We're live again. I always like saying that. We're live. Welcome back to the Annual Bank of America U.S. Insurance Conference. The current session is Lincoln Financial. Just as a preview, the next one on tap is MetLife. With regards to this presentation or the next, you're welcome to queue some questions up in the Veracast Oddcast. I will ask the questions. It's pretty self-explanatory how to do it, and we welcome you to send them in. I'll ask all the questions. We're very pleased to have Dennis Glass here right now, CEO of Lincoln Financial. I think if I've done the math right, between Jefferson-Pilot and Lincoln, Dennis has been CEO for 20 years. Maybe he's going to tell me that's wrong. I don't know. We're going to find out. I just want to start off with saying welcome, Dennis.
Thanks for giving us your time today. Just an easy thanks out to all your employees who've done a great job during this time. Can you talk a little bit about how Lincoln has adapted to the current moment and the resiliency and success that you've had during the pandemic?
Josh, yes, I'll do that, first let me thank you for having me and Lincoln. We're very appreciative, and look forward to the session. I think it's more like 14 years, although I've been attending this conference for probably 25, not always as a speaker. Let me just touch on a couple of categories, and let me speak to operational effectiveness first in terms of the environment. We had initiated, about 3 or 4 years ago, a significant acceleration in our digital investments, getting ready to be able to compete on a service level with the born digital companies, knowing it wasn't our direct competitors that were setting the stage for customer service expectations, but the born digital companies, Amazon, Airbnb, and Uber and so forth.
That investment put us in an excellent position to deal with the health aspects, which the primary response was to move some 9,000 employees from the office home. Just very quickly on that issue, the productivity levels have improved slightly in our customer service areas as one example of how effective we've been. When I turn to distribution, the ability to visit, meet, have meetings virtually with our distribution partners has been excellent. We've shifted quite a bit from the way we interact with financial advisors because of virtual, so created a lot more content, a lot more group meetings. That's been extremely effective as well. From an operating perspective, we are very pleased.
Actually, we're using this past eight months to take the experience that we're having from an operational standpoint, both manufacturing in the home offices as well as at our customers' place of activity to get better. So we've just completed a couple of initiatives there, and I'm very excited about us maintaining our distribution advantage as we go in. That's one issue. Let me speak to the balance sheet and some of the actions that we took in early 2020 to protect the balance sheet. One of which was to cut sales a little bit so that we preserve capital. We talked about a number of about $400 million, not knowing at the beginning of the year how severe credit losses and credit downgrades might be and how it might affect RBC. So we generated that amount of capital.
We issued some contingent capital notes to further bolster the balance sheet in the event of severe stress. Sort of like the digital investment, we had started de-risking the portfolio three or four years ago, just in anticipation of not a pandemic type recession, but the expectation that this cycle of growth might slow, and we might see additional credit losses and downgrades. We had started that. Just the end to 2020, as we talked about on the earnings call, we never did see the kind of investment downgrades or credit losses that we thought we might see. So we ended the balance sheet ended at a very strong position at the end of the year. Those are the two large things that come to mind.
Just one more with respect to the pandemic, which is, of course, quite a substantial dollar amount of COVID claims, predominantly in the two life businesses, group life and individual life. Most of that is administrative services. We saw a little bit of that. Josh, those would be the three areas that come to mind. Be happy to talk about others if you had other things in mind.
No. It's kind of free form, but I always start with the employees in my mind. Obviously, working very hard in a very unusual circumstance. I'd rather switch focus to the market in general. We see a major decline in your appetite, in your sales on the fixed annuity marketplace at this point in time right now. I guess I'm not asking questions so much about Lincoln, but the question is, how does this all end? Interest rates are down. There are some companies that are offering very nice returns for a FIA or maybe a multi-year guarantee type product. Lincoln's not going to offer those kind of returns. Does this end well for the life insurance market? Does it end badly? Do we know the future? These are historic times.
How does the fixed income market play out from here with the generous returns that are being offered that you are not willing to follow?
