Good morning, thank you for joining Lincoln Financial Group's conference call to discuss its acquisition of Liberty Mutual's benefits business. At this time, all lines are in listen-only mode. Later, we will announce the opportunity for questions, and instructions will be given at that time. If you need assistance at any time during the call, please press star followed by zero, and someone will assist you. Now, I would like to turn the conference over to Senior Vice President of Investor Relations, Christopher Giovanni. Please go ahead, sir.
Thank you, Candice. Good morning, everyone, thank you for joining us on short notice. This morning, we issued a news release announcing our acquisition of Liberty Life Assurance Company of Boston. In addition to the news release, we have an investor presentation on our 8-K available on lfg.com. Before we begin, I have an important reminder. Any comments made during the call regarding future expectations, trends in market conditions, including comments about sales and 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 are described in the cautionary statement disclosures in our reports on forms 8-K and 10-Q filed with the SEC.
Presenting on today's call are Dennis Glass, President and Chief Executive Officer, Dick Mucci, President of Group Protection, and Randy Freitag, Chief Financial Officer and Head of Individual Life. After their prepared remarks, we will address questions you may have. As you all are aware, we will be reporting fourth quarter 2017 results on January 31st after the market close and will be holding our conference call on February 1st at 10:00 A.M. Eastern Time. During that call, we will be discussing fourth quarter and full-year results, along with providing a detailed view on the impacts from tax reform. As a result, we would appreciate if your questions today focus exclusively on this transaction. I will now turn the call over to Dennis.
Thank you, Chris, good morning, everyone. I'm very pleased that we've entered into an agreement to acquire Liberty Assurance Company of Boston from Liberty Mutual. We will retain their group business benefits business and reinsure the individual life and annuity business to Protective Life. Let me start by saying I am excited for Liberty's talented employees and customers to join the Lincoln family once the transaction is complete. This acquisition has several strategic benefits for our group business as well as the enterprise in addition to being financially accretive. Dick and Randy will provide more details shortly, but let me make a few brief comments. First, we've talked about our interest in acquiring a group business for several years, but always noted that we would be patient and wait for the right opportunity. We have found this opportunity with Liberty and at the right time for Lincoln.
Our strong positive momentum in Group Protection over the last couple of years, combined with a long-term track record of growth and profitability across the group benefits industry, supports this significant strategic investment. Like Lincoln, Liberty is already a top 10 group benefits provider, so we will be significantly increasing our scale in the business. Importantly, our business models are highly complementary, and we will now have comprehensive product and service offerings across all size employers as Liberty's significant presence in the large case market complements our small and mid-market presence. The combined business will have access to 10 million insureds and enable us to accelerate our employee-paid sales, which has been an increasing focus. From an enterprise perspective, this acquisition accelerates our strategy of increasing our mortality and morbidity sources of earnings.
We expect a greater diversification of earnings will provide better stability during periods of capital market uncertainty, while still enabling us to capitalize on significant long-term growth opportunities and market tailwinds. After closing, I am confident we can successfully integrate the two businesses to position Lincoln to capitalize on the significant long-term opportunities ahead of us. On this front, I have a lot of confidence in Dick and his leadership. He has run an industry-leading large case group business and has successfully integrated major acquisitions. My bottom line is this. Lincoln Financial Group already had a great U.S.-based franchise, and this acquisition significantly enhances it. We will have perhaps the best U.S. life insurance business with top five market positions in most businesses, combined with a proven ability to execute and deliver strong financial results that reward shareholders. I will now turn the call over to Dick.
Thank you, Dennis, and good morning, everyone. I am also very excited about this acquisition as it creates significant strategic benefits for our Group Protection business and provides us with competitive advantages in the marketplace. By combining forces, we meaningfully increase our scale, further broaden our customer base and distribution channels, and expand our capabilities. Let me touch on each of these. First, this acquisition significantly increases our scale and strengthens our market leadership position in the group insurance business. Our premiums will nearly double to $3.7 billion. Our in-force market share will increase to 7.4%, and we will become a top three player based on sales, including being the largest seller of disability insurance with 14% market share. This scale will give us substantial operating leverage and synergies.
