sort of somewhat higher than that, but not significantly. Thank you. Thank you. Our next question comes from John Barden with Piper Sandler. Your line is open. Thank you for the color on indirect mortality. A number of participants talked about like deaths of despair and then Impact from delay in care, particularly Alzheimer's and heart. One talked about death of despair being 20%, the 80% being the remater. Can you talk about what you're seeing on that side that's probably independent of the indirect mortality? John, we're not seeing that. So whether you're talking, let's say the word about suicides or Overdoses, those sorts of things, we're not seeing an elevation in those causes of death. As I mentioned, It is in the things that are related to a virus like COVID-nineteen respiratory and Cardiac. In terms of the delayed care question, as we talk to the doctors here at Lincoln, That is not sort of something that's going to impact mortality in the very near term. It's something that would impact Mortality in a very modest way over the longer term and it would probably be more than offset by as we talked about On the life side, the front ending of claims that COVID has caused, which will probably benefit us over the next few years. That's fantastic. Thank you for the answer. Related follow-up, I can't help but note you're talking about more detail on a public estimate around cost cutting in the And then juxtapose that with return to office, another participant talked about a hybrid model for their employees this morning. Is the cost cutting program going to take into account real estate as well? It will. It's a comprehensive look at all questions around cost and effectiveness and execution. It's a pretty use the term of art, it's a pretty cool program that I think we're going to be able to execute on, In general, both efficiency, but also upgrading skill sets of our employees, possibly some top line opportunities as well. So on your specific question, we do believe that And we're referring to this as our long term employee model. We'll have sort of significantly less People in the office on a daily basis. So there will be some real estate benefit, But it's so it will be in there in the numbers that we report toward the end of the year. But it's not it's a meaningful number, but And it will be in there. I'll just leave it at that. Thank you for the answer. Thank you. Our next question comes from Suneet Kamath with Citi. Your line is open. Thanks. Good morning. I wanted to start with the life insurance sales. It feels to me that the amount of The new product that you guys are rolling out this year might be much higher than what's normal. There just seems to be a lot of activity. So I'm just wondering if you can Can you give us a sense of the pace of the sales improvement? With this much sort of new product coming at your distribution, Could it take longer for them to kind of inflect because they're just kind of dealing with so many new products? Smedes, thanks for the question. I think it's fair to say that Life sales, at least so far, are sort of rolling out exactly as we thought. Dennis mentioned that we sort of bottomed in the Q4 of last year. We ended up in the Q1 of this year with a number right in line With that number, we expect to grow from here. What's driving that is new product introductions, But also changes that other some of our competitors are making in their pricing. And as we said, we believe We weren't in front of everybody else. You think about 2 big product introductions, for instance, that we had in the Q1, The MoneyGuard market advantage, which is MoneyGuard on a variable platform and then a reduced guarantee VUL product. The products didn't roll out until the middle of February. In fact, when you look at that MoneyGuard product, It's not on our 2 biggest MoneyGuard distribution partners yet. And it's already making up, by the way, about 30% of our submits. So We think we've hit the mark with those products, but it takes a while to get these things on all the platforms you want. Ultimately, really don't know the success on a life product for probably 6 months before you really know whether you hit the mark. I hope that answers your question, Suneet. Yes, it does. That's helpful. Yes. And Suneet, let me just add to that. I mentioned in my remarks, Sort of separate from the new business that we've the new products that we're putting out and as Randy said And if you said there's certain amount of education, certain amount of shelf space that has to be acquired in other parts of the business. Some of the things that we've done in the past connected with expansion of distribution, we're seeing payoffs that are separate from that issue. And that's This large relationship they have with the I mentioned with the P and C organization. And I just want to mention that because the app count initially from that, although small facing has been pretty good. But the reason That we're able to be effective with that new partner for Life is because of the investments that we've made in automated underwriting. So those sales are being digital are digital apps, digital underwriting and digital issue. And I'd just like to point out that we've been making these comments about Our digital program from a cost perspective, but the digital program is really, as we go forward, In many areas of the company is going to permit us to not have to step up because in the past, if you didn't have digital issue and app Things like that, in order to improve your customer experience, you just had to add people. But we don't have much now because of the several $100,000,000 that we invested in digital. Okay. That's helpful. And then just last one. I know it's early days on tax But historically, I think higher taxes have been sort of a catalyst for some of your retail products that have tax benefits. Are you seeing anything in these initial proposals or even just comments coming out of Washington that could impact your demand for your products one way or the other? Yes. Suneet, We think some of the sales that we have already seen in the non guaranteed BA are in part motivated by people's concern about Changing capital gains, tax rates. We have a product that, i4life, which is a very Tax efficient way to distribute. So some of the so we've seen some of it already, But until we know what the final facts are, I'm not it's hard to predict how much of an impact it will have. Okay, thanks. Thank you. And that's all the time we have for questions. I'd like to turn the call back to Al Capricino for any closing remarks. Well, thank you all for joining us this morning. As always, we're happy to take any follow-up questions that you have. You can email us at investorrelationslfg.com. Thank you all and have a great day.