Q1 2024 Lincoln National Corp Earnings Call

Participants

Christopher Michael Neczypor; Executive VP & CFO; Lincoln National Corporation

Ellen R. Gail Cooper; Chairman, President & CEO; Lincoln National Corporation

Tina Madon; Senior VP & Head of IR; Lincoln National Corporation

Elyse Beth Greenspan; Director & Senior Analyst; Wells Fargo Securities, LLC, Research Division

Ryan Joel Krueger; MD of Equity Research; Keefe, Bruyette, & Woods, Inc., Research Division

Suneet Laxman L. Kamath; Equity Analyst; Jefferies LLC, Research Division

Wesley Collin Carmichael; Senior Analyst; Autonomous Research US LP

Presentation

Operator

Good morning, and thank you for joining Lincoln Financial Group's First Quarter 2024 Earnings Conference Call. (Operator Instructions)
Now I would like to turn the call over to Senior Vice President, Head of Investor Relations, Tina Madon, please.

Tina Madon

Good morning, everyone, and welcome to our 2024 first quarter earnings call. We appreciate your interest in Lincoln. Our quarterly press release, statistical supplement and new this quarter, our earnings supplement, can all be found on the Investor Relations page of Lincoln's website, www.lincolnfinancial.com. These documents include reconciliations of the non-GAAP measures used on today's call, including adjusted income from operations or adjusted operating income, and adjusted income from operations available to common stockholders 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, 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 2023 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 update or revise any of them to reflect events or circumstances that occur after today.
Presenting this morning are Ellen Cooper, Chairman, President and CEO; and Chris Neczypor, Chief Financial Officer. After their prepared remarks, we'll address your questions.
Let me now turn the call over to Ellen. Ellen?

