All right. Thank you, everyone. We're going to keep moving along here. We're very pleased to have with us Randy Freitag. Randy is the Chief Financial Officer of Lincoln Financial Group. Lincoln has a very strong presence in U.S. life insurance, annuities, retirement savings, and group insurance. Randy, thank you for joining us. Pleasure to have you here.
Thank you for having me.
Why don't we start with a broad question on Lincoln. As you think about the next one to three years, what do you view as the biggest opportunities and challenges for the company?
I think to answer the question about what are Lincoln's biggest opportunities, it's best to start with what I see for the industry. What I see for the industry is a very favorable environment as you look out over the next three, five, 10 years. One of the environmental factors that I see as big tailwinds for the industry include the fact that we are more likely to move from a period of what has been economic headwinds in that we've experienced low interest rates, we've experienced very volatile equity markets over the last five to 10 years. We've faced these economic headwinds, and more likely than not, as you look forward, though obviously there will be some volatility, more likely than not, you will see interest rates trend a little higher.
You have economies growing again, which should ultimately lead to equity markets that move modestly higher. You have these economic tailwinds for the industry, broadly speaking. Additionally, I think for the industry, you have extremely strong consumer demand for what we specialize in, the providing of some sort of guarantee or some certainty for individuals as they look to their future. You have an extremely strong demographic trend for the industry. You have boomers with all sorts of needs, be it estate planning, be it retirement needs. You have millennials, Gen Xers, Gen Ys, all facing decreasing company provisions and others, so they're looking to insurance companies to provide some of their basic needs. Strong consumer demand, strong demographics. Additionally, I think the last thing, pretty much across the board, across the businesses, I think you've seen products repriced to a much higher return level.
You have a very favorable backdrop for the industry. Inside of that industry, I think Lincoln's opportunities are going to be leveraged to the fact that we're focused in four businesses, four retail-focused businesses, and focused in the highest growth areas of those particular businesses. If you're in the retirement business, we're focused in the smaller case market, the $5 million-$10 million case market. We're focused on the healthcare space. We're focused on the government space. All three of those areas will experience above average growth, above average retirement growth. We're focused in the below 1,000 life market, in the voluntary market, in the group business. Once again, faster growth in the life, sort of the high net worth boomer space.
We're in the higher growth areas of the particular businesses that we operate in, which are all focused in the retail segment, which I think is a very favorable item. Additionally, our franchise is in extremely strong shape today. How do I define franchise? A number of areas, but first and foremost, the distribution strength that we have at Lincoln, I think is extremely strong. If you look across our wholesale distribution platform, it's roughly 600 wholesalers out representing Lincoln. If you look across the retail platform, 8,400 advisors, 66,000 end agents who sold our products last year, which was up 11%. If you look into our retirement business with 330 retirement consultants out in businesses across the country and 180 strong group sales force out there representing us. Very strong distribution franchise.
When you look on the manufacturing side, we have extremely strong product depth and breadth across all of our businesses. We have the scale to invest in the talent needed to continue to lead from a product manufacturing standpoint. We continue to have very strong risk management practices, whether it's risk management around interest rates or risk management around variable annuity guarantees. We continue to have among the best risk management programs out there. We have an extremely strong balance sheet today. We ended the year with a record level of statutory capital, $8 billion, 501% RBC ratio, significant amount of cash at the holding company. We have a very strong balance sheet. We have all the things that one needs to have in place as you look out over the next three, five, 10 years.
We have a couple of big initiatives that we're focused on. One is reducing the percentage of our sales that come from products that we would describe as having longer or stronger guarantees, things like variable annuity with living benefits, secondary guarantee UL. We'd like to bring the percentage of those products down to about 30% of our overall sales. They were 36% in 2013, so we've got a little more to go there.
