Cuộc họp công bố kết quả kinh doanh quý 3/2026 của Lincoln Financial (LNC): Tăng trưởng mảng niên kim và nối lại hoạt động mua lại cổ phiếu

Điểm nhấn chính

• Lincoln Financial công bố lợi nhuận hoạt động điều chỉnh dành cho cổ đông phổ thông trong quý 3/2026 đạt 339 triệu USD, tương đương 1,72 USD trên mỗi cổ phiếu pha loãng. Đợt rà soát giả định thường niên đã làm giảm kết quả kinh doanh 95 triệu USD, tương đương 0,48 USD trên mỗi cổ phiếu.
• Lợi nhuận ròng dành cho cổ đông phổ thông đạt 1,3 tỷ USD, tương đương 6,77 USD trên mỗi cổ phiếu pha loãng, chủ yếu nhờ các biến động thuận lợi từ quyền lợi rủi ro thị trường khi lãi suất tăng.
• Nếu không tính đợt rà soát giả định, lợi nhuận hoạt động điều chỉnh tăng 10% so với cùng kỳ năm trước. Các khoản đầu tư thay thế mang lại tỷ suất sinh lời quy năm 16,5%, đóng góp 55 triệu USD sau thuế vượt mục tiêu 10% của công ty.
• Tổng doanh số niên kim đạt 4,3 tỷ USD, tăng 21% so với quý trước. Các sản phẩm dựa trên chênh lệch lãi suất chiếm 67% tổng doanh số, trong khi doanh số niên kim cố định tăng hơn gấp đôi so với quý 2 lên 1,4 tỷ USD.
• Lincoln đã tái khởi động hoạt động mua lại cổ phiếu phổ thông với 50 triệu USD được mua lại trong quý. Ban lãnh đạo mô tả đây là bước khởi đầu và cho biết lượng mua lại trong quý 4 có thể gấp khoảng hai lần mức của quý 3.
• Tỷ lệ RBC ước tính của Lincoln vẫn duy trì trên mục tiêu 400% cùng biên đệm 20 điểm, trong khi tỷ lệ đòn bẩy của công ty ở mức mục tiêu dài hạn 25%.

Số liệu tài chính quan trọng

Đợt rà soát giả định thường niên đã làm giảm lợi nhuận mảng Niên kim 10 triệu USD, lợi nhuận mảng Bảo hiểm nhân thọ 25 triệu USD, lợi nhuận mảng Bảo hiểm nhóm 31 triệu USD, và lợi nhuận mảng Hoạt động khác 29 triệu USD.

Kết quả kinh doanh và hoạt động

Mảng Niên kim

Mảng Niên kim ghi nhận 304 triệu USD lợi nhuận hoạt động không bao gồm đợt rà soát giả định, tăng 17 triệu USD so với quý trước nhưng giảm 14 triệu USD so với cùng kỳ năm trước. Mức giảm so với cùng kỳ chủ yếu phản ánh thay đổi đã được công bố trước đó trong việc phân loại thu nhập đầu tư từ tài sản thế chấp phòng ngừa rủi ro tín dụng theo chỉ số.

Số dư tài khoản bình quân, sau khi trừ tái bảo hiểm, tăng 6% so với cùng kỳ năm trước lên khoảng 181 tỷ USD. Các sản phẩm dựa trên chênh lệch lãi suất chiếm khoảng 32% số dư cuối kỳ, tăng từ mức 29% của một năm trước đó.

Tổng doanh số niên kim đạt 4,3 tỷ USD, trong đó các sản phẩm dựa trên chênh lệch lãi suất chiếm 67%:

• Doanh số niên kim cố định: 1,4 tỷ USD, tăng hơn gấp đôi so với mức của quý 2.
• Doanh số RILA: 1,5 tỷ USD, gần như đi ngang so với cùng kỳ năm trước.
• Doanh số niên kim biến đổi: 1,4 tỷ USD.
• Niên kim biến đổi không có bảo đảm quyền lợi khi còn sống chiếm hơn một nửa doanh số niên kim biến đổi trong quý thứ hai liên tiếp và tăng 33% so với cùng kỳ năm trước.

Tổng dòng vốn rút ròng từ mảng niên kim vào khoảng 2,7 tỷ USD, chủ yếu từ các hợp đồng niên kim biến đổi truyền thống. Niên kim cố định tạo ra khoảng 725 triệu USD dòng vốn vào ròng, trong khi số dư tài khoản RILA cơ sở tăng 11% so với cùng kỳ năm trước.

Bảo hiểm nhân thọ

Lợi nhuận hoạt động mảng bảo hiểm nhân thọ không bao gồm đợt đánh giá lại giả định đã tăng hơn gấp đôi lên 130 triệu USD, từ mức 54 triệu USD của cùng kỳ năm trước. Mức cải thiện này phản ánh tỷ lệ tử vong thuận lợi, thu nhập từ đầu tư thay thế khả quan hơn và lợi ích từ việc hợp nhất công ty bảo hiểm nội bộ.

Các khoản đầu tư thay thế đã đóng góp 53 triệu USD vượt mục tiêu của công ty trong phân khúc này. Ban lãnh đạo ước tính lợi nhuận chuẩn hóa hàng quý của mảng bảo hiểm nhân thọ vào khoảng 60 triệu USD sau khi điều chỉnh cho tỷ lệ tử vong thuận lợi, thu nhập từ đầu tư thay thế vượt mục tiêu và các khoản mục khác trong quý.

Tổng doanh số mảng bảo hiểm nhân thọ đạt 106 triệu USD, thấp hơn quý cùng kỳ năm trước - thời điểm ghi nhận một số hợp đồng phúc lợi cho ban điều hành quy mô lớn. Doanh số bảo hiểm nhân thọ cốt lõi không tính phúc lợi cho ban điều hành đã tăng 3%, dẫn đầu là dòng sản phẩm bảo hiểm liên kết chung theo chỉ số (Indexed Universal Life).

Bảo vệ nhóm

Lợi nhuận hoạt động mảng bảo vệ nhóm không bao gồm đợt đánh giá lại giả định đạt 77 triệu USD, giảm so với mức 110 triệu USD trong quý cùng kỳ năm trước. Biên lợi nhuận hoạt động đã giảm 260 điểm cơ bản xuống 5,5%.

Tỷ lệ tổn thất bảo hiểm thương tật tăng 670 điểm cơ bản lên 83,4%. Ban lãnh đạo cho rằng khoảng một nửa mức tăng này xuất phát từ mức độ nghiêm trọng của yêu cầu bồi thường gia tăng liên quan đến một số lượng tương đối nhỏ các yêu cầu bồi thường có giá trị cao hơn. Phần còn lại chủ yếu phản ánh sự bình thường hóa từ các mức tỷ lệ phát sinh thương tật thuận lợi trong lịch sử.

