Wilma Burdis: Thank you. Second question on Group. 13% to 16% annual CAGR is a pretty strong target. I know that this is a business that you guys have been trying to improve for a while now from even before you had some issue is Life. So, can you just talk about that and the confidence in that outlook there? Thank you.
Chris Neczypor: Sure. Wilma. And really, this ties into the conversation we’ve been having all year around the change in strategy, the investments that we’re making in the business and the recovery in the margins. So, if you go back a couple of years, really even a year or two, I mean, this was a business that for Lincoln generated a 1% margin, right? And so we’re going to end the year over 5%. So significant work being done over the past five, six quarters to begin to turn the business around, that’s a 400 basis point increase in margins year-over-year. And our peers are north of 10%. So part of that is mix. Part of that is operational improvement. We have a lot of work to do to get back to a margin level that would be on par with some of our peers, but the improvement is already there.
You’re seeing it year-over-year. And there’s a lot of investment that’s gone into the business. There’s been significant action from a strategy perspective. And so if you step back, the growth rates for Group over the next two or three years, basically get you to the target level that we’ve been saying that we’re targeting and have already shown substantial progress. So, I feel pretty good about the growth rates there. There are certainly more wood to chop, so we’re not done. But the investment that’s being made in the business and the success we’ve seen so far gives us some confidence there.
Ellen Cooper: And Wilma, I’ll add a little bit more as it relates to strategy and why we have confidence as well. So — and to Chris’ point, we’re seeing everything as it relates to margin expansion improvement. And we’re also seeing really strong topline growth as well. So, we had year-over-year premiums increased by 5%. And what we are doing as we move forward and we highlighted this really as our strategic realignment as it relates to the Group business is, we have tailored our strategy go forward our profitable growth strategy into three distinct business segments across small business, regional, and national. And just to give you a sense of why we have confidence here. So, when we look last year, for example, at sales, they grew in each of the business segments and the places where we are the most focused, which are the small market and also supplemental health.
So, small market, sales increased by 15%. And in our regional and in our national where we already have large existing books there, what we’re really looking to do is to drive sales through existing customers. And so 42% of our sales were represented there. And supplemental health, which is a big strategy for us and also will drive some of the margin and earnings expansion that you see in the outlook. We had a more than 100% increase there in sales in 2023. So, — and then exactly, as Chris said, we’re continuing to make all the investments that we need to really have a differentiated experience for customers and tailor the overall strategy at these various different employer levels.
Wilma Burdis: Thank you.
Operator: We’ll take our next question from Joel Hurwitz at Dowling Partners.
Joel Hurwitz: Hey good morning. So, you guys mentioned that the 2023 free capital generation was close to $400 million. So, it looks like the pace accelerated in the fourth quarter. Can you just talk about what drove the stronger Q4 capital generation?
Chris Neczypor: Sure, Joe. I would say was tracking relatively close to what we’ve been seeing all year, maybe a little bit of an improvement as you had some tailwinds in the fourth quarter, markets were a little bit higher. And so I don’t think there was anything game changing as it relates to Q4 relative to the first two or three quarters. We did have a couple of credit losses in the first quarter, which would have dragged it down if you’re looking at it quarter-over-quarter. But generally speaking, I don’t think there was anything materially different in fourth quarter other than what you had seen sort of your normal operating income, so market is a little bit higher and so forth.
Joel Hurwitz: Was there any dividend taken from LNBAR again in the fourth quarter?
Chris Neczypor: There was not. We don’t take dividends from LNBAR every quarter, and we took one in the third quarter. That being said, we obviously now have a year of the new VA hedge program, and we feel really good about where we landed at the end of the year.
Joel Hurwitz: Okay. And then just maybe expectations for LNBAR dividends in 2024 now that you’re more comfortable with the hedge program?
Chris Neczypor: Yes. So, what I would say is that we are increasingly comfortable, but it’s only been a year. And so we felt good at the third quarter of 2023, and we’re able to take a dividend out. But if you think about overall in 2023, there was some volatility in markets, but it was relatively supportive overall. Rates were probably the bigger driver overall of reserves and the hedge program. But generally speaking, it was a very supportive backdrop. So, I don’t want to get in front of how we’re thinking about LNBAR for 2024 and 2025. But I would say it should continue to improve, assuming that markets are supportive, and we just want to watch and see it’s only been a year with the new hedge program, and so we’re just trying to be prudent.
Joel Hurwitz: Okay. Thank you.
Operator: We’ll move next to John Barnidge at Piper Sandler.
John Barnidge: Great. Thank you very much. Appreciate the opportunity. Lots of weighting of Group protection distribution to fourth quarter and good sales growth there. Can you maybe talk about the opportunities set for the products and product development pipeline for that business? Thank you.
Ellen Cooper: Sure. So, in the Group Protection business, and again, we are a $5-plus billion premium protection business. And we really have historically been in the group life and in the group disability areas. And as we are looking to overall grow, and I mentioned earlier the business segment specific strategy, we are also looking further increase our overall voluntary business. And you actually can see that year-over-year that our employee contributions continue to increase year-over-year from 2022 to 2023. And additionally, the supplemental health overall benefits as well. And we’ve got three different products there that are very important to our customers and ultimately to their employees. And as I mentioned earlier, we saw a doubling there of the overall sales year-over-year, and we expect that to continue.
The other thing that I will add is that I referenced earlier the small market segment. And what’s important and different about the small market segment is that there were really tailoring holistic offerings there. Smaller employers, as you can imagine, are looking for one-stop shop with overall bundled offerings. So, part of what we’re uniquely able to offer there is yes, differentiated customer service and all the technology and the infrastructure that they need, but also bundling the various different products together. And we believe that that’s part of our value proposition as well.
John Barnidge: Thank you very much. And a follow-up question. With the call out of use of Affiliate reinsurance in a number of times, how should we think also about third-party opportunities within that?
Chris Neczypor: Yes, John, I think what I would say is, as you would expect, we’re looking at all options. Obviously, the Affiliated reinsurance is distinct from, I think, the opportunity that you’re describing. But rest assured, when we think about the next two or three years, we would have all the different strategic opportunities on the table.
John Barnidge: Thank you.
Operator: And that concludes the question-and-answer session. For those left in the queue, we will follow-up with you later this afternoon. I would like to turn the conference over to Tina Madon for closing remarks.
Tina Madon: Thanks Sandra and thanks again to everyone on the call for joining us this morning. We’re happy to take any follow-up questions you have. Please e-mail us at investorrelations@lfg.com. Thank you.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
