Lincoln National Corporation (NYSE:LNC) Q1 2020 Earnings Conference Call - Final Transcript

May 07, 2020 • 10:00 am ET

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Lincoln National Corporation (NYSE:LNC) Q1 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] Our first question comes from Ryan Krueger with KBW. Your line is open.

Analyst
Ryan Krueger

Hey, thanks, good morning. I guess starting with the SGUL potential stat reserve impact, that's a pretty sizable difference the $100 million to $200 million from $750 million. I guess can you go into some more granular detail on why that improved so much at this point?

Executive
Randy Freitag

Yeah, thanks for the question. It's Randy. We came out with that guidance a number of years ago. And at the time, we talked about the fact that it was going to peak and then it would go down over time. That peak when we first came out with this guidance was about 2018, So the actual number has been coming down for a little bit. I'll take the hit for not getting this updated guidance out there a little earlier.

But also when you factor in that 2020 is pretty much locked in because of what the index that really drives this thing has done over the past 9, 10 months you're really now three full years of the end of 2020, when we pass the peak on this. And as I mentioned in my script, you also have the natural unwinding of some of the conservatism that's embedded in statutory reserves. And it's really those two big items what's really drive this big decrease in our expectation for what we see it in a very low rate environment. I hope that helps.

Analyst
Ryan Krueger

Got it. And then when you run the stress test scenarios that you provided, can you give us, I guess, a sense of what type of RBC ratio you think you would maintain in that scenario. And I guess what RBC are you protecting to in an actual tail event?

Executive
Randy Freitag

So, I guess you're asking what is our downside when we run our full stress test, Ryan?

Analyst
Ryan Krueger

That's right and what do you need to kind of maintain for capital targets in that downside?

Executive
Randy Freitag

We mentioned both Dennis and I mentioned, our stress testing has three goals, one of which is to preserve our financial strength, ratings and our business franchise the two of which are maintain the dividend and not have to issue equity. But we gear that whole stress test and run it, and ran it through the different stresses that we use. One of its main goals is maintaining our ratings. So with the stresses we run, offset by the actions that we talked about, we believe that the capital we started and where we started today, as I mentioned, is 446%, that the number we will ultimately go down to is consistent with the AA ratings we operate at today.

Historically, that number has been in the range of 350% -- 325% to 350%.

Analyst
Ryan Krueger

Got it. Thank you.

Operator
Operator

Thank you. And our next question comes from Jimmy Bhullar with J.P. Morgan. Your line is open.

Analyst
Jimmy Bhullar

Hi, good morning. So first just a question on the hedge loss that you