For example, we can now support greater investments in technology and digitization to further enhance our market position and develop competitive advantages. Our scale will also provide ongoing cost-saving opportunities and will specifically help us achieve run rate integration synergies of $100 million pre-tax by 2020. Another important aspect of this acquisition is that our business models are complementary with limited sales overlap. As you know, our current Group Protection business is more heavily focused on the small case market, under 1,000 lives, which represents nearly two-thirds of our premium. Liberty's business is concentrated in the large case market, with more than two-thirds of its premium from contracts with over 5,000 lives. Going forward, we will have a more balanced premium profile across all customer sizes. With an enhanced large case presence, we will expand relationships with the larger national broker firms.
There are also fantastic opportunities to cross-sell additional lines of business into Liberty's large customer base. We are particularly excited by the fact that the combined business will reach about 10 million employees to whom we can offer our dental and voluntary employee-paid products. We will also capitalize on a combined disability expertise, which will further strengthen our capabilities. For example, Liberty brings a best-in-class clinical model focused on recovery and return to work. They also have more than 2 million employees covered with their absence management services. Liberty has experienced a decline in margins over the last few years, and they launched a repricing effort in 2017 to combat this trend. We expect the benefits of this will begin to emerge in 2018. During our due diligence, we were pleased to see that they are making progress with their rate actions while limiting the impact on persistency.
As you know, at Lincoln, we recently had a similar and very successful experience with repricing and profit remediation. We believe that we will bring additional expertise to strengthen this program. As a result, we are confident in our ability to improve margins and expect the combined business to be within our 5%-7% margin target by 2020. During this period, we expect modest premium growth, while our long-term premium growth expectation of 5%-7% remains unchanged. Importantly, as the positive impact from profit remediation continues, growth accelerates, and benefits of scale emerge, we believe profit margins will gradually increase and approach the top end of our targeted range. In summary, this acquisition will create a competitive powerhouse in the group insurance industry, and we are fully prepared to integrate these two businesses and capitalize on our profitable growth opportunities.
Now I will turn it over to Randy.
Thank you, Dick. As Dennis and Dick noted, there are several strategic benefits to the acquisition while also being financially compelling. I'm going to walk through the structure of the deal, financing, timelines, and the financial impacts. As stated in this morning's press release, we have entered into a definitive agreement to acquire Liberty Life Assurance Company of Boston, or LLAC, from Liberty Mutual. While we are acquiring the entire legal entity, we are only retaining Liberty's group benefits business. Our total net investment is $1.446 billion for this business, which includes a purchase price of $1.021 billion and $425 million in required capital. In total, Liberty Mutual will receive approximately $3.3 billion. We work our way down to our $1.446 billion total net investment for the group benefits business with the following items.
A $410 million ceding commission from Protective Life as they will reinsure the Individual Life and annuity business. Approximately $1.2 billion associated with us buying a legal entity that has more capital than we need. Lastly, $211 million for tax-related items where we are the near-term beneficiary. We will be using short-term financing for the excess capital and tax benefits and paying it off shortly thereafter. We will be financing the $1.446 billion total net investment with internal resources and $500 million of new debt. The primary source of our internal resources is $571 million of excess capital, and it is important to note that our capital position will remain very strong and support our current ratings. We will also utilize some free cash flow that likely would've gone toward share repurchases.
As of year-end 2017, we have approximately $125 million in cash on hand at the holding company that is above our target, and we will temporarily suspend share repurchases, which will generate another $250 million. We expect to be back in the market repurchasing shares no later than the third quarter of 2018. As you would expect, we spent some time briefing rating agencies on the acquisition. We believe they all will comment at some point with their opinions, but generally speaking, I would note they are comfortable with the financing structure, our pro forma capital leverage and liquidity metrics, and the strategic rationale. The acquisition is expected to be completed in the second quarter of 2018, pending regulatory approvals and other customary closing conditions, and be accretive to earnings per share in 2019, excluding integration costs.
Integration costs are estimated at $150 million pre-tax and should enable us to achieve run rate synergies of $100 million by 2020. Bottom line, we are excited about the strategic and financial benefits of this acquisition. With that, let me turn the call back over to Chris.
Thank you, Dennis, Dick, 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 again, we would appreciate if your questions focus on this transaction only. With that, let me turn it over to the operator.
Thank you. Ladies and gentlemen on the phone lines, if you would like to ask a question at this time, you may press star followed by the number one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. Also for optimal sound quality, please use your handset instead of your speakerphone. Our first question comes from Suneet Kamath of Citigroup. Your line is now open.