Doanh thu phí bảo hiểm tăng 3% so với cùng kỳ năm trước. Doanh thu phí bảo hiểm tại thị trường địa phương tăng 5%, trong khi phí bảo hiểm y tế bổ sung tăng hơn 30% và chiếm 7% phí bảo hiểm có hiệu lực, tăng từ mức 5%. Doanh số đạt 72 triệu USD.

Dịch vụ Kế hoạch Hưu trí

Lợi nhuận hoạt động của mảng Dịch vụ Kế hoạch Hưu trí tăng lên 55 triệu USD, từ mức 46 triệu USD của cùng kỳ năm trước, phản ánh mức chênh lệch lợi suất mở rộng và thị trường chứng khoán tăng điểm, nhưng bị bù trừ một phần bởi chi phí cao hơn. Kết quả kinh doanh bao gồm khoản lợi ích quản lý không thường xuyên khoảng 3 triệu USD.

Số dư tài khoản bình quân tăng 9% lên 130 tỷ USD, trong khi số dư cuối kỳ tăng 4% lên 128 tỷ USD. Mức chênh lệch lợi suất cơ sở mở rộng 17 điểm cơ bản lên 124 điểm cơ bản.

Doanh số năm đầu đạt 749 triệu USD, và dòng vốn rút ròng hàng quý vào khoảng 1,9 tỷ USD. Lincoln đang tái cơ cấu hoạt động kinh doanh xoay quanh ba phân khúc thị trường, tối ưu hóa mạng lưới phân phối, mở rộng các cơ hội doanh thu trong tệp khách hàng hiện hữu và hiện đại hóa các hoạt động công nghệ và dịch vụ.

Định hướng của Ban lãnh đạo

• Bảo hiểm niên kim: Ban lãnh đạo dự kiến lợi nhuận quý 4 sẽ tương đối đi ngang so với quý trước, không bao gồm đợt rà soát giả định trong quý 3. Thu nhập từ chênh lệch lợi suất cao hơn dự kiến sẽ bị bù trừ bởi thu nhập phí giảm, khấu hao DAC cao hơn và chi phí tăng theo mùa vụ.
• Bảo hiểm nhân thọ: Giao dịch với Talcott và những thay đổi liên quan trong định nghĩa lợi nhuận hoạt động điều chỉnh dự kiến sẽ làm tăng lợi nhuận hoạt động mảng Bảo hiểm nhân thọ quý 4 thêm khoảng 12 triệu đến 17 triệu USD.
• Bảo hiểm nhóm: Ban lãnh đạo kỳ vọng kết quả sẽ cải thiện so với quý trước khi mức độ nghiêm trọng của các yêu cầu bồi thường bảo hiểm thương tật giảm bớt. Biên lợi nhuận cả năm dự kiến sẽ đạt ở mức hoặc thấp hơn một chút so với 8%, mức cận dưới của biên độ 8%–9% trước đó.
• Dịch vụ Kế hoạch Hưu trí: Lợi nhuận hoạt động quý 4 dự kiến sẽ tương đương với cùng kỳ năm trước. Công ty ước tính khoảng 3 tỷ USD dòng vốn rút ròng trong quý 4, chủ yếu do việc chấm dứt một kế hoạch hưu trí lớn, và dòng vốn dự kiến vẫn sẽ biến động không đồng đều trong năm 2027.
• Đầu tư thay thế: Hiệu quả đầu tư trong quý 4 dự kiến sẽ tương đương hoặc thấp hơn một chút so với mục tiêu lợi nhuận dài hạn của công ty.
• Chi phí: Chi phí quản lý doanh nghiệp (G&A) dự kiến sẽ tăng so với quý trước trong quý 4 do tính mùa vụ thông thường.
• Hoàn trả vốn cho cổ đông: Ban lãnh đạo dự kiến dư địa mua lại cổ phiếu sẽ lớn hơn trong quý 4 sau khi hoàn tất việc tích lũy tiền mặt tại công ty mẹ cho đợt mua lại lượng cổ phiếu ưu đãi còn lại. Các mục tiêu chi tiết hơn cho năm 2027 sẽ được công bố cùng với kết quả kinh doanh quý 4.

Rủi ro và các điểm cần theo dõi

• Tỷ lệ phát sinh mất khả năng lao động đã bình thường hóa từ các mức thuận lợi trong lịch sử, và ban lãnh đạo cho rằng sự thay đổi này mang tính dài hạn hơn so với biến động về mức độ nghiêm trọng trong quý.
• Dòng tiền rút ra khỏi sản phẩm niên kim biến đổi truyền thống vẫn tiếp diễn, góp phần khiến tổng dòng tiền rút ròng của mảng niên kim lên tới 2,7 tỷ USD.
• Mảng Dịch vụ Kế hoạch Hưu trí (Retirement Plan Services) đối mặt với doanh số và dòng tiền không đồng đều trong quá trình tái cơ cấu chiến lược, bao gồm dòng tiền rút ra dự kiến 3 tỷ USD trong quý 4.
• Biên lợi nhuận năm 2026 của mảng Bảo vệ Nhóm (Group Protection) hiện được dự báo sẽ ở mức hoặc thấp hơn đôi chút so với cận dưới của phạm vi trước đó.
• Cạnh tranh trong mảng niên kim đang ngày càng gia tăng. Ban lãnh đạo cho biết sẽ tiếp tục ưu tiên khả năng sinh lời và tỷ suất sinh lời yêu cầu hơn là doanh số.
• Tỷ lệ tử vong thuận lợi gần đây của mảng Bảo hiểm Nhân thọ không được tính là lợi ích duy trì liên tục trong đánh giá của ban lãnh đạo về năng lực tạo lợi nhuận cốt lõi.

Điểm nhấn phiên hỏi đáp với chuyên gia phân tích

Ban lãnh đạo cho biết trong quý 3, khoản 50 triệu USD mua lại cổ phiếu là bước khởi đầu. Với việc hoàn tất huy động vốn bằng cổ phiếu ưu đãi và dòng tiền chuyển về từ công ty con đang hướng tới cận trên của phạm vi cả năm, mức mua lại xấp xỉ gấp đôi quý 3 được xem là cơ sở hợp lý cho quý 4 và tốc độ duy trì khi bước sang năm 2027.

Đối với mảng Bảo vệ Nhóm, ban lãnh đạo đã phân biệt giữa biến động về mức độ nghiêm trọng và sự bình thường hóa tỷ lệ phát sinh khiếu nại. Mức độ nghiêm trọng của yêu cầu bồi thường đã bắt đầu hạ nhiệt vào cuối quý 3 và đầu quý 4. Tuy nhiên, công ty không kỳ vọng tỷ lệ phát sinh mất khả năng lao động sẽ quay trở lại các mức thuận lợi bất thường của những năm gần đây.