Ellen R. Gail Cooper

Thank you, Tina, and good morning, everyone. We appreciate you joining our call today. I want to start by reiterating that we are continuing to progress with Lincoln's strategic repositioning and our first quarter reflects advancement toward our longer-term priorities.
Last quarter, we shared our investor outlook, which was grounded in 3 key objectives: first, a strong capital foundation that is built and maintained for enterprise stability across market cycles while supporting investment for profitable growth; second, optimizing our operating model to advance a scalable framework for managing enterprise resources such as expense efficiencies and general account optimization; and third, delivering profitable growth by strategically realigning towards businesses and products with more stable cash flows, focusing on maximizing risk-adjusted returns while decreasing sensitivity to equity markets.
Within our 4 businesses, we are executing well on our strategies to achieve these targeted outcomes, and we are confident in our ability to deliver results that will drive long-term value creation for our shareholders. While this is a multiyear journey and results may not always be linear, the actions we are taking now positions Lincoln to deliver sustainable growth in the years ahead. We will leverage our powerful franchise, trusted brand, distribution prowess and broad product portfolio to meet customer needs across our 4 businesses. These attributes will continue to serve as a solid foundation for our future growth.
Let me now briefly touch on our first quarter performance. Our results, excluding the impact of significant items, exceeded our expectations. Although each of our businesses is at a different stage of strategic realignment, we are pleased with their execution, with some notable highlights.
Our Annuities business reported its highest earnings quarter in nearly 2 years, and Group Protection delivered a strong quarter of year-over-year earnings growth, solid premium growth and margin expansion. Retirement Plan Services generated more than $1 billion sales, its highest level in 7 quarters, and the performance of our Life business was in line with our expectations. These outcomes reflect our disciplined focus on positioning our business for increased growth and enhanced margins in keeping with our overall strategic vision.
Now turning to Retail Solutions, which includes Annuities and Life. As I mentioned earlier, Annuities had a very strong earnings quarter, excluding the impact of significant items, reflecting solid returns on a diversified book of business. Ending account balances increased 5% sequentially, driven by favorable equity markets, which provided a strong tailwind to earnings.
Coming off a record fourth quarter in 2023, sales were lower at approximately $2.8 billion, but importantly, reflected a well-balanced product mix as we continue to focus on the growth of spread-based categories.
In Fixed Annuities, we are growing our addressable market and extending our reach to new segments by optimizing our capabilities, which include strategic positioning across fixed product categories and with our distribution partners. Additionally, our RILA business continues to be an important area of focus and a growth segment of the market. With more competitors entering this product category, our RILA sales were down year-over-year. However, we are launching our second-generation RILA product this month with refreshed features and unique crediting strategies to further support the profitable growth of our RILA business.
VA with guaranteed living benefit sales were up year-over-year and continues to be an integral part of our overall product solutions and delivers a strong customer value proposition. However, this product category remains a smaller contributor to our total Annuity sales, representing less than 20% of sales in the quarter.
Our Annuities business continues to benefit from our broad strategic partner network and the engagement of our large wholesaling force with financial professionals. And as we look ahead, we see a strong pipeline to support further momentum in 2024.
In summary, these results reflect the strength of our Annuities business, as we continue to achieve our objectives for capital efficiency and meet our target product returns while providing customers with a broad range of solutions to meet their evolving needs.
Now turning to Life. As I mentioned earlier, the performance of our Life business in the first quarter was consistent with our expectations. The year-over-year and sequential declines in Life sales are driven by our intentional strategic realignment as we deemphasize long-term guarantees such as guaranteed VUL and commoditized lower-margin segments of the term market.
We are taking additional steps to shift the focus of our Life business to products with more stable cash flows and higher risk-adjusted returns such as accumulation products. We expect to further support this shift with product and distribution actions. For example, on the distribution side, we realigned our Life team to optimize our wholesaler's footprint, putting us closer to our key strategic partners to better enable and accelerate our product shift, and we are already seeing a stronger pipeline in accumulation products.
While the transformation of our Life business will take time, leveraging our strength in product, distribution and industry-leading underwriting, coupled with strengthening our customer-centric service model with enhanced digital delivery, will help us deliver against this important strategic priority.
Next, turning to Workplace Solutions, which includes Group Protection and Retirement Plan Services. Our Group business delivered the second best earnings quarter in its history and further expanded its margin to 6.2%, reflecting strong improvement year-over-year. We continue to advance towards our 7% sustainable margin target for this business, prioritizing margin expansion over top line growth. Pricing discipline remains a primary focus as we profitably grow our Group business.
The renewal cycle for 2024 effective business illustrates this discipline. We achieved our targeted rate increases with just a modest decline in persistency. And despite this reduction, our ability to generate 3% total premium growth year-over-year reinforces the strength of our relationships and ability to deliver value to customers.
Additionally, sales were 13% higher than in the prior year quarter, due in part to a 25% increase in supplemental health. Offering a strong supplemental health product suite allows us to meet the financial wellness needs of our customers across all segments.
Now let me touch on a few specifics regarding the execution of our Group objectives. Our segment level strategies are key pillars of our margin expansion efforts. We are transforming how we do business, and are making strategic investments to ensure that our end-to-end offerings align with the unique needs of each segment.
We have expanded our digital and self-service capabilities to help customers interact how and where they want. We have also upgraded our underwriting technology to reduce turnaround times and drive process efficiencies, and we have reengineered our client service model to improve our distribution partnerships and claimant experience. These investments will support future growth in small market, the fastest-growing part of the market, while maintaining our leadership position in both the regional and national markets.
Additionally, enhanced capabilities and expanded product offerings are driving the growth we are achieving in supplemental health premium. Over time, these investments will lead to a more diversified book of business and enable us to continue achieving our financial targets in the coming years. We are confident that our strategy and ability to advance the performance of our Group business will result in it becoming a more significant part of our overall portfolio. This objective is consistent with our long-term strategy to achieve a balanced mix of earnings from businesses and products with more stable cash flows and higher risk-adjusted returns.
Now turning to Retirement Plan Services, or RPS, where earnings declined year-over-year as expected due to lower spread income. However, first year sales were robust, increasing more than 50% for the same period while achieving our target returns. The increase was broad-based across segments with particular strength in the mid-large market where we have focused on reinforcing the key points of our competitive differentiation and on increasing our engagement with our distribution partners.
Our success has also stemmed from the unique approach we take to serving our clients across our Retirement business. We offer a highly consultative model focused on the quality of participant outcomes complemented by a broad suite of product offerings. Combined, these attributes position us to compete effectively within our target markets. As a result, our momentum continues to build and although it is still early in the year, we have a strong pipeline of known wins. While the conversion rate on this will vary from quarter-to-quarter, we expect a robust level of sales in 2024, reinforcing that our strategy is gaining traction.
RPS had positive net flows of nearly $400 million, driven by increased sales, seasonally strong recurring deposits and excellent plan sponsor retention. We have seen strong flows into some of our newer offerings such as YourPath where assets under management have grown almost 50% year-over-year. We continue to innovate and invest in our Retirement business, improving the products and services we provide to our clients. We are also increasing the operational efficiency of this business, consistent with our objective to optimize our overall operating model.
To wrap up, I want to reiterate my confidence that the strategic repositioning underway here at Lincoln will drive sustainable growth and improve the profitability, operational efficiency and capital flexibility of our franchise. We are a market leader across our 4 businesses and have significant foundational competitive advantages that will enable us to achieve these objectives.
Our first quarter performance was strong, with many signs of growth and positive change. We are seeing a number of green shoots that are tangible evidence of our transition taking hold and the momentum building across our business. Our actions are strengthening our competitive differentiation within our core markets and in how we deliver value to our partners and customers. They are also increasing our nimbleness and flexibility as we rebalance our product portfolio and build on our innovation as we enter new markets. Together, these elements will drive meaningful value for our shareholders over the long term. I look forward to sharing additional updates with you in the coming quarters.
And with that, let me turn the call over to Chris.