Thanks. Good morning. I wanted to start on slide 10 from the deck where you look at the after-tax margins. The first part of my question is just want to confirm if these are all before tax reform?
The margins we show in the deck, Suneet, all assume the tax reform that occurred. We priced this deal under the new tax system that we're all operating under. The margins you see all reflect tax reform.
Okay.
You know what, Suneet, I'll just expand on that. It's our long-term belief in a business like the Group Protection business that 5%-7% is the appropriate margin because that's what delivers the return that is required to support that sort of investment in a group business. Ultimately, we believe that the market will adjust to deliver those 5%-7% margins regardless of what the tax rate is.
Okay. I think, Dick, you had said that you're expecting to grow premium through the period of repricing, which, if memory serves, I think that wasn't the case with Lincoln's business when you went through your repricing. Can you just expand on why you think there won't be a fall off in premium growth?
Yes. That's a good question. With the Liberty's large case business, and their differentiated service model and the amount of rate action required, the combination of those factors, we believe will moderate the premium impact of the remediation activity. Although we do expect modest premium growth to flat growth over the next couple of three years, we don't see it falling off as we did with the Lincoln block of business. Let me also add that given their initial experience over last year when they have implemented the first round of this repricing, their persistency impact was limited, and they were able to manage that well. We expect that will be contingent.
Okay. Mucci, the last one, I want to make sure I'm doing the math correctly. If I look at slide 10, and I assume that the $2 billion of premium roughly from this deal earns a 5% margin, and I kind of calculate that on a pre-tax basis, it would seem to me that the earnings power embedded in this slide from the deal is largely the expense synergies that you're expecting to achieve. I guess I'm trying to get a handle on what's the core earnings from this business that you guys expect.
Let me address that first.
Excluding what Lincoln already has, right? Just for the acquired business.
Well, that's a good question. I think the way to think of it is that, as you know, through three quarters, Lincoln's a little bit north of 5% margin. Liberty's their margin is low, less than 1%. Starting point is around 3% margin for these combined businesses when we look at 2017. As we move out to 2020, we expect the margin to grow to about 5.5%, and a majority of that is expense synergies. Although there is a component around the pricing actions as well as some premium growth. When we move out to 2023, we expect the margin to grow about another percentage point, driven primarily through the premium growth and the pricing actions.
Okay, thanks.
Did I answer your question?
Yeah. Maybe I'll follow up later, thanks.
Thank you. Our next question comes from Ryan Krueger of KBW. Your line is now open.
Hi. Thanks. Good morning. Just a question on Liberty's recent margins. I guess, do you view that as more of an issue related to recent pricing levels? Or do you also see any sort of underlying issues with the claims management on the claims management side?
I think it's a combination of factors. One is that they did seem to experience changes in their disability block, which is more driven by a mix of business versus any deterioration in claims management. I would also say that they've been growing fairly rapidly over the last two or three years, so I think there is some aggressiveness in the pricing that needs to be worked out. I think those are two factors that are primarily driving the decline of margins.
Thanks. Randy, on the excess capital, you would expect to be able to extract that immediately once the deal closes?
Correct, Ryan. As I noted, we will finance that component with short-term financing, which will be repaid very shortly after the deal closes.
Just a quick one. Can you tell us how much cost saves you would expect in 2019?
We expect, as we had said, $100 million of pre-tax synergies by 2020. We expect about $25 to $40 million of cost saves per year in that range.
Thank you.
Thank you. Our next question comes from Thomas Gallagher of Evercore ISI. Your line is now open.
Good morning. Just thinking about the rapid growth that Liberty's had, Dick, would you say, how aggressive was their pricing? When you look at the underlying loss ratio, do you need significant margin? Can you talk about the level of rate you actually need in the book to achieve target profitability?
Well, I think their first round last year, they were looking at price increases in the 5% range, maybe a little north of 5%. That gives you a feel for what we would expect to happen next year and the year after. The large case business typically has longer term guarantees, three-year guarantees. Last year was the first tranche of that. The first round of repricing is going to take three years to work out.
Got you. We've seen a number of companies, Lincoln included, over the last two to three years that have remediated these group benefits businesses, the level of margin improvement on loss ratio has probably ranged between 300 to 600 points. Your guidance doesn't seem to be having much of that. It's mainly, as Suneet had mentioned, mainly on the expense side. Is that because you think the market's becoming a lot more competitive, you can't get that level of loss ratio improvement? Is that conservatism? How would you frame that?