Ban lãnh đạo cho biết sự gia tăng tỷ lệ phát sinh mất khả năng lao động diễn ra trên diện rộng chứ không tập trung vào sức khỏe hành vi hay một danh mục bồi thường cụ thể nào khác. Các biện pháp điều chỉnh giá và đà tăng trưởng liên tục của các sản phẩm bảo hiểm sức khỏe bổ sung cũng như tại các thị trường địa phương được kỳ vọng sẽ giúp bù đắp quá trình bình thường hóa tỷ lệ phát sinh này theo thời gian.

Trong mảng niên kim, Lincoln thừa nhận cạnh tranh ngày càng gay gắt nhưng nhấn mạnh vào quy mô mạng lưới phân phối, chiến lược ghi nhận lãi suất khác biệt và sự đa dạng của sản phẩm. Công ty tuyên bố sẽ không bán các sản phẩm không đáp ứng được yêu cầu về tỷ suất sinh lời.

Đối với mảng Dịch vụ Kế hoạch Hưu trí, ban lãnh đạo không dự kiến phát sinh chi phí tái cơ cấu trọng yếu nào ngoài những khoản đã thông báo trước đó. Chiến lược này bao gồm tối ưu hóa mạng lưới phân phối, thu phí đối với một số dịch vụ hiện hữu, hiện đại hóa công nghệ và mở rộng các kế hoạch hưu trí gộp cho nhiều người sử dụng lao động (pooled employer plans).

Toàn văn cuộc gọi công bố kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Thank you for standing by, and welcome to the Lincoln Financial Third Quarter 2026 Earnings Webcast and Conference Call. [Operator Instructions]

I would like to now turn the call over to John Muething, Head of Investor Relations. You may begin.

John Muething

Thank you. Good morning, everyone, and welcome to our third quarter earnings call. We appreciate your interest in Lincoln. Our quarterly earnings press release, earnings supplement and statistical supplement can all be found on the Investor Relations page of our website. www.lincolnfinancial.com.

These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations and adjusted income from operations available to common stockholders or adjusted operating income to their most comparable GAAP measures. Before we begin, I want to remind you that any statements made during today's call regarding expectations, future actions, trends in our businesses, prospective services or products, future performance or financial results, including those relating to deposits, expenses, income from operations, free cash flow or free cash flow conversion ratios, share repurchases, 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 our actual results to differ materially from our current expectations. These risks and uncertainties include those described in the cautionary statement disclosures in our earnings release issued earlier this morning as well as those detailed in our 2025 annual report on Form 10-K, most recent quarterly reports on Form 10-Q and from time to time in our other filings with the SEC.

These forward-looking statements are made only as of today, and we undertake no obligation to correct or update any of them to reflect events or circumstances that occur after today. In addition, please note that the reporting of risk-based capital, or RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.

Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Adam Cohen, Interim Chief Financial Officer. After their prepared remarks, we'll address your questions. Let me now turn the call over to Ellen. Ellen?

Ellen Cooper

Thank you, John, and good morning, everyone. We appreciate you joining us today. This was a solid quarter and an important one for Lincoln. In early 2024, we laid out a 3-year outlook and longer-term objectives to guide the next stage of the transformation.

This quarter, we substantially achieved the financial targets in that outlook, and we are now preparing for the next phase of our strategy, our continuation toward the longer-term objectives. For the quarter itself, adjusted operating income, excluding the impact of our annual assumption review, increased 10% year-over-year, supported in part by very strong alternative investment returns. Underneath that, the quarter demonstrated what a diversified franchise is built to do.

Growth in life insurance and retirement plan services offset lower earnings in Group Protection, and the sources of our earnings are broader than they were a year ago. Joining me this morning is Adam Cohen, our Interim Chief Financial Officer. Adam has been integrally involved in our financial transformation over the past several years, including our work to strengthen the balance sheet and capital position, and he has stepped into the role with confidence and credibility.

He will take you through the quarter in detail. Turning back to our transformation. We began a multiyear journey to rebuild Lincoln's financial strength establishing the strategic priorities that would underpin the 3-year outlook we introduced in early 2024. We have remained disciplined in executing against that plan and this quarter marked the completion of several additional major milestones. On October 1, we closed the Talcott transaction. Together with the Fortitude Retransaction, Roughly 60% of our guaranteed universal life reserves have now been transferred to reinsurance partners, another step in reshaping our liability mix and reducing the risk in this legacy block.

As we said earlier this year, addressing the preferred stock was one of the last remaining steps before returning additional capital to shareholders. This quarter, we retired more than 40% of the preferred through tender offers and fully funded the remainder, about a year ahead of the first call date. With those steps complete, we were in a position to resume share repurchases this quarter.

When we laid out our 3-year outlook, we established a road map of strategic objectives to fortify our capital foundation, including derisking the balance sheet, optimize our operating model and drive profitable growth across our businesses to support more durable earnings and free cash flow. We have delivered on the large majority of the commitments in the 3-year outlook, many of them ahead of schedule, and the quality and sustainability of our earnings and free cash flow have improved as a result.

Overall, we are pleased with the progress, but we are not done. Our longer-term objectives are still ahead of us and there is more opportunity and work to do within each of our businesses, and that is the next space. As we enter that phase, what is different from where we started is the foundation beneath us, a track record of execution, momentum across the enterprise and the financial flexibility to invest in our businesses and return capital at the same time.

The benefits of that stronger foundation are starting to show in each of our businesses, though at different stages. Some of the actions we have taken are still early and we'll build from here, and we are confident in the direction of all 4. In Annuities, our spread-based platform is scaling. We now retain all of our fixed annuity sales and the account balances we have built over the past year are only beginning to contribute to earnings.

In life insurance, the rebuild of the business is taking hold faster than we expected and the new policies we have been writing have yet to become a meaningful contributor to earnings. In Group Protection, even in a year of moderating margins, we have ample room to grow over time as we bring our capabilities to the fastest-growing segments and products. In retirement plan services, the strategic realignment is underway and the business is being repositioned for more profitable growth over time. Across Lincoln, the strategic investments we have made to attract and retain customers and the efficiencies we have built into our operating model support that progress as well, and there is more opportunity ahead.

Our priorities remain consistent with the strategy we have pursued over the last several years now from a stronger position. We will continue to optimize our business and risk profile, shifting our mix towards steadier, less market-sensitive earnings.

We will accelerate profitable growth where we can compete beyond price and earn attractive returns, drawing on the depth of our distribution relationships, the breadth of our product suite and our differentiated capabilities. We will continue to transform our operating model. The expense actions we have taken over the past 3 years have supported our efficiency, and we see additional room to lower our cost base.