Christopher Michael Neczypor

Thank you, Ellen, and good morning, everyone. While our overall results were impacted by a handful of significant items in the quarter, our underlying results were better than expectations, demonstrating our continued success in executing against our strategic priorities.
I'm going to focus on 3 areas this morning. First, I'll recap our first quarter results, including a review of our segment level financials, and provide an update on capital. Second, I'll touch on our efforts related to optimizing our operating model. And third, I'll review our investment portfolio.
So let's start with a recap of the quarter. This morning, we reported first quarter adjusted operating income available to common stockholders of $71 million or $0.41 per share. As I noted in my opening remarks, our results were impacted by few significant items. First, as I mentioned on last quarter's call, there was a $39 million impact from severance in our other operations segment, related to the head count reduction we made during the quarter. Second, there was a $90 million impact from a legal accrual, also in our other operations segment. Third, we had a balance sheet true-up in preparation for the close of the sale of our Wealth Management business, which had a $19 million impact. Last, tax-related items drove $16 million of unfavorability, primarily impacting Annuities and other operations.
Our alternative investments portfolio delivered an annualized return of more than 9% in the quarter or $78 million. On an after-tax basis, this was $6 million below our targeted return or $0.04 per share. Overall, our alternative investment portfolio results continued to be strong, benefiting from our diversified investment approach while delivering solid risk-adjusted long-term returns. In total, these items negatively impacted our quarterly results by $170 million or $1 per share.
Now turning to net income for the quarter. We reported net income available to common stockholders of $1.2 billion or $6.93 per diluted share. The difference between net and adjusted operating income for the quarter was predominantly driven by 2 factors. First, inclusive of hedge program performance, there was a favorable impact to net income within nonoperating income, driven by net positive movement in market risk benefits resulting from higher interest rates in equity markets in the quarter. Second, there was a positive change in the fair value of the GAAP embedded derivatives related to the Fortitude Re insurance transaction. This change was primarily driven by the impact of higher interest rates on available-for-sale securities in the funds withheld portfolio, backing the agreement with the corresponding offset flowing through accumulated other comprehensive income, or AOCI.
Now turning to the segment results. Let's start with Group, which reported a strong quarter with operating income of $80 million and a margin of 6.2% compared to $71 million in the prior year quarter and a margin of 5.6%. The improvement was driven by continued diversification of our book of business, execution of our pricing strategy and disciplined expense management actions.
Our Group results continue to benefit from a favorable macro backdrop, including low unemployment and a supportive interest rate environment. Additionally, as Ellen noted, we generated premium growth of 3% year-over-year, in line with our expectations and reflective of our disciplined pricing approach on new and renewing business which is supportive of our focus on margin expansion.
For the quarter, the Group life loss ratio was 76%, decreasing over 4 percentage points versus the prior year quarter. And while Life results will continue to have variability quarter-to-quarter, the results this quarter were driven by lower incidents as we continue to see the benefit of our pricing actions, coupled with improving mortality trends.
For disability, the loss ratio was 74%, increasing by roughly 3 percentage points year-over-year. While short-term disability drove the elevated loss ratio versus the prior year quarter, overall disability results were within our desired range. The underlying fundamentals of the business remain strong and incidents and claim recoveries were in line with our longer-term expectations.
The improving results for Group Protection continued to reflect the execution of our margin expansion strategy. As we look towards the second quarter, I want to highlight a few things. While the record result we reported in last year's second quarter underscored the benefits of the strategic actions we've been taking, the environment at that time led to record low incidence levels supporting record LTD earnings, and we have seen some moderation back towards expected level since.
So overall, our results this quarter demonstrate the underlying strength of our Group business. While we anticipate some moderation in our results next quarter relative to the second quarter of last year, we also expect some seasonal upside relative to our first quarter results this year.
Now turning to Annuities. Annuities reported operating income of $259 million which, as I noted earlier, included unfavorable significant items totaling $31 million, resulting from tax-related items and a balance sheet true-up in preparation for the close of the sale of our Wealth Management business. This compares to $274 million in the prior year quarter, which included a favorable tax-related item of $11 million.
Excluding the tax-related and wealth management business, significant items, Annuities earnings increased $27 million year-over-year due to the benefits of higher average account balances and improvements in spread income. Additionally, ending account balances increased 5% sequentially as benefits from higher equity markets more than offset an increase in net outflows.
The increase in outflows for the quarter was driven by a combination of factors. The first was the impact of favorable equity markets on variable annuity account balances, which in turn increases the total amount of outflows, all else being equal. And second, as has been the case for well over a year now, higher interest rates drive higher outflows in fixed products. However, as a reminder, approximately $15 billion or nearly 60% of our fixed Annuity block is reinsured and surrenders on reinsured business are ceded to our reinsurance counterparties.
Lastly, as we continue to focus on expanding our spread and spread like product lines, RILA account balances now represent almost 20% of total account balances compared to less than 10% 3 years ago. This quarter's underlying result reflects the continued strength of our Annuities business. Higher ending account balances, combined with continued improvement in our spread margin, position this business for continued earnings growth.
Now shifting to Retirement Plan Services, which reported operating income of $36 million compared to $43 million in the prior year quarter. The decline was primarily driven by continued participant driven stable value outflows and crediting rate actions, partially offset by an increase in fee income from higher account balances.