Well, I think, first is that, as I mentioned, their pricing gap is not as severe as you might have seen with other companies. I can't speak for other companies, we expect loss ratio improvement, but not to the extent you talked about. Also, I think that the expense synergies will also play into the margin improvement.
Hey, Tom, another way to think about that, if you look at the Liberty business today in 2017, it's about a 1% margin business. We say it's going to improve to the 5%-7% range, about five points of improvement. As Dick mentioned, about 60%-65% of that improvement comes from synergies, the other 35%-40% comes from pricing improvements. That implies a couple points of that margin improvement comes from pricing actions. That gives you a sense of the scale of the pricing actions needed.
Got you. Thanks, Randy. Just one final question. Now you guys, I think, have done a good job turning around a small to mid-size group benefits business. This is a large case business primarily. Is this going to be more challenging or is it pretty much the same playbook? Can you talk about compare and contrast, whether that will be different?
Well, Tom, I think there are similarities of course, they are different blocks of business. Large case business is more concentrated in fewer cases. In some ways you can give individual attention to particular cases and be more tailored in your approach. Remember that Liberty's bringing a lot of expertise and relationships to the table, that will help expedite the rating action. They've already demonstrated the ability to manage this during the last year.
Okay, thanks.
Thank you. Our next question comes from Erik Bass of Autonomous Research. Your line is now open.
Hi, thank you. Just wanted to go into the 2019 accretion assumptions a little bit more. I think you've helped us think about the earnings contribution, what are you assuming on the financing cost side? I guess, in addition to the debt you issue, also just kind of the foregone buybacks?
Erik, thanks for the question. As I mentioned, there are three sources of financing for this transaction. 500 million of debt. What's the associated cost with that? Capital, we'll be using off our balance sheet excess capital, there will be associated costs with that. The final component will come from 375 million of waived share buybacks, that will have more of an equity-like cost, obviously. That will appear with a modestly higher outstanding share count in 2019 than you would have had otherwise. That's how we think about it.
Got it. On the buyback side, were buybacks suspended from today or, in anticipation of the transaction, did you stop buybacks in the fourth quarter?
Erik, we obviously have our earnings call coming up on February 1st. I'm not going to talk specifically about what did or didn't happen in the fourth quarter, let me reiterate what I did say, which is we're going to use a total of $375 million. We have $125 million of that in the bank at the end of the year, we need $250 million more of waived buybacks in the first half of this year.
Got it. That's helpful. Then, I guess last question, if you could just elaborate on what you see as this revenue synergy opportunities over time, I guess, in terms of the complementary sales forces and the cross-sell opportunity.
Yeah, let me touch upon that. We think there's tremendous opportunity. First, with Liberty's large case business, there's an opportunity to cross-sell our other products, dental products, and we mentioned a large customer base of nearly 10 million employees. We think there's a tremendous opportunity to cross-sell voluntary products like the accident and critical illness products we offer today. The other thing I would say is that given their expertise around absence management and claims management, we think that can be leveraged across the board in terms of even in the mid-market and small market, in terms of increasing our competitive position in those markets as well. We see a fair amount of opportunity to leverage revenue.
Great. Thank you.
Thank you. Our next question comes from Josh Shanker of Deutsche Bank.
Can I add one more point to Erik's? All the numbers that we've talked about just relate to expense synergy. That had been all the numbers we've given you. We have not assumed or did we price for any revenue-based synergies.
Yeah. Hello, Josh Shanker from Deutsche Bank. Am I on the line?
You are, Josh. We can hear you.
Oh, yeah. Thank you. Apologies. I'm on a train. Wasn't expecting the call today. I just really wanted to know how long this discussion's been going on with Liberty. Was it an exclusive conversation that you were having with them? And two, given The Hartford Aetna deal announced earlier, are you anticipating that there's going to be an arms race potentially in terms of bulking up in the group space overall? What's your long-term look in terms of what's happening right now in that market?
There's a few questions in there. Let me say the first one is that because this is a three-party agreement, the discussions have been going on for some time. With respect to other parties, I'm sure Liberty is a very sophisticated company, that they had talked to some other people, and knew what the value of the property was. Again, conversation's gone on quite a while. I do not expect an arms race in the group business. This is a very good business, short-duration business. The platform that we have put into place is absolutely terrific in the context of it being complementary. Some of the acquisitions that we've looked at, there was as many dis-synergies coming from the top line as there was synergies coming from integration costs, you ended up not really with much value creation.