The other thing we'd like to do is if you think about how we make our money at Lincoln, and if you look at the sources of our earnings, we make roughly 37% of our earnings from asset management fees, 34% of our earnings from interest spread, 7% of our earnings from the fees we get for the guarantees we issue, and 22% of our earnings from what you would think of as more traditional mortality, morbidity fees. We would like to grow that 22% slice over time to be more like a third of our earnings. That's a long-term project. That particular goal would probably take some inorganic growth. It's very difficult to do that particular item organically.
Both of those items, I think, present an opportunity for us to ultimately bring the beta embedded in our stock, which is a little higher than our average peer company, down over time, which is something we strive to do. From a headwind standpoint, what do we face over the next one to three years? Outside just the normal fact that you'll have economic cycles and credit losses or markets will go down from time to time. You've got the normal things you face as a company. I think the most explicit one I would point out is just the regulatory environment, which is I think much more active than it has been over the last decade. I think fortunately we have good relations with the regulatory community.
Nonetheless, there are a number of items on the regulatory front that we need to think about, be it capital standards, be it what's going on as we think about captives, be it some of the stuff that N.Y.'s been doing on reserving for certain products. A number of regulatory items we need to think about.
I want to come back to the regulatory.
Sure.
If we think about return on equity, what is the potential for that critical metric for Lincoln, assuming continued strength in the core operations along with share buybacks? With the ROE running at around 12% currently, essentially, how can we get it to the next level?
Over the last five years, I guess 2009, we posted a return on equity of 8.4%. 2013, we posted a return on equity of 12.1%. We've come up pretty nicely over the last four to five years. If you think about what has driven that growth, what are the factors that have been in place? You've had very extremely strong equity market performance, which has been a big benefit. You've had the ability to deploy capital into share buybacks and dividends, which we've done a significant amount of. Offsetting that, you've had the headwind of interest spread compression. You've had sort of a couple positives and one negative that when blended together have given you the significant amount of return on equity growth that we experienced. Now as you look forward and you think about what's in place, we continue to have a very strong balance sheet.
As we talked about on our call, the ability to continue to do significant amount of share buybacks. I talked about $500 million-$550 million this year, that item remains in place. I don't believe the equity markets are going to grow at the same pace they've gone over the last five years. It's a nice thought, it's more likely than not that we're not going to get that doubling in the equity markets. That same tailwind doesn't exist. On the other hand, you have less spread compression headwind than you faced over the last five years. You've got some pluses and minuses you look for. I think the big thing that's in place looking forward that hasn't been in place in the past is what's happened on the new business front.
I think the fact that new business returns, as I mentioned earlier, across products have been priced at higher levels, returns that are above the 12.1% we posted in 2013, I think will support ROE over time. New business returns bleed into ROE over time, right? I mean, a significant portion of our earnings are embedded in the in-force. It takes a little while for that to show up. I think that's the tailwind that exists today that hasn't existed for the last five years. I really think ultimately will be the key item that leads to return on equity growth over time. At the highest level, what we've said is that if interest rates remain low, that we can probably manage ROE around that level, around that 12% level.
If interest rates start to move up over time, that's when I think you can start to see all these other favorable items come in play, and you see that next move up in return on equity.
That's a good transition to the next topic, which is interest rates.
The Lincoln shares have clearly benefited over the past year, driven in part by the strong results, but also the rise in U.S. interest rates. What would you view as the ideal interest rate scenario for Lincoln, and at what level do you believe rates start to be a tailwind?
We're investing today at roughly 50 to 75 basis points, depending on the day, below our portfolio yield. We need a roughly 50 to 75 basis point move up in the underlying Treasury rates with no offsetting move in credit spreads before you would see no spread compression and actually start to see a tailwind. I'd put it in that 50 to 75 basis point range, probably closer to the 75 basis point range today.
Using the 10-year as a proxy.
Use the 10-year as a proxy. Assuming parallel moves and all that stuff. I think that's where you are today. That would put the 10-year at roughly 3.5%. I think the 10-year between 3.5%-4.5% is a pretty good place for Lincoln and the insurance industry.