Base spread compression is expected to continue throughout 2024, primarily driven by crediting rate actions before stabilizing in 2025. And while participant-driven stable value outflows persisted in the quarter, the rate and total level decreased for a third straight quarter.
Now turning to account balances. Average account balances for the quarter increased 13% year-over-year and end-of-period account balances were nearly $107 billion, up 15% versus the prior year quarter. This result was driven by strength in the equity markets as well as net flows, which were positive for the quarter following consecutive quarters of outflows. As Ellen mentioned, the strength of our pipeline gives us confidence in our ability to grow our Retirement business.
Lastly, turning to Life Insurance. Life reported an operating loss of $35 million compared to an operating loss of $13 million in the prior year quarter, as the run rate impacts of the Fortitude Re transaction were partially offset by improved alternative investment income.
Shifting to mortality. While mortality for the quarter was generally in line with expectations on a net basis, underlying results were somewhat mixed. In our universal life block, on a gross basis, we saw elevated mortality driven by a pickup in severity, which can be the case from time to time when you have a relatively small number of large space amount claims come in. On a net basis, however, the majority of this excess mortality was covered by reinsurance.
On the positive side, we saw better-than-expected mortality in our Term business. Though as a reminder, the mechanics of LDTI require us to smooth variability in over time. Overall, Life's first quarter results were in line with expectations.
Looking ahead, while seasonal improvements in mortality will support results in the coming quarters, our expense actions will drive further earnings benefit over the remainder of the year.
Touching briefly on company-wide G&A expenses. As I've mentioned in recent quarters, we remain diligently focused on continuing to rightsize our expense base. During the quarter, excluding the impacts of the significant items, we began to see improvement for the company overall. It's important to note that a large portion of the sequential improvement is due to 2 factors. First, seasonal drivers, particularly as lower sales volumes reduced sales-driven compensation expenses. And second, there was lower Spark-related investment given the large expense in 4Q associated with that infrastructure modernization project.
On an underlying basis, however, we are starting to see real progress in removing unnecessary discretionary spending and taking action on reducing organizational complexity. We will begin to see the benefit of this progress in the second quarter and beyond. I want to remind you that the benefits we expect to see for 2024 were included in the earnings outlook we provided last quarter, and will be a driver of growing our free cash flow in the coming years.
Let's now turn to capital. We ended the quarter with an estimated RBC ratio in the range of 400% to 410%, in line with year-end 2023. While there are always many moving pieces in any given quarter, the stability of our RBC range this quarter is driven by underlying business results with the benefit of stronger equity markets, which helps to partially offset the impacts from the legal accrual and severance.
Moving to investments, where credit results once again reflected the high-quality nature of our portfolio, which remains 97% investment grade. Our conservative positioning reflects disciplined portfolio construction, regular stress testing and proactive credit risk management. I want to provide 3 updates on our investment portfolio today. First, on our ongoing efforts to optimize our general account through the expansion of our asset sourcing capabilities; second, on our commercial mortgage loan portfolio; and then third, briefly touch on our alternative investment performance.
Starting with our general account portfolio optimization efforts. As I mentioned earlier, we have continued to maintain a high-quality portfolio. At the same time, our enterprise product mix has allowed us to reduce the overall duration of our liabilities. As a result, we have more opportunities to add incremental yield while maintaining similar risk-adjusted returns. To do this, we've begun to source incremental yield by leveraging our unique multi-manager framework. In doing so, our investment strategy remains focused on maintaining diversification while capitalizing on less liquid assets and structured asset classic premiums.
During the quarter, we expanded our relationships with several managers to provide specialized asset management expertise and incremental sourcing of structured products and mortgage loans. As we look ahead, we continue to see value in expanding relationships that align with our credit view and complement our well-positioned investment portfolio. These investments will take time to emerge and add incremental yield to the portfolio, but throughout 2024, we expect our optimization strategy to be supportive of earnings and product competitiveness.
Now turning to our commercial mortgage loan portfolio. We continue to have an extremely high-quality portfolio, representing 15% of our total invested assets. It is conservatively positioned and has performed well. Office mortgages represent just 2.9% of our overall invested assets. They are conservatively positioned with an average loan size of $16 million and are diversified by loan size and geography. Importantly, near-term maturities remain manageable and have strong debt-to-service coverage ratios of more than 3.5x on average over the next 2 years. Additional details on our CML portfolio can be found in our quarterly investor presentation.
Lastly, on alternative investment performance. Alternative investments generated a return of 2.3% this quarter, slightly below our expectation of 2.5%. Our returns during the quarter were broad-based with positive contributions from all underlying asset categories. They reflected the diversification of our portfolio and somewhat limited exposure to the real estate and venture sectors that have been most negatively impacted by the current market environment. The portfolio remains diversified across strategy, sector and vintage and is well positioned to continue to achieve our long-term return objectives in a wide variety of economic environments.
In closing, let me reiterate 3 points. First, our underlying results this quarter exceeded expectations, while our overall results were impacted by a handful of significant items. Second, the benefits from the actions we are taking, including those on the expense side and through our general account optimization, will continue to emerge throughout the year, and we are pleased with the progress we are making. And third, while each of our businesses continue to be in different stages of optimizing their underlying financial profiles, we are confident that the actions we are taking today will continue to drive increasing earnings growth and profitability in line with our longer-term expectations.
With that, let me turn the call back to Tina.