Technology and AI are central to that opportunity, and they also enable our employees to do their best work, deliver a more connected and integrated experience for the customers and partners we serve and bring new products and services to market faster. We are also optimizing our investment strategy for better risk-adjusted returns and leveraging our Bermuda affiliate to enhance capital efficiency.

We will continue to strengthen free cash flow generation and capital return. Free cash flow has improved steadily as we have reshaped the business, reduced legacy risk and lowered our leverage and financing costs. And we expect to continue deploying excess capital through share repurchases while also investing in our businesses. Across all of our capital decisions, the objective is sustainable long-term value for our shareholders.

As we look ahead, we will be deliberate in how we sequence these priorities, balancing growth, profitability and capital return. We have made substantial progress against the commitments we laid out in our 3-year outlook, and we are excited to step into the next chapter with the same discipline. We will provide more specifics on how we intend to build on what we have accomplished as part of our 2027 outlook on our fourth quarter call.

Looking at the quarter by business, our results reflected the benefit of a more diversified earnings mix. Life earnings more than doubled supported by favorable mortality and higher alternative investment returns. RPS earnings grew unfavorable equity markets and spread expansion. In annuities, earnings were modestly lower than a year ago, driven by the previously disclosed reallocation of investment income, while sales rose sharply from the second quarter, led by fixed annuities.

Group Protection fell short of our expectations driven by volatility in claim severity and the continued moderation of disability results, although the underlying fundamentals of the business remain strong. I will now take a few minutes to discuss each of our businesses in more detail, starting with annuities. As a holistic annuity provider, our competitive advantage lies in the breadth of our product portfolio and the depth of our distribution relationships.

We offer a full suite of solutions across RILA, fixed and variable annuities with and without living benefits, allowing us to meet customer needs in a wide range of market environments. Our strategy is to continue to build a more diversified mix within this business and in particular, to grow spread-based earnings with more stable cash flows. Total annuity sales were $4.3 billion, up 21% sequentially and spread-based products represented 67% of those sales. Within this business, fixed annuities are our biggest growth opportunity and sales more than doubled sequentially to $1.4 billion with fixed indexed annuity sales, up 29% year-over-year. That performance is supported by the capabilities we have built over the last several years.

We have retained the full economics of this business for about a year now, expanded our investment sourcing and continue to compete beyond price through differentiated crediting strategies and select distribution platforms. We expect the momentum in fixed annuity sales to carry into the fourth quarter. Rylo remains an important product category for us. Sales of $1.5 billion were relatively flat year-over-year consistent with our expectation that 2026 sales would be broadly in line with the average of the past several years.

In a competitive market, we distinguish ourselves in part through unique product features, while prioritizing profitability over volume. Variable annuities continued to be a strong contributor to our free cash flow and meet an important need for our customers. Sales were $1.4 billion in the quarter, in line with the expectation we set at the beginning of the year that volumes would return to pre-2025 levels.

Within that, variable annuities without living benefit guarantees made up more than half of sales for the second consecutive quarter, up 33% year-over-year. Across the portfolio, we are intentional about how we grow. As our spread-based businesses scale, we expect them to contribute an increasing share of earnings and free cash flow, supporting a more balanced and predictable earnings profile.

Now turning to Life Insurance, where we are rebuilding the earnings profile of the business. We have improved the performance of the in-force through the reinsurance transactions I described earlier and other actions including the consolidation of our captives last year and ongoing in-force management while shifting new business toward accumulation and limited guaranteed products with more predictable cash flows.

Alongside that, our investments in product, underwriting, technology and distribution are strengthening our competitive position with the financial professionals and producers who sell our products. Total life sales were $106 million, down compared with the prior year quarter that included several large executive benefits cases. As we have noted previously, that segment sales vary with the timing and size of individual cases.

Core life sales, which exclude executive benefits, grew 3% year-over-year, led by Indexed Universal Life. Overall, Life is moving in the direction we intended. The actions across the in-force and the mix shift of new business we are writing have put this business on considerably stronger footing and they reinforce our confidence in the contribution Life will make to Lincoln over time.

Turning to Group Protection. Our targeted segment strategy continues to shape how we compete across the local, regional and national markets. We tailor distribution, underwriting, technology and service to the distinct needs of each segment, and we maintain pricing discipline on new business and renewals. We are deepening our presence in the local market and in supplemental health, the fastest-growing parts of the business and those with the most attractive long-term returns.

That strategy is visible in the premium mix. Premiums grew 3% year-over-year with local market premium up 5%. Supplemental health premium grew more than 30% and now represents 7% of in-force premium, up from 5% a year ago. Sales of $72 million were lower compared with the prior year quarter that included large case wins, and we are holding to our return requirements in a competitive market. We are also modernizing our claims platform and expanding the use of AI and automation to improve efficiency and experience for the employers, brokers and employees we serve. The business is operating from a far stronger position than a few years ago and represents a larger share of Lincoln's earnings, and we remain confident in our ability to grow Group Protection's contribution over time.

Now turning to Retirement Plan Services, where we are in the early stages of a strategic realignment, applying a playbook we have run successfully in Group Protection. We have organized the business around 3 market segments and are increasingly focusing on the fastest-growing higher return segments.

As part of that work, we are refreshing our value proposition, optimizing our distribution model to better serve customers, expanding revenue opportunities within our existing client base and modernizing our service model and technology. First year sales were $749 million, meaningfully down compared to the prior year quarter that included significant mid- to large market activity and sales will remain uneven as the new model takes hold. While the realignment remains at an early stage, the actions we are taking are designed to strengthen the underlying economics of the business and to make the contribution of retirement plan services to Lincoln more durable over the long term.

In closing, we set out several years ago to rebuild Lincoln's financial strength. And this quarter, we largely completed the 3-year outlook we laid out at that time. We are a more diversified company today with an improved business mix, a stronger capital position and less legacy risk on the balance sheet, reflecting the progress we've made in our enterprise transformation and positioning us to drive further profitable growth across our businesses.

I am proud of what our employees and leaders have accomplished and grateful to the 17 million customers who place their trust in us every day. At the same time, make no mistake, the work ahead is substantial and so is the opportunity. We will keep executing with the same rigor that brought us here, and we look forward to updating you on the next phase and the path toward our longer-term objectives when we report our fourth quarter results. With that, let me turn the call over to Adam. Adam?

Adam Cohen

Thank you, Ellen, and good morning, everyone. Our third quarter results reflect continued progress in strengthening our financial position and improving the earnings profile of our businesses. We saw solid contributions across much of the company, supported by improved investment returns favorable mortality experience and the benefits of actions we've taken over the past several years.