Okay. If we look at Lincoln's variable annuity business, the return on equity on that meaningfully exceeds some of the major competitors. The company's also executed a sizable reinsurance transaction to support new business, which is very much a new twist on that business. Why don't we get your perspective on the VA opportunity and why Lincoln has been able to avoid some of the issues that competitors have run into?
I think that obviously I'm not at my peer companies, so I can't say about specifically what's going on there, so I can talk about Lincoln. I think the really big advantage and differentiator at Lincoln, in the variable annuity business is the fact that coming into the financial crisis, we had a hedge program, which was focused on the economics of those products, so that during the crisis, we didn't face the need to build a hedge program because it was already in place, delivering the assets that we needed to continue to deliver on our guarantees. If you think about the annuity business in total, think about it at Lincoln, it's a 70 basis point ROA business. That's about what we earned in 2013. If you think about pre-crisis, the cost of hedging a variable annuity was roughly 50 basis points or so, right?
That number tripled during the crisis. If you were going to build a hedge program during the crisis at costs that were triple what they were before the crisis, you were going to do some significant damage to your returns in that business. I think that, at the end of the day, is the key item that has led Lincoln to report the sort of ROEs that we have in that particular business. The fact that we did not have to go in and buy all of these hedges in the middle of that crisis at very elevated prices. I think that is supported by the fact that there's one other company out there that reports returns similar to Lincoln. That's Ameriprise. They are generally acknowledged as the other company that had a very complete hedge program heading into the crisis.
There's at least two data points that would indicate that was a key item. In terms of the reinsurance deal, we're very proud to get that deal done. I think we were probably the last company to do a big reinsurance deal in the VA guarantee space.
Maybe you want to give just a little background on that as well.
Yeah. Sure, I will. Last time we did it was with Swiss Re, this time it was with Union Hamilton, a sub of Wells Fargo, where we reinsured the guarantee. We're retaining the underlying assets, but we reinsured just the guarantee on up to $4 billion of sales. The contract runs for 15 months, expires at the end of 2014, and we'd expect to use close to the entire capacity. It's a 50% deal on up to $8 billion of sales. $4 billion of reinsurance. Very attractive deal. Why did Union Hamilton do the deal with Lincoln? I think if you'd been watching the industry, you'd seen capital being attracted to the annuity space, and in some cases, the variable annuity space. You'd seen Cigna sell a book of business. You'd seen Sun Life sell their variable annuity business.
Capital was paying attention to the fact that, as we've been saying, this is a very attractive space right now. You can earn very attractive returns selling variable annuities with guarantees these days, in excess of 20%. Capital was seeing that, and that's ultimately Union Hamilton. You'd have to ask them to know exactly what their thought process was. I would imagine that they saw the returns that were available in the space, and they wanted to put some capital to work. Why did they choose Lincoln? I think they chose Lincoln for all the things we talk about. The quality of our product, the consistency of our presence in that space, and the fact that we have a significant amount of relationships spread across a lot of places, including with people at Union Hamilton.
I think those are the reasons that they ended up doing that deal with Lincoln. Very proud of the fact that we got that deal done.
If Lincoln is likely going to complete the $8 billion of sales.
Is there the ability to extend this going forward or establish an additional reinsurance facility?
Yeah, it's a transaction that runs through the end of 2014, and what Union Hamilton or any other reinsurer's appetite is for the marketplace, I think we'll find out over the course of this year. I think, once again, the mere fact that things happen, the mere fact that that particular transaction got done, I'm sure is causing people across the space to at least look at it. The likelihood, I think, of more transactions happening is greater than before the deal got done. I can't say for sure whether or not another transaction will get struck. There were five or six years between when we did the deal with Swiss Re and when we did this particular deal. They've been relatively infrequent, but we'll see.