Tina Madon

Thank you, Chris. Before we turn to Q&A, let me hand the call back to Ellen for an update on the sale of our Wealth Management business to Osaic. Ellen?

Ellen R. Gail Cooper

Thank you, Tina. Good morning, everyone. I am so pleased to announce with respect to the wealth management transaction, we have received regulatory approvals and both parties are diligently working toward closing this month. As compared to the $700 million capital benefit we communicated when we announced the transaction in December, we now expect a capital benefit of $650 million in part due to changes within our deferred tax attributes. Importantly, the net capital benefit from this transaction will provide us additional capital to support our RBC buffer of 420, and the opportunity to deliver overall increased financial flexibility.
And with that, let me turn the call back to Tina. Tina?

Question and Answer Session

Tina Madon

Thanks, Ellen. We'll now begin the question-and-answer portion of the call. (Operator Instructions) Now let me turn the call over to the operator to begin the Q&A. Operator?

Operator

(Operator Instructions) Our first question comes from Ryan Krueger from KBW.

Ryan Joel Krueger

My first question was hoping you could give some update on your progress towards affiliated reinsurance in Bermuda and where you stand there at this point?

Christopher Michael Neczypor

Look, I think we continue to make progress. There isn't anything incremental to update relative to what we said last quarter. It continues to be a significant focus for us. We're pleased with the progress. And as things progress, we'll update. But nothing material in terms of an update relative to last quarter.

Ryan Joel Krueger

Got it. And then for variable annuities and LNBar. Can you give us an update there on how the capital position looks in LNBar and how the hedging program is performing?

Christopher Michael Neczypor

Yes. We feel really good about the hedge program. We're about 1.5 years into it. We've been able to see a number of different market environments. We continue to have excess capital from a regulatory perspective. The program is working as intended. We'll assess the ability to take a dividend and the desire to take a dividend out as we go throughout the year. But so far, so good. Again, we're about 1.5 years into it and are pleased with the performance.

Operator

Our next question comes from Wes Carmichael from Autonomous Research.

Wesley Collin Carmichael

I had a question on Annuities and fixed annuity sales. This kind of bounced around a little bit and were down sequentially. I'm just wondering how you're thinking about the cadence of sales there and if there's anything we can do in terms of capital optimization through flow reinsurance to be able to distribute more?

Ellen R. Gail Cooper

Absolutely. So while our fixed annuity sales were down year-over-year, so a couple of