Yeah. The distinction that you're making is that some companies have the capability to take excess credit risk. When I say they have the capability, I mean, that's a core skill set for them. They spend a lot of time and energy on it. A lot of that skill set is with companies that sort of focus on fixed annuities. Therefore, that business model, and I'll come to our business model in a second, creates higher crediting rates and, again, predominantly, driven by a belief that they understand credit risk and can take some amount more than others do. They may very well be right. I'm not going to criticize at all that model. We'll just have to see as cycles occur, how it plays out.
Coming to Lincoln, our overall retail model, which tethers together broad product portfolio across our businesses, deep distribution, both in the capabilities of our customer-facing people such as our wholesalers, as well as some of the best overall shelf space in the industry. We focus on tethering product breadth with distribution strength. We concentrate quite a bit on the optionality and the risks and the liabilities themselves. We marry that with an investment portfolio where we don't think we have to take excess credit risk to make the numbers work for our shareholders and our customers. Again, the one product line where we do get squeezed out because of other companies that are willing to take more credit risk is the fixed annuity marketplace. We're seeing less sales in fixed annuities, and I don't see a rebound based on our investment strategy and model.
We're in the way lower double digits of return on capital behind that product. The fixed annuity product has a fairly significant capital strain. We think there's better opportunities for Lincoln given our model in some of the product lines, IVA, as you're probably going to talk about a little bit, as an example.
All right. Let's start with IVA. One question, if I go back in time, let's say 10 years ago, or 10 years is a little stretched. Maybe let's say 15 years ago before the global financial crisis, think about the prospective buyer of a variable annuity. Now today, obviously, the sales of those products, the offers are much less generous. The market isn't really lending itself to being able to offer generous products, the buffer annuity is out there. Is it the same customer who 15 years ago would've been buying a variable annuity with benefits who is buying the buffer annuity today? Is it reach out to a different type of customer as the product has evolved?
Yeah. A couple of things, Josh, let me touch on a couple of important points that you've made. In terms of the value proposition of protected lifetime income for the customer, because it's a long-term liability, a lot of optionality in it for the customer. Lower interest rates have caused us to do two things, us being Lincoln as well as the industry. Number one is we've increased the rider fees a bit. Number two, we've reduced the benefits a bit. As compared to, say, two or three years ago, it doesn't work for the consumer quite as well as it did then.
We're still selling a lot of guaranteed lifetime variable annuities and Guaranteed Lifetime Income Variable Annuities, we're going to stay in that market, because after our pricing, we've ended up being very well position from a return on capital and the risk associated with that. Yeah, there's been a little bit of downdraft in the value of the protected guaranteed income to the consumer. At the same time, what's happened is, we all know over the last decade, there's been a huge increase in the equity markets. We're at all-time highs, consumers are seeing that their 401s and their equity portfolios have gained quite a bit. They sort of, in some instances, shifted their objectives from protected lifetime income to protecting that buildup in the assets that they've achieved.
With the IVA, which is a sharing of risk between the manufacturer, between Lincoln and other manufacturers, and the customer on the downside, gives the customer more upside potential in the participation rate in the index. For example, the customer may, in one of our flavors, IVA, Lincoln might take the first 10% risk on a decline in the value of the customer's account, the customer will take all the rest. That gives us, because it's a sharing of that downside risk from a market perspective, gives us an opportunity to provide a higher participation rate in the indexed annuities.
We've gone from protected lifetime income, lower interest rates, lower overall value to the consumer to, in this case, IVA, which still allows the customer to participate in the market upside rather than just a fixed bond return in exchange for taking a little bit more risk. I think it's just a combination of things that have occurred to make the IVA the best-selling annuity product in the market right now, all around value proposition.
Prudential made news this year that they're getting out of the living benefits business entirely. Remember, they still sell new living benefits. If you talk to them, I'm not trying to put words in their mouth, they would say, "We still like the business, but we've decided that investors don't like the business. We want to get out of it in order to make our stock price go up." Maybe I'm putting it too simply, but that's kind of how I read their analysis. A, would their abdication from the market be a huge opportunity for Lincoln? B, given that MetLife, Prudential, even Equitable, they're all selling the buffer annuities, Brighthouse being MetLife now, but no one wants to sell those living benefits. Is there a lesson to be learned, or is it just everyone's sort of walking away at the bottom?