One was pre-crisis, and one is-
Yeah. One was pre-crisis, and one was post.
Okay. Lincoln is growing probably one of the faster rates in variable annuities right now, especially when you see two of the previously large players.
Essentially throttling back, Met and Pru.
Right.
Why do you feel now is a good time to grow in VAs?
I wouldn't say that Lincoln has had a specific growth strategy to grow our VA sales at a disproportionate rate. What we have done is continued to put a product out there which earns a very attractive return, in excess of 20%, as we've talked about. Is well-designed from a risk standpoint, is fully hedged from a hedge standpoint. We continue to do the same things that we've done over the years. Historically, that has meant that we've run in that five, six Spot from a market share standpoint. Last year, you did have a couple companies make an explicit decision to cut back on sales, I think we naturally got some of those sales.
Right.
I don't think it was part of us going out and designing a more competitive product or putting more wholesalers on the street or anything like that, as much as it was just a couple other companies, for whatever reason, made the decision to cut back, and we naturally got some of those sales.
Okay. Why don't we switch gears to group protection? Results were volatile in the fourth quarter. What improvements still need to be made there?
Our group business is, in total, $2 billion of annual premiums. As we analyze what's going on inside of those results, what we've found is that roughly $1 billion of those premiums, $1 billion of employer-paid premiums, really need to be repriced to get back to fuller expected profitability. Those premiums will reprice, $300 million of them will reprice this year, another $500 million in 2015, with a small tail occurring in 2016. Over the next two and a half years, we'll reprice that $1 billion of premiums to get that business back to the profitability that we expect out of it. The results that are below our expectations were really embedded in that employer-paid business. We continue to have very good results in the employee-paid or voluntary space, which is where our growth focus is.
In terms of where we're focused, I think we're very excited, but we do have this book of business that we need to do some work on.
What products is it within the employer-paid that are?
It's primarily group life and disability.
It's that stuff when you get a job somewhere, they'll provide you with one times your salary in life insurance and some percentage of your salary as disability. That's the employer-paid. Then you'll have, as an employee, the ability to do buy-ups, right? You can buy up. At Lincoln, I can buy up to five times my salary as life insurance, for instance. I can buy some amount of additional disability. That's sort of core voluntary.
Right.
Then you have the work site business, which is your critical illness type business. That's an insurance policy sold on the work site, that sort of stuff. I'd think of it as three separate items. But it's in that first segment, that employer-paid piece, that we've had the tougher results.
How should we think about the profitability target within Group, and how long could it take to get there?
I think there's a couple things. We continue to think over the long term that that business is a 12%-14%, 15% ROE business. That's ultimately where it will be. As I talked, we have this $1 billion of premium we need to reprice before you get back to that full level of profitability. Additionally, as we went over at our last investor conference, we're investing some money in this business. I think about $150 million spread over three, four years, which is going into technology platforms to support the opportunity we see in the voluntary space. It's a different game from an enrollment standpoint, et cetera, the voluntary business than the employer-paid. We've got some work we need to do on the technology side and some investments in the distribution platform because it's a different distribution platform, a different focus distribution person who sells the voluntary product.
We do have these investments which will roll out. You saw them in 2013, you saw some in 2012, and you'll see those for the next two or three years also. You've got these items that'll work against, but ultimately that business is a 12%-14%, 15% ROE business.
In terms of the emergence of that's probably still a couple of years out?
Given what I've talked about in terms of rolling out the repricing of this premium and also the fact that we do have these investments rolling out over the next two, three years, I think that sounds about right.
Yeah. Okay. Can you talk about the competitive environment in Group? With other life companies scaling back on some market-sensitive products, could that level of competition intensify?