I always have looked at deals from the perspective of where are your earnings going to be three years out rather than where you are today. I feel very optimistic that by the end of the third year, and I think we're being a little bit conservative in the numbers we're sharing with you today, that the earnings will more than justify the investment that we're making here.
Okay.
One thing I would add is that the additional scale that comes with this allows us to invest in capabilities, service, et cetera. It actually takes the pressure off the pricing because we're able to compete in other ways.
All right. Before I lose you, I'm going to sign off. Thank you for the answers.
Thank you. Our next question comes from Humphrey Lee of Dowling & Partners. Your line is now open.
Good morning, and thank you for taking my question. Just to focus on the Liberty Mutual's margin a little bit. I hear you talk about the repricing that has to go through. In terms of the expenses, so on slide 10 that you show the margin, I believe that's the statutory margin as opposed to a GAAP margin. If it were the GAAP margin, what would that be for the year-to-date number? On top of it, has Liberty Mutual making sizable investments into that business as well, that kind of pressuring the margin, or is this just kind of largely from underwriting?
Humphrey, in this business, there isn't a whole lot of differences between statutory and GAAP margins. Liberty is not a public reporting company, but I would assume that the margins are fairly similar, whether you're reporting on stat and GAAP. Like any large scale, highly effective business, Liberty's obviously been making investments in their business. I don't think there's been a disproportionate investment profile at Liberty, but they've been investing like everybody else. The upside of that is that I think most of the margin pressure comes from the items Dick mentioned. We've started, they have started in 2017, and we'll continue that remediation.
Let me add that it is true that in the technology area, there is opportunities. That's where a big area of expense synergy because there's redundant work going on in terms of investing in administrative systems and so forth. That's an opportunity for expense synergies.
Let me just jump in here. Everybody's focusing on a little bit of a temporary decline in the businesses that Liberty has had in the last 12 months. If you look at the whole chart, the purpose of the chart is to demonstrate that for a long time, the business has been quite profitable, and they have been achieving the right margins. I'm very much viewing this as an aberration in an otherwise very well-run business with very strong capabilities. As Dick has mentioned, because of the nature of the large case market, it takes a little bit longer to get the repricing done. The repricing that we're talking about is much less than what we just did at Lincoln. I come back to, this is a tremendous platform that's been run profitably for a long time. There's a temporary dip in margins.
We've experienced that ourselves. They have already put in place a remediation effort, that remediation will begin to demonstrate itself on their book of business in 2018. We're very pleased with the way they have been executing on this, because we've had some experience, the whole perspective of this deal is bringing two great management teams together. We think we can add some of our own experience. This is a great platform. It's very complementary. There's no overlaps in, for example, the selling of the business is not connected to any other P&C products or healthcare products or anything like this. This is absolutely a clean business. Come back to it, the chart demonstrates long-term profitability from a very good management team. We have a temporary dip here, the combined management teams will be able to handle this very easily. Not easily, but successfully.
Let me say successfully.
Yep. Just on the cost savings. I hear you talk about how should I think about the cost savings? What portion of it would be from scale and kind of a reduction of duplication versus savings on investments that you would have to make initially, since they have the capability, that kind of saves you from investing in those servicing capability or technology capabilities?
Well, when we look at the $100 million, we think of it probably in thirds. A third is the technology redundancy that we can squeeze out of the operation. Another third would be overhead, fixed costs, and then another third is around process efficiency and back office processes. That's the way we would think of it.
Okay. Got it. Thank you.
Thank you. Our next question comes from Alex Scott of Goldman Sachs. Your line is now open.
Hi. Good morning. First question was on persistency. I know recently you'd provided a little bit of guidance in terms of where you expected persistency to be. I think it was mid-80s over a three to four-year period on your existing blocks. Just wondering if you can update us on what you would expect for the pro forma block.
Well, let me speak to the Liberty block. They're a large case business there, and as Dennis pointed out, they've had a very successful business for a lot of years. Their persistency has been very good, mid-90%, 95%. Large case business tends to have better persistence than a smaller case business. As part of our valuation, we expect that persistency to decline a bit to maybe low 90s, around 90%, and then recovers. I think the combined business would be somewhere, if we expect us at a Lincoln block to get up to the mid-80s, they will be around 90, between 85% and 90%.