Josh, our program, we have demonstrated by and large that we have the lowest risk in-force variable annuity with living benefits block in the industry. There's a couple of reasons for that. Just going back in history a little bit, this goes way back. One, when we built the products, every rider was hedged from day one. When we built the products, we were focused on account value growth counts first and most important, we focused them on the underlying subaccounts and investment strategies. We never participated in the, what do they call it? The feature wars. As an example, we've never had a roll-up on our death benefit. A lot of decisions that we made early on contributes to why we have a low risk in-force business.
Another one of the decisions we've made over the years is to stay in the market at all times. Sometimes the markets provide a little more upside opportunity on return, sometimes not as much. We've decided to be in the market consistently. Some of the companies that you've spoken to have been in and out. They've gone out, they've come back. It's sort of a function of how they see their business model at the time. When that happens, in other words, when big players move out of the market, we don't aggressively try to take their share. There's been one or two instances over the last decade where someone pulled out, we did get a lot of extra share. We were happy to get it at the time.
Right now, I think it's more about the amount that you can sell, it's more about what we were talking about a minute ago, which is the value proposition to the customer and what alternatives they have and what's their objective. Asset protection, guaranteed income. Those are the things that are going to make the difference in the long run. I would say that a large majority of the big players in the guaranteed lifetime income space remain in the business. I've spoken a couple of times to an organization that Lincoln helped get off the ground, which is called the Alliance for Lifetime Income, which is predominantly a grouping of companies to focus on giving lifetime income and annuities in general, a much better understanding for the consumers. It just doesn't do anything for any other company. It's just a consumer-directed educational activity.
We've raised $100 million over the last four years to advance in the consumer's mind the quality of the annuity business, predominantly ALI, stands for Alliance for Lifetime Income. It's evidence that there's quite a few companies that continue to support that segment of the market and annuities in general. Staying in the market consistently, pricing the capital well, not being too concerned about competitors that come in and out, and then through ALI, advocating for the everyday consumer to better understand annuities.
Look, given the current market climate in virtual sales and it's always been said that life insurance products are sold, not bought. Obviously, the decline in what can be offered and the decline in the sales relationship have been very difficult the past 18 months to get the product in the hands of consumers. Two, I guess, do we expect there will be a sales surge as we enter the period of the new normal and people begin to interact again? Have there been annuity products that haven't been bought, that need to be bought, that people have just held off on? Two, has anything good come out of COVID in terms of the knowledge about how to interact with potential customers that we didn't know we could do beforehand?
Yeah. Let me speak to Lincoln's broadly about the impact of COVID on sales. I would characterize sort of in the first half of the year, people sitting back and not making decisions as quickly about what product they want to sell or, excuse me, what product they want to buy. Best example of that would be in the group business where employers were not rebidding their business. They took a wait and see attitude, so there wasn't as much opportunity for all of us to bid on new business because people just weren't putting their plans up for bid. Sort of in the individual markets, there may have been some of that at the individual level where people paused for a month or two to see what was going to happen in the capital markets before they made decisions.
I would say for the industry in general, as we exited 2020, the pandemic related effect on sales, hard to quantify, but I would say pretty modest. Certainly at Lincoln it was pretty modest. Again, for Lincoln, the critical issues in the sales results for 2020 versus 2019 were the two that I mentioned, intentionally putting a little more focus on building up capital so we slowed sales intentionally. We did that mostly through pricing. Lower interest rates created a little different value proposition. Interest rate reductions is what affected Lincoln's sales the most, not the pandemic. Josh, what was the second part of the question?
The second part, I guess, is that given that the COVID experience has disintermediated that sales process, even learning to cope with it, I guess, as we go into late 2021, 2022, has Lincoln developed some new skills that are going to actually be useful in engaging with customers on the other side of this?