It is a competitive business. It's a business that a lot of companies are attracted to for some of the reasons I've talked about. It's a nice, shorter duration business. It's a good complement to the longer duration guarantees we issue in other places, and other insurance companies issue. It's a very attractive business, and so you've heard a number of companies expressing interest. I do think it is a space, though, that can handle some level of additional competition and growth because of the opportunity we see, especially in the voluntary side. Using the workplace as a vehicle to get at the consumer, which is one of the areas we've struggled with as an industry, is how do you get at that more middle market or a little above middle market, that more mass affluent consumer, in a cost-efficient way?
I think the work site is a vehicle for that to happen. I think there are some attractive opportunities, which I think naturally are going to attract some companies. I think, ultimately, it has been a competitive business. It will continue to be a competitive business, but I think it will continue to support the companies are there, and I think you can continue to expect it to be that 12 to 14, 15% sort of business.
Okay. If we look at capital deployment on a broad basis for Lincoln, can you discuss how you think about allocating deployable capital for buybacks, dividend increases, delevering, and maybe even some bolt-on acquisitions?
Yeah. If you look over the last three years, inflows to the holding company, less interest expense, which is the primary expense of the holding company. We've been right around $700 million each and every year. We've had roughly $700 million to put to use. We've skewed that usage towards share buybacks, and a little bit of delevering. There really hasn't been much in the way of M&A, right? It's primarily been share buybacks and a little bit of delevering. Done roughly $1.6 billion of buybacks over those years. As you look forward, I think the durability of that $700 million, there's really no reason to think that we shouldn't be able to put a similar amount to work this year. We have a very strong capital position at the life company. As I mentioned, $8 billion of capital at the life company.
A very high level of risk-based capital. We continue to have good, strong statutory earnings. We have a very strong cash position at the holding company. We had a couple of hundred million of excess cash as a holding company at the end of the year. I think all of the items are in place to indicate that we should be able to continue to put some capital to work in 2014. What I've said, what we've done, is we've raised our shareholder dividend, so it's now at $160 million a year. That leaves roughly $500 million-$550 million, is the number I'm saying we're comfortable doing from a share buyback standpoint in 2014. Which is above the previous guidance. In years past, I've given $400 million as my guidance. We'd beat that every year. I don't think anybody believed me anymore.
We've taken it to $500 million-$550 million.
How about the bolt-on opportunity? You mentioned earlier on saying how you were focused on shifting the business mix somewhat to lower beta type businesses.
Yeah. That's episodic. The deployment of capital into M&A is a more realistic option today than it was if you go back three years, right? If you go back when our stock was trading at 60%, if we were going to look at M&A versus share buyback, it was really sort of a no-brainer. The hurdle rate for M&A was extremely high. I think what the share price recovery does is it means that M&A can be more competitive against what we still think is a very attractive opportunity. I'm doing $500 million-$550 million share buybacks because I think it's an attractive opportunity. It does mean that M&A can be more competitive against that particular option. M&A is episodic, right? It requires opportunity. It's been relatively quiet out there from an M&A standpoint. You haven't seen a whole lot happen. We'll see if anything pops up.
We have a team of people who looks at these things when they do pop up, but it has been pretty quiet lately.
Okay. I did say we would get back to regulation.
You did.
Sorry.
Love regulation.
When Prudential was up here, they mentioned they thought that there's a possibility that all the major life insurers in the U.S., whether non-bank SIFI or non non-bank SIFI, would potentially be subject to those same standards. What's your view on that?
Well, first, let me say that we're not right now in this non-bank SIFI discussion. I'm not very close to the situation. From the outside, I tend to believe that ultimately they will devise a set of capital rules that are structured for an insurance company and not for a bank. That's my belief and my hope. I think that Pru shares that sort of opinion. Ultimately, whether any capital requirements that are imposed on non-bank SIFIs, whether or not they bleed to the rest of the industry, I think the ultimate arbiter of that will be the rating agencies.