At the same time, results varied across our businesses this quarter and I'll spend some time discussing the key drivers of that performance. and our expectations as we look towards year-end. I'll also cover the outcome of our annual assumption review, along with updates on expenses, our investment portfolio and capital. Let's begin with a recap of the quarter. This morning, we reported third quarter adjusted operating income available to common stockholders of $339 million or $1.72 per diluted share. This includes the impact of our annual assumption review, which reduced adjusted operating income by $95 million or $0.48 per diluted share.

Our alternative investments portfolio delivered an annualized return of 16.5% in the quarter, above our 10% annualized target representing $55 million of after-tax of above-target income from that portfolio. Turning to net income. We reported net income available to common stockholders of $1.3 billion or $6.77 per diluted share. The difference from adjusted operating income was driven primarily by the change in market risk benefits which was favorable, given higher interest rates, along with the change in the fair value of the embedded derivative related to our Fortitude Re transaction.

Our hedge program, which explicitly targets capital continued to perform in line with our expectations, reflecting the consistent execution of the program throughout the year, we were able to take a $100 million distribution from Lin bar this quarter building on the $50 million distributions taken in each of the third quarters of 2024 and 2025. Before turning to our segment results, I want to briefly touch on our annual assumption review.

As I noted earlier, the review reduced adjusted operating income by $95 million after tax. The review was comprehensive reflects our disciplined process and we remain confident in our updated assumptions. I'll now discuss the breakdown of that total impact by business. Annuities earnings were lowered by $10 million, primarily reflecting updates to policyholder behavior for our variable annuity and Rylo businesses.

Life earnings were lowered by $25 million primarily driven by updates to policyholder behavior assumptions on our term business. Importantly, GUL policyholder behavior experience continues to be aligned with our expectations and assumptions. Group Protection earnings were reduced by $31 million this quarter, driven mainly by updated assumptions in our long-term disability line, reflecting a moderation in the favorable trends we have seen over the past few years.

Other operations earnings were reduced by $29 million, reflecting longer expected claim durations on a closed individual disability block. Turning to segment results, starting with Annuities. Excluding the impacts of the annual assumption review, Annuities reported operating income of $304 million and a return on average account balances or ROA of 67 basis points. Operating income was up $17 million sequentially. The improvement was driven by higher spread income and additional fee day and lower expenses partially offset by continued variable annuity outflows.

On a year-over-year basis, the $14 million decline primarily reflected the change in classification of net investment income on our index credit hedging collateral to nonoperating income that took effect at the beginning of the year, which represented about $12 million in the prior year results. Average account balances, net of reinsurance were approximately $181 billion, up 6% from a year ago.

Spread-based products accounted for approximately 32% of ending account balances compared with 29% a year ago, demonstrating the continuation of the mix shift in this business towards more stable earnings over time.

Turning to flows. Total net outflows were approximately $2.7 billion, driven by traditional variable annuities, consistent with the pace of recent quarters. Fixed annuities generated net inflows of approximately $725 million and to provide additional insight into underlying account balance trends, this quarter, we added a new disclosure to our statistical supplement that separately identifies the market-linked adjustment component of RILA account balances. This provides greater transparency into underlying account balance growth and the profitability of our RILA business.

On this basis, underlying RILA account balances grew again this quarter, up 11% from a year ago. As we continue to expand our spread-based businesses, we expect spread earnings to grow over time with further growth in the fourth quarter. Partially offsetting the improvement is lower expected fee income driven by market impacts on account balances, higher DAC amortization reflecting the updated assumptions from this year's annual assumption review as well as higher expenses driven by the typical seasonal increase in the fourth quarter.

Taken together, we expect Annuities earnings in the fourth quarter to be relatively flat to the third quarter, excluding the third quarter annual assumption review impact. Looking beyond the fourth quarter, we expect the continued growth in spread-based balances and higher portfolio yields to support earnings growth over time.

Turning to life insurance. Excluding the impacts of the annual assumption review, Life reported operating income of $130 million compared with $54 million in the prior year quarter. The year-over-year improvement was driven primarily by stronger alternative investment income and more favorable mortality experience, along with the continued benefit of our captive consolidation. Mortality was again favorable this quarter consistent with the experience we've seen over the past several quarters and the broader improvement in U.S. mortality trends.

Favorable experience was driven primarily by lower claim incidents with claims severity broadly in line with expectations. Alternative investments also contributed $53 million above our 10% annualized return target in the quarter. I want to spend a little time putting Life's earnings performance into perspective, particularly relative to the outlook we first shared on our fourth quarter 2023 earnings call.

We've made meaningful progress in strengthening the earnings profile of this business, and I think it's helpful to distinguish that progress from some of the favorability we've experienced over the past year. Starting with the third quarter, after adjusting for favorable mortality experience, above-target alternative investment returns and other quarterly items, earnings were approximately $60 million. This provides a useful reference point as we look forward to the fourth quarter.

Taking a broader view, over the past 4 quarters, Life has generated $305 million of operating income, excluding the annual assumption review. That includes approximately $100 million of favorable mortality experience and $47 million of alternative investment income above our 10% annualized return target. Excluding those 2 items, Life generated approximately $158 million over the past year. This represents meaningful progress from where we started in 2023.

It reflects the actions we've taken to improve our in-force block and operating model, including captive consolidation and expense reductions as well as the emerging earnings from new business, which we expect to come through over time. Separately, to help investors model the business going forward, we've provided additional detail in our investor supplement on the estimated earnings impacts following the closing of the Talcott reinsurance transaction including the related refinement to our definition of adjusted operating income.

Together, we expect these changes to increase life operating income by approximately $12 million to $17 million in the fourth quarter. The progress we've made since 2023 is increasingly evident in Life's earnings performance, and we believe the business is on considerably stronger footing today. We expect further improvement over time as the benefits of our in-force actions continue and earnings from new business build.

Now turning to group. Excluding the impact of the annual assumption Group Protection operating earnings were $77 million compared with $110 million in the prior year record third quarter, and the margin for the quarter was 5.5%, down 260 basis points year-over-year. The main driver of our result was an increase in our disability loss ratio, which rose 670 basis points year-over-year to 83.4% excluding the impacts of the annual assumption review.

This increase reflected elevated severity in our disability experience and a continuation of incidence moderation from the record favorable levels in the prior year. This was partially offset by continued favorability in group life. Turning to the drivers within disability, I'll start with severity, which was the more significant headwind this quarter, accounting for roughly half of the increase in the disability loss ratio. Both LTD and STD were impacted by higher reserves on a relatively small subset of new claims with a greater mix of claims from higher salaried employees amplifying the overall impact.

We view this as volatility and expect severity to moderate towards more typical levels going forward. On incidents, which accounted for much of the remaining increase in the loss ratio, we experienced continued moderation from the favorable LTD incidence levels seen in recent years. As we messaged in the past, this is something we expected to eventually occur and we now believe the outsized benefit from this favorable experience is largely behind us.