Yeah. Joshua, we made the decision to invest heavily in virtual capability because it can be extremely more effective than in-person meetings, which is the way in the individual markets business has been sold over the last decade. I mean, just for all of us, for example, this meeting is an example that we're not traveling to New York. That's saving time. We're getting the same information across virtually. It's a combination of time, and as much effectiveness. Coming out of our study, which we spent a lot of money and used outside experts on, we looked at some of the other industries that went from in-person selling to virtual selling, the pharmaceutical industry as an example.
I know we're going to be able to sell as much In a new distribution world where there's a shift towards virtual interaction with customers away from in-person interaction, both are important. Relationship building is the area for our wholesalers that is most dependent on in-person meetings. That'll continue. Communicating with the advisors can be done as easily virtually. You can have better presentations, more content. We are going to be 20% or 30% more cost-effective. Well, maybe 10% more cost-effective in terms of the productivity and the requirements for the number of wholesalers, and we're going to get as much volume. I'm very optimistic from Lincoln's perspective. A lot of our competitors, not all, but some, are impatiently waiting for yesterday to come back.
Lincoln's trying to take the learnings that we've developed through the interactions these past nine or 10 months, and take the best of our opportunities to be more productive, do a better job for the customers, and keep our sales volumes up.
All things being equal, do you expect that means a surge in sales from, I guess, business that didn't get booked in the past 12 months, that over the next 18 months we start seeing that, as well as If we think of it as a factory, that you had a delayed sort of amount and you have the amount you're regularly planning delivering, could we get a big year in 2022 as a result?
Josh, we've been conveying that the level of sales across the business in the fourth quarter, we would think fourth quarter 2020 is something that we can build off and see sort of an annualized improvement off of the fourth quarter, again, across our businesses as we move through the year. In some businesses, mostly the life insurance business, some of our key products that were dependent on higher returns in our general account, and again, we price off of the current yield curve, just don't work. For example, MoneyGuard. MoneyGuard had an advantage prior to the change to principle-based reserving. MoneyGuard, the reserves went up and also interest rates declined during the year. The value proposition of a fixed premium, let's say $100,000, and a long-term care benefit guaranteed at, say, $250,000, that just doesn't work in the environment today.
In that product, and this is an example of two things that we're having to do. Instead of using a general account investment engine in the product, we're going to use separate accounts the same way we do in our variable annuities. From a customer perspective, although the guaranteed amount is less, the upside potential for the long-term care benefit will be greater because of the investment engine. Hold that thought for a second, and let me give you another example. Variable Universal Life, our VULONE product, where the segment of the market that we were playing in was a long-term death benefit market. Sort of the same thing happened to VULONE, where the reserve changed pretty dramatically. With the investment engine we had, we can't provide the same level of ultimate guarantee.
What we're having to do is change to new products, find new segments. I'm confident we can do that because of the powerful distribution organization we have. When you're going into new segments and you're taking new value propositions into the marketplace, it'll just take a little more time for sales to develop. We're dealing with that. Again, I'm confident. This goes back to our overall strategy. This goes back to why we spent so much money during the year on the focus on distribution effectiveness. We're just going to maintain our leadership in distribution in the life insurance industry. Always have been one of the top one or two companies in terms of shelf space, quality of our wholesaling force, quality of our products, and moving into the new world of distribution, which will be more virtual and less in person. We're prepared.
We've got everything we need to do. We'll get these products into the hands of people who want to buy them. It'll have to build. I think across our businesses, we'll see a build over the year rather than a gush.
Makes sense. Here's a question from the 90 people listening remotely. Can you share some thoughts on risk transfer opportunity intent as you continue on that path? Are there opportunities to conduct multiple risk transfer transactions across different segments in this environment? Is that something you are considering?
Yeah. Just at the very highest level, there's more capital coming into the industry. There's more activity. There's been a lot of deals done, particularly on VA block sales or risk transfer, and the technology is getting better. People are interested because deals have gotten done, the technology to bring the buyer and seller together, is getting better. I think, as we said, we're going to increase our focus on risk transfer. Let me just bucket it a little bit. We, before anyone else, actually did all these things. Let's talk about flow deals. We did a flow deal where we reinsured 50% of the guaranteed lifetime income benefit, years ago on a big block of our business. That's the type of transaction that we'd consider doing again.