The rating agencies have their own capital models. The rating agencies, which I think across the board have the industry at stable, are very comfortable with the capital levels that the typical insurance company holds today. Very happy with Lincoln. We just got upgraded, or not just, but a few months ago, got upgraded by Moody's. We have very good relations with the rating agencies. Ultimately, if they decided to change their models to reflect some different capital standards, that would bleed through to the insurance companies. I haven't heard them indicate that they would do that. They haven't really discussed it, to be fair, but I haven't heard them indicate that they would. I think they're the ultimate arbiter on whether or not any other capital standards spread out to the rest of the industry.
Do you think it'll be an advantage for Lincoln to not be regulated by the Fed?
I don't think of it as an advantage one way or the other. I think whether you have single regulation or dual regulation, I think companies are pretty good in developing reasonable relationships with their regulators. I don't think it'll advantage us one way or the other.
Okay. With regard to other-
I don't know, to be fair. I just don't know.
I don't expect you to know. It's good to get your perspective on it.
Yeah.
On the other regulatory issues, SGUL in New York, review of the captives by NAIC. I think there was just some additional commentary out there by the NAIC on XXX and AXXX. Where do you come out on those?
The captive discussion, there was a report that the NAIC commissioned by a gentleman named Neil Rector. The Rector report that just came out, was it last week or two weeks ago? There was nothing really that I would call surprising in that report. That report called for basically a set of consistent standards to be used across the states with the definitions for what those standards to be will follow, right? I think the devil's in the details with that particular item. We've said in the past, and I continue to believe, ultimately, what the NAIC is hoping for is that they can get a consistent set of standards that are applied across all the states. I believe that the way we have set up our captives, our captives which are capitalized in a way that is consistent with our non-captive entities, right?
We have well-capitalized entities. They use assets that are very long duration, so we use letters of credit to support the non-economic reserves. They're very long-dated letters of credit, consistent with the long-dated nature of the liability. I think those are the sorts of things the NAIC is ultimately looking for. I think that we'll be fine, whatever. Additionally, the discussion on captives is all prospective sort of rules that would be applied going forward, but not rules that would be applied to anything retrospectively. We feel very good about how that discussion will go. There'll be a lot of debate, and I don't think it'll be quick, but I think ultimately we'll reach agreement with the regulatory community, just like we have on most big issues in the past. New York GUL, we put up $90 million in reserves at the end of the year.
We still had very strong statutory results. Nonetheless, we put up $90 million in reserves. We said we'd put up any additional reserves over the next four years, so a total of five years. Ultimately, New York has to decide what the right level is. We think 90 was a reasonable estimate for where it may end up.
Was that for all in or just for the one year?
Just for the one year.
Okay.
One fifth. I think ultimately what or subsequent to us putting up reserves and other companies putting up reserves, I think New York has come out with some favorable language that they do see some redundancy in these reserves.
They'll need to define what they want their reserve formula to be, and what the subsequent reserves will be that will flow out of that formula. I don't think it's a good thing when reserves are set at such a level that products are pulled off the shelf. I think what you've seen in New York is, if you're a consumer and you want to get, and you want to use a Guaranteed Universal Life, for instance, for your estate planning needs, it's a great product for an estate planning purpose. You're going to have a tough time finding a product because many of them have been pulled. I'm on the industry side, I think they've obviously pulled on the chains a little too hard, and that's caused product to be pulled.
I don't think that's good for consumers in the end, I hope they come up with a solution that is more in tune with the economics of the products that allows companies to come back into the state to sell that product.
That makes sense. Okay. Questions from the audience?
I had a question on the $700 million run rate that you mentioned. If you're changing the product mix to lower beta, i.e., life products, which causes stat strain, doesn't that argue for a period of where RBC would decline and your dividend capacity would be reduced?