The follow-up, what drives you to I guess, what's the difference I should think about with theirs only declining to about 90% as you go through repricing as opposed to, I think when Lincoln went through the repricing, it got down lower into the, what, lower 70s?
Two things. One, the amount of rate changes is less, also, large case business is very much tied to service and capabilities, even some technology hookups. The switching cost is much more onerous in a large case environment. There is more resiliency of the, I'm going to say, staying power of the business because of those factors.
I think we're getting a little hung up on this, I'm going to go back and reiterate something I said a little earlier. Of the margin improvement, a couple points is coming from pricing actions. That's not nothing, that is a number we can achieve. If you think about what we just did at Lincoln, which was we achieved a four to five-point improvement margin, that all came from pricing.
I just want to come back to the point I just made. Liberty's platform is an extremely competitive platform for all of the reasons that Dick has mentioned. This is one of the premier large case platforms in the industry. Yes, there is some margin decline. Again, I view that more as an aberration than as, importantly, anything wrong with the platform. This is a terrific platform. It's extremely complementary to us. As I've said, we're very confident that we can get back to the margins in the appropriate timeframe. I'd also say that the, again, from a strategic perspective, none of the numbers that we're talking about in these slides include any revenue benefit. We think that the opportunity to cross-sell our employee-paid products into now a 10 million person customer list is a big opportunity.
Very complementary to what we do, big cross-sell opportunities, a great platform that's been in business successfully for a long time. I just think this is a great opportunity for Lincoln and our shareholders.
Thank you.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question at this time, you may press star one. Our next question comes from Scott Frost of State Street Global. Your line is now open.
Thank you. I just wanted to make sure I understood. I'm trying to piece it together, sources and uses, you talked about excess capital and debt issuance. Could you maybe be just a little more explicit about sources and uses of the financing? Also, it seems like this is a multiple of 2x or so to the statutory capital and surplus. I don't have the 2017 statements, I'm sorry, 2016 has their surplus of $1.1 billion for the sub. Could you walk me through how I get to the multiple for this?
Well, first let me speak to your first question, sources and uses. I'm going to reiterate some of the things I said earlier.
Thank you.
The amount we're paying for the group business is $1.446 billion. That's coming from three places, $500 million of debt issuance, $570 million or so of excess capital that's on our balance sheet today, and $375 million of effectively waived share buybacks.
So-
The total price for the business is $3.3 billion. The other components come from $410 million, a ceding commission from Protective for the life and annuity business, which we will be reinsuring to them. The other pieces, $1.2 billion of other capital in this entity and $211 million of near-term tax benefits, we will use short-term financing, which will be repaid shortly after the acquisition closes with those dollars.
Okay. Just to make sure, the incremental short-term financing funds the green and the blue and the gray bars on slide 12?
It funds two things. It funds the $1.2 billion of capital that's in this entity that we do not need to support the business. The way to think about that, once again, you're talking about a business that right now has a big life and annuity business and a group business. Okay? The life and annuity business is getting reinsured to Protective. They're not taking any capital with that. They're going to use their own capital to support that business. You've got a big chunk of capital that's freed up from the life and annuity business that's going to Protective. Then when this entity comes over to Lincoln, given our risk profile and the way our capital works, there's a little bit of capital synergy because our covariance associated with this business is a little higher.
Okay.
Okay?
All right. Just am I thinking about the multiple to the statutory surplus, the capital and surplus in the right way? Is it 3.3 relative to the 1.1 or 2 or whatever it was?
I don't, Scott, what I would say is because so much of this capital is just excess capital that is sitting there, I don't think that the 3.3 and the 1.2 is the right way to think about this. If you want to think about it, I would focus on just the group component, right?
Okay
little over $1 billion we're paying for the group business and the $425 million of required capital that we're supporting that business with. As I just said, that capital amount benefits from a good covariance picture here at Lincoln.
All right. Thank you for the clarification. I appreciate it.
You bet, Scott.
Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Christopher Giovanni for any further remarks.
Thank you, Candice. Thank you all again for joining us on such short notice. As always, we will take your questions on our investor relations line at 800-237-2920 or via email at investorrelations@lfg.com. Thank you all, and have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.