Turning to Group Life. Excluding the assumption review, results continue to be favorable with a loss ratio of 64.2% compared with 65.3% in the third quarter of 2025. While quarterly fluctuations in mortality outcomes are expected, this reflects the actions we have executed in this business, coupled with broader mortality trends we have experienced in recent quarters.

Looking to the fourth quarter, we expect earnings to improve sequentially as the severity experienced in our third quarter disability results moderates. That said, we expect results to remain pressured year-over-year as we do not anticipate a repeat of the particularly favorable experience in the prior year quarter. With that framing in mind, we now expect to finish the year at or modestly below the low end of the 8% to 9% margin range we shared earlier this year.

Despite the pressure this quarter, group has delivered an 8% margin through the first 3 quarters, and we remain confident in the underlying fundamentals of the business. We expect to continue to grow the earnings of this business as we expand in attractive market segments and maintain our focus on pricing discipline.

Lastly, touching on retirement plan services, which delivered operating income of $55 million, up from $46 million in the prior year quarter. There were no impacts from the annual assumption review. The increase reflects spread expansion in higher equity markets, partially offset by higher expenses. Results this quarter also included a onetime benefit of approximately $3 million from an administrative item, which we do not expect to recur.

Base spreads were 124 basis points up 17 basis points from the prior year quarter. Average account balances grew 9% year-over-year to $130 billion, supported by equity market performance. Ending account balances were $128 billion, up 4% from a year ago. Ending balances were approximately $2 billion below the quarter's average, which is a small headwind as we enter the fourth quarter.

Turning to flows. We experienced net outflows of approximately $1.9 billion in the quarter, with first year sales also lower than a particularly strong prior year quarter. Looking ahead, we expect approximately $3 billion of net outflows in the fourth quarter, primarily driven by 1 large plan termination. As we progress through the early stages of our strategic realignment, we expect flows to remain uneven in 2027.

While this transition will take time, we expect to maintain and grow the underlying earnings power of the business as we execute, supporting more profitable growth over the long term. In the near term, we expect fourth quarter earnings to be in line with the prior year quarter, with the sequential decline reflecting the absence of the onetime benefit and the typical seasonal increase in expenses.

Turning to expenses. Third quarter G&A expenses, net of amounts capitalized, were $582 million, up approximately 2% year-over-year and down approximately 4% from the second quarter. As we look to the fourth quarter, we expect G&A expenses to increase sequentially, reflecting normal seasonal patterns. More broadly, expense efficiency remains a strategic priority, and we will continue to take a rigorous and disciplined approach to managing our expense base.

Turning to investments. Our portfolio remains high quality and well diversified. 97% of the portfolio is rated investment grade, with below investment-grade holdings near historic lows and ratings migrations remained modest in the quarter. Consistent with our ongoing general account optimization efforts, we continue to see opportunities to enhance investment income through new money deployment, active management of the existing portfolio and continued asset liability management, including the potential to reinvest proceeds from lower-yielding assets at higher rates.

Our ability to pursue these opportunities is supported by a disciplined risk management framework. Our strategic asset allocation is aligned with the liabilities we support with established limits across asset classes, credit ratings, industries and individual issuers. We monitor exposures closely, maintain rigorous underwriting standards and regularly stress test the portfolio across a range of economic scenarios including the potential impact on capital.

This framework allows us to pursue opportunities that improve risk-adjusted yield and diversification while maintaining the quality and resilience of the portfolio. On alternatives, looking ahead to the fourth quarter, we expect our broad-based, well-diversified alternatives portfolio to be in line with or modestly below our target. As always, we remain confident in the portfolio's ability to meet our long-term return target.

Lastly, turning to capital, where we made meaningful progress on our priorities during the quarter, including the resumption of share repurchases. Our estimated RBC ratio remains well in excess of both our 400% target and additional 20-point buffer and our leverage is at our 25% long-term target. We repurchased $50 million of common stock in the quarter, marking an important step as we shift more of our capital deployment towards returning capital to shareholders.

This is a starting point. And given our capital position and free cash flow generation, we are well positioned to build on that activity in the fourth quarter. We also completed tender offers for our preferred stock retiring $437 million or over 40% of the outstanding balance ahead of its 2027 call date.

We used the proceeds from our subordinated debt issuance earlier this year to fund the tender offers, replacing higher cost preferred stock with lower cost, tax deductible debt. This transaction reduces financing costs and supports holding company free cash flow. Holding company available liquidity, net of prefunding, increased approximately $100 million sequentially to $1 billion even after share repurchases, that was supported by $410 million of subsidiary remittances in the quarter, including $100 million from Lin bar, bringing year-to-date remittances to $990 million and tracking towards the high end of our full year expectations.

Importantly, we've now completed building cash at the holding company, earmarked for the redemption of the $563 million of remaining preferred stock on top of the $500 million of cash we target as a liquidity buffer.

Building that liquidity has been a significant use of our remittances this year and with that build now behind us, we expect to have greater capacity to return capital to shareholders.

In closing, our third quarter results reflect continued progress in strengthening our financial position and improving the earnings profile of our businesses. We remain focused on building on that momentum as we finish the year and are confident in the opportunities to further improve our underlying earnings performance as we move into 2027. We look forward to providing more detail on our outlook when we report fourth quarter results. With that, Ellen and I would be happy to take your questions.

Operator

[Operator Instructions]

Your first question today comes from the line of Wes Carmichael from Wells Fargo.

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Wesley Carmichael

Just had the first one on capital. So it's good to see $50 million of repurchases in the quarter. And I don't want to front run your 2027 outlook next quarter, but could you just talk generally about capital flexibility from here, if you think that level of repurchases should accelerate into 2027? Just any help on magnitude would be great since I think it's one of the bigger open questions on investors' minds?

Ellen Cooper

And I'm going to start, and then I'll hand it over to Adam to take you through some of the numbers. So first of all, exactly as you said, we are really pleased to be returning capital to shareholders via buybacks. $50 million in the third quarter, we view as a starting point. And with the preferred funding, and so therefore, no longer do we have to build holdco cash, we have the capacity to do more in the fourth quarter than we did in the third. And we're going to carry that posture into 2027. We'll obviously size it and give you more in our outlook in February. But importantly, also, we are going to keep investing in the businesses exactly as we have been alongside it. And I'm going to hand it over to Adam to provide a little bit more color.

Adam Cohen

Thanks, Ellen. And last, I agree with the common upfront, it's great to start with $50 million that is the starting point, and that gives us room to grow from there into Q4 and beyond. So I can start with just some general holdco math that I think should help you think about the pattern here.