No, I haven't talked specifically about a $700 million run rate. What I've said over the last three years is we've done $700 million, I think, this year, and I only guide really for one year. I think we can do about a total of $700 million. I don't guide beyond that. If you think about the products we sell, and any reserve strain they have or don't have, in the years past, we've been able to use reserve financings to remove the excess strain caused by certain products like SGUL and term insurance. As the sales of those products come down, so SGUL, for instance, which used to represent 60% of our sales and now represents roughly 18% of our life insurance sales. Those sales come down significantly.
You don't have the same need for doing reserve financing, you're not going to be generating that same capital that you have from reserve financings. You're not going to have the same strain up above the line. Your operating earnings should go up a little. Your reserve financing goes down a little bit, but you should end up at roughly the same place. I don't think that the product mix change will cause a noticeable change in the trajectory of our total statutory capacity.
Okay. I got that. All right. What about in terms of ROE? Does the product mix to a low beta challenge the consolidated ROE target?
Yeah. I don't think so. If you think about what we've said, specifically on sort of the variable annuity guarantee deal we did, the reinsurance deal we did. A product that we are earning in excess of 20% on, we think that that ROE is reduced by 1% to 2% by the fact that we reinsured out the guaranteed component. The riskier component, we reinsured out. You would expect to have a lower ROE sort of economic theory. One to two points off of something that's in excess of 20% is not going to make a material change in our ROE trajectory over a rather extended period of time.
Great. Let's go to the audience response system. All right, we have four questions for Lincoln today. First is-
Do I get to answer them? Let's see.
Yes. We have.
Sure.
Another remote here. For the investors, or IR, if you don't currently own shares in Lincoln, what would cause you to change your mind? Randy, if you have any thoughts after we get the responses, that'd be great. Okay. If people don't own shares, 72% saying higher interest rates. We can't control that one, but we can hope.
Right. The next highest piece coming in, 16% lower valuation. I bet you wouldn't have expected that not too long ago, to have that be a response.
Okay, interesting. All right, next question, please. Next question is: Is now the right time for Lincoln to accelerate variable annuity sales? All right, the response. Almost evenly split.
Mm-hmm. Surprising.
45% saying yes, 48% saying no. My sense is if Lincoln can keep driving over 20% ROE on these products and high teens or so net with the reinsurance, that may skew more positively.
I'm just imagining the questions from you guys when I get on the call and I talk about our plan to accelerate variable annuity sales. You guys would have all sorts of questions for me. That would create some interesting analyst questions.
All right. Next one, please. My confidence that Lincoln can exceed a 12% operating return on equity in 2014. All right. Let's see the responses here.
It's like a game of,
This Is Your Life.
Right, yeah. It's a game, it's a dating game where a number of choices.
All right.
Look at that
We're skewing towards 43% saying high, 39% saying medium. Definitely skewing towards the expectation that Lincoln can exceed a 12% return on equity this year.
I'm going to have to talk to that very low person over there. I wonder what their view of the world is.
All right. Last one for Lincoln, please. Which should Lincoln pursue more of: organic growth, acquisitions, de-levering, buybacks, or raising the dividend? The responses here.
Pretty even.
Pretty evenly split between organic growth, acquisitions, interestingly, de-levering, and buybacks. What do you think about that, Randy?
What I've said on de-levering is that for a number of years, we've had an explicit strategy of allocating capital to de-livering, $100 million a year or so, and we've done that. As you look forward, I feel very comfortable with our leverage position, and I think now it's every time we come up to a debt maturity, it's sort of a discrete decision about whatever the situation is at that point in time, whether we issue more or less of the same. I don't feel the explicit need to de-lever like I have over the last three, four, five years.
In terms of the opportunity to support additional organic growth?
A significant amount of our capital goes into the support of the significant amount of new business we have, which is the franchise. We are going to continue to support that franchise.
Right.
We believe that's the ultimate driver of value for Lincoln.
Excellent. Randy, thanks so much. Please join me in thanking Randy Freitag from Lincoln.
Thank you.
Really appreciate that. Thanks so much. Excellent job.
You bet.
Really appreciate it.
You bet.