We did a flow deal on our fixed annuity business. We'd consider doing that again. Both of those are capital, make our overall more capital efficient. As everybody knows, we sold a large block of fixed annuities, not sure before anybody else, but certainly, we're at the front end of that market. Lincoln has been in the market doing deals for as long as anyone. At any point in time, you have to be able to clear the deal, clear the market between what the buyer's looking for and what the seller wants to get. I think that is a bigger opportunity right now than maybe it was when the 10-year was at 60 basis points for certainly on general account related blocks. We're looking at flow deals, both on the annuity side, fixed and variable.
We're looking at block sales in our individual life insurance business. May look at another fixed annuity block. Again, the market's better. The technology for getting deals done, clearing the table on terms is better. We're in the flow of transactions and optimistic that we can get some things done. Just to finish off, we're looking at a variety of types of reinsurance or block sales, not just one. Hopefully something, we'll be able to cross our expectations with the buyer's expectations and get something done. As you know, Josh, and everybody on the phone knows, M&A transactions, sales transactions, particularly when you get into the more complex liabilities, take time, they take energy, and any significant move in the capital markets could change the dynamics.
At the moment, we're enthusiastic about being able to get something done.
I guess before we go, let's get one question on Group. To what extent, and this is a very fragmented market, obviously, I hear from most companies that persistency is up because the sales cycle was disrupted over the past year. Obviously, this is a business that has a lot of M&A in it. You've done some M&A in this space. Is this a business model that's going to continue to consolidate over time? Where does that position Lincoln as a winner? Do you have to broaden what you sell? If we go five years from now, are there fewer players and Lincoln's larger? How should we think about that?
Yeah, Josh, just as a general direction in the industry, people are selling off businesses that they don't have scale in, and reinvesting that capital today, either in share buybacks or investing in the business where they really want to place their bets. You're seeing, such as the Liberty deal that we did, and Liberty Mutual is a big P&C company. They wanted to focus more on that, so they sold their group ancillary business. That's being repeated throughout the industry. Lincoln is an acquirer. If there's something that comes along, we'd be very careful about using any capital we develop today for acquisitions versus share buybacks because our share price is so low. Our first priority on capital, when we develop capital, is share buybacks.
Just in general, the more that business expands, the better off our business model is and what we're trying to achieve. Again, most of that is going to come from organic growth, not acquisitions. We're excited about the business, let me say it that way. We're well-positioned with the Liberty deal, just in terms of markets. Lincoln's old business was in the 1,000 and under, predominantly employee-sized marketplace, which is a different market than over 5,000 employees. That's where Liberty's expertise lies. It's really a very complementary transaction from a market perspective. Oftentimes, when you do a deal, if you're buying something that's in the same markets that you're in, you have a lot of top-line growth disincentive to do a deal like this. This deal was great for Lincoln.
We have good products both in the sort of the true group business, the employer-paid part of the deal, of the marketplace. We have excellent products in the employee-paid side. Employee-paid includes both buyups of the core product life and disability, as well as ancillary products such as Accident & Health and Critical Illness. We're very well-positioned and excited about it. Again, most of the growth that we're going to have in that business is organic, and we think we can do a good job.
Well, you are doing a good job, and it's difficult times, just keep doing it, and we'll see what happens. I really thank you for your time today. I know we have a lot of Lincoln people who are also on the line, and thank them for all their contributions, their time and efforts. Be safe, family safe. We're almost at the end of this thing or maybe it's a new beginning, hopefully in a positive way. Take care, Dennis, and we'll talk to you soon. If you have any questions for Lincoln, you can email them to me, you can reach out to Lincoln directly, and we'll be on with MetLife in 15 minutes, stay tuned. Thank you.
Thank you, Josh. What you do personally and what conferences like this do to help the overall industry is terrific. We appreciate it very much. Thank you.
Take care.