And then like you said, we'll get into more specificity in the fourth quarter. just from a balance sheet standpoint, we continue to be well in excess of the RBC target and our stated buffer levels and leverage is at the 25% long-term target. The important thing is we're seeing free cash flow convert into strong subsidiary remittances.

This quarter, we brought up $410 million to the Holdco. That included $100 million from Linbar, so that takes us to $990 million of remittances from subsidiaries through the first 9 months. So that has us tracking towards the high end of our $1.2 billion to $1.3 billion remittance outlook that we came out with at the start of the year.

So when you look at the holdco, like Ellen mentioned, a significant use of the remittances this year was building up the cash that we had at the Holdco that's earmarked for the second half of the preferred now that's behind us. So with $1 billion of liquidity at the Holdco, covering our liquidity buffer and that remaining half of the preferred that frees up more capital to return to shareholders.

So in the fourth quarter, ultimately, our capital return, it's going to be funded by the remittances that we bring up beyond the cash that we have there now. So the fact that we're tracking towards the high end of our remittance range and when you look at typical Holdco uses of cash, that would imply about double what we did this quarter, and that's a good way to think about the run rate headed into 2027. And of course, we'll come back with more specificity in our outlook.

And one last point I would make. We may look to modestly grow the cash that we hold at the Holdco, but that's not going to be at odds with our ambition on shareholder return.

Wesley Carmichael

That's super helpful. And the second one, just on disability. I think you mentioned an expectation for some moderation in severity. I think that was about half of the increase in the loss ratio. But I just wanted to touch on incidents as well. Are you seeing higher claims submissions that you expect will continue to be kind of a pressure point into the fourth quarter or 2027, any insight would be great?

Adam Cohen

Yes. Thanks,. I can break down those components and what we're seeing. And first, I just want to make a point upfront and we said this in our prepared remarks, we're confident in the Group Protection business. It's on a very solid foundation, and headed into 2027. We're going to continue to grow this business, including growing the earnings of the business.

So in terms of what we saw this quarter, there's a piece that we believe is trend and there's a piece that we believe is volatility. We've been saying for some time that we expected some level of moderation in the business, disability and group life have both been running at record levels the last couple of years.

So last year, we talked about within the group margin roughly 100 basis points of the margin coming from the macro backdrop and very low LTD incidents. So when we talk about our overall margin expectation of 8% to 9%, the lower end of that range contemplates the moderation of what we view to be really historically low incidence.

So for this quarter, one thing I would note is it's important to compare this quarter to the prior year quarter because there is seasonality in this business. So when we look at the disability loss ratio versus the same quarter a year ago were up roughly 6%. Within that, half of it and actually the bigger story this quarter was severity. And that's the portion that was elevated reserves on a relatively small subset of claims bigger dollar, higher claims because it was higher salaried claimants, that's the portion we believe to be volatility.

And in fact, we already saw that trend moderate towards the end of the quarter, and what we've seen so far headed into the start of the fourth quarter. And so that is part of why we expect the results to improve sequentially period-over-period. The other piece is likely more durable, that's the increase in incidence.

So when we look at the year-to-date, we've seen an uptick in incidents throughout the year, and really that accelerated this quarter. So when we look at this quarter's incident result that to us says, "Hey, that backdrop has now moderated and it is generally our expectation that the historically low incidence tailwinds are behind us."

So as we look forward, like I said up front, we expect to continue to grow the earnings power of this business. And over time, we're going to continue to focus on our business mix and our pricing work focusing on local markets and supplemental health, together with some level of pricing actions, we expect to offset that incidence moderation over time. So more detail specifically on what we expect when we get into the fourth quarter outlook. But that's a good way to think about just the breakdown of this quarter's result and the piece that we view to be volatility versus trend.

Operator

Your next question comes from the line of Ryan Krueger from KBW.

Ryan Krueger

I'll follow up first quickly on the -- on disability incidents. Are you also seeing the dynamic of higher behavioral health claims that several other life insurers have cited so far. And just at a higher level, is incidents now at a level that is kind of in line with your longer-term expectation? Or -- or is it either adverse or favorable still? .

Adam Cohen

Thanks, Ryan. I'll cover both of those. On the incidents, we would not say that it's centered around a specific claim type, it's a general trend around incidents like we were saying upfront. We've had that historically low incidence. This is the normalization of that. It's not really anchored around a particular -- particular claim type. We have really good insight into the detail of our claim types across our client base.

And so that's really not the story of concentration of a particular type. And on your second question, yes, that's generally right. Like when I talk about that 1% of margin that we've had driven by the low incidence, what we saw this quarter is really more in line with that longer-term expectation, and it's the severity that we think was the volatility.

Ryan Krueger

Then a question on individual life mortality. You called -- you cited $100 million of favorable mortality over the last year. And I think it's been favorable most quarters -- are you -- can you give any more detail on what you see as driving that? And are you getting any closer to the point of thinking this could be more of an ongoing trend that could benefit you beyond this year? .

Adam Cohen

Ryan, a couple of comments on mortality. And one, you don't have to go back very far to see adverse mortality. It was really a couple of years ago that we had adverse mortality coming out of COVID and the favorable mortality that we've had for the last year or so is a relatively recent trend. So we're not the only ones experiencing that, but ultimately, mortality, the way we think about it, whether that be when we set assumptions on our in-force or we're looking at pricing, it's a long-term assumption.

So it takes time for current experience to really be viewed as a trend. So ultimately, when we talk about the underlying earnings power of life, we're not relying on the continued favorable mortality backdrop. And if it does continue, ultimately, that will be a tailwind.

Operator

Your next question comes from the line of Alex Scott from Barclays.

Taylor Scott

I just wanted to probe a little bit more on the guidance you've given for 4Q on group. I mean, from looking at our numbers, it seems like you're estimating a pretty full bounce back from the disability. I just want to make sure that's correct or if there's adjustments that need to be considered. And what is giving you the confidence to assume that just given this seems like a new trend that permeate through the industry?

Adam Cohen

Thanks, Alex. I'll hit on a couple of concepts that are within your question there. So one is when we think about the fourth quarter and we talk about what you're referring to as a bounce back. That is driven primarily by the normalization of the severity volatility that we experienced this quarter, which was roughly half of the increase in the loss ratio year-over-year.

And that's the piece where -- that's a Lincoln specific item where we can see detail into the claims. We certainly track our claims experience day to day and week to week, and we saw that moderate already towards the end of the quarter and headed into the fourth quarter.

We are not assuming that the incidents will normalize that's the piece that when we look across the industry seems to be the constant, severity is somewhat hit or miss across different companies and different client base. So we're not assuming a full bounce back on incidents.

So when we talk about the fourth quarter, we're at an 8% margin through 3 quarters with our expectation on the fourth quarter would be at or modestly below the 8% on the full year, so like I said, we're assuming the normalization of severity, but we are not assuming a full return to the historically favorable backdrop on incidents.

Ellen Cooper

And Alex, just to provide some additional color here, and this was also in our upfront remarks. So Adam also talked about the disability loss ratio year-over-year decline of about 670 basis points. And to this point, roughly about half of that was directly tied to the claim severity. And that piece, in particular, we saw that normalize again back to its expected trend at the end of the third quarter, and we continue to see that as we move into the fourth quarter. .

So that piece, we expect to bounce back. And then the moderation piece, we -- which is much more aligned to longer term, we expect that to remain.

Taylor Scott

And then maybe switching over to annuities. Can you talk about just the competitiveness in the market -- and I know it's been competitive for a while, but it does seem like some of the rate levels being offered in MI in fixed index annuities in particular, have gotten a bit more aggressive. How are you viewing that market? Does it still look good from an IRR perspective? Are you having to do anything different with the way you're investing behind that new business? .

Ellen Cooper

Absolutely, Alex. So from our perspective and one of the themes that you're going to continue to hear from us across all 4 of our businesses, including annuity is that we remain disciplined in a competitive market.

So yes, it is a competitive market out there. It always has been, broadly speaking, we see competitors that are rational but also I would say, to some extent, the competitive market is intensifying, and we continue to see that in annuities as well. So one of the things that is really critical, and we'll talk about annuity since that's where your question is, is that there -- we really lean into our competitive advantages.

So we've got distribution breadth. We continue to expand our distribution shelf space, the fact that we're a holistic annuity provider, for example, and we are leaning into fixed annuities. We've had the opportunity over the last 18 months to take places where we have historical distribution shelf space in variable and RILA and add our fixed annuities there. And then also importantly, we really look to differentiate beyond price. So that includes deep distribution relationships. It includes unique indexing crediting rate features. It includes being unlimited distribution partner shelves. And all of that is enabling us.

We simply won't sell a product if we're not achieving our return. So that is enabling us to compete on our terms and also for us to be able to achieve the returns. So you saw in particular, that fixed annuity, where we said is our largest growth opportunity our sales more than doubled sequentially. We feel really good about that. RILA, where we've continued to see a pretty competitive landscape.

They are consistent with our expectation. Sales were relatively flat, and we said in line with the average of the past several years, it's exactly where we're tracking. So again, we feel good about how we're competing and we're going to continue to prioritize profitability over volume .

Operator

Your next question comes from the line of Suneet Kamath from Jefferies.

Suneet Kamath

I wanted to start with RPS. Ellen, in your comments, you've talked about realigning the business, and that's going to take some time. I'm just wondering if you could provide a little bit more detail in terms of what you're doing there. .

Are there going to be any sort of costs associated with that, that we should think about? And more specifically, some of your competitors are in the same business are rolling out the sort of wealth management platforms to sort of mind the customer base of their 401(k) defined contribution employer. Is that something that you're thinking about as well?

Ellen Cooper

Sure. So as it relates to RPS and if you think about -- over the last several years, we have business by business, entered into a strategic realignment where we really have repositioned the business to optimize and to be able to grow earnings to be able to grow sustainable free cash flow.

And the last business of the 4 that we focused on simply because it was the smallest from an overall earnings perspective, is RPS. So here, we are focused on leveraging the exact same playbook for group, and we see lots of opportunity to optimize the current business.

So we don't see to your specific question, any material costs that we haven't communicated to all of you. If we had one, we would let you know. But what we're doing here is, first of all, we are -- we are optimizing our distribution. This is an area where we are leaning in, and we are leveraging our retail distribution in our core markets to really be able to refresh the value proposition. So that's one thing.

The second thing is that there are opportunities within our existing client base where we have revenue opportunities where we were providing services and we weren't necessarily charging for them. And so that's an opportunity that we have added to our overall opportunity. And then the other piece is that we are strategically investing in modernizing our service and technology. This, for us, ultimately results in expense base opportunities. We've talked about the fact that our cost per participant is higher than the overall peer group. And we see continued opportunity there.

And then the final thing that I'll say is that in our core markets, which is 1 of the fastest-growing markets where we're leaning in, we have been doing well in terms of overall sales of pooled employer plans. And so that's an opportunity that we're going to continue to leverage. So all in, right now, we expect that you're going to continue to see uneven sales and outflows as we're repositioning the business, but with an expectation that you're going to see better economics. You've seen so far year-to-date, but our expectation is that the earnings of this business will continue to grow.

Suneet Kamath

That's helpful. And then maybe if I could go to strategy for a minute. A couple of years ago, when you laid out the strategy, I think you talked about I don't know whose office it was in, but there was a whiteboard with a bunch of ideas on it. And a lot of those things, I think, related to things like the captive consolidation and risk transfer and it felt -- feels like you've done a lot of that stuff. .

So if that's true, is it fair to conclude that, I guess, most of the work from here is that the sort of the business unit level and just kind of growing the core businesses or are there still some of the sort of extra-curricular types of things that you could do to improve earnings or free cash flow?

Ellen Cooper

So Suneet, we will be providing a lot more color during our fourth quarter earnings call. We're going to roll out our 2027 outlook. Importantly, as you think about go-forward strategy, it's a continuation of everything that we have been doing. And if you think about the original 3-year outlook that we provided. We also provided as part of that a longer-term overall objective of our earnings mix and of our financial objectives.

And we have work to do to get to those longer-term -- to those longer-term objectives. So what you're going to see when we share with you our fourth quarter 2027 outlook is our focus on acceleration and how we -- how we really demonstrate that we move from recovery to sustainable and durable growth and higher quality growth. So you can expect that as part of that you're going to see us continue to optimize our businesses and our overall risk profile.

We believe that we have a lot of levers internally and just like we did over the last 3 years, if there is an opportunistic -- opportunity to do something externally. Of course, we would also focus on that. You're going to see us within the businesses, to your point, really accelerating profitable growth. We have the foundations underneath of us. We've got the momentum. We have done an awful lot to strategically invest in our businesses and to be able to support our customers, both in terms of new business and retention.

So you're going to see us really look to accelerate there. We have further opportunity to transform our operating model. So you're going to hear more from us on that and then the final thing is to continue to strengthen our free cash flow generation and our capital return. And importantly, while we continue to invest in our businesses, we also expect to continue to deploying excess capital through share repurchases. So you'll hear more, we're going to continue to stay disciplined. Importantly, we're going to sequence priorities across growth, profitability and capital return, more specifics when we roll out our '27 -- 2027 outlook in February.

Operator

And we have reached the end of our question-and-answer session. I will now turn the call back over to John Muething for closing remarks.

John Muething

Thank you for joining us this morning. We're happy to address any follow-up questions you may have. Please e-mail us at investorrelations@lfg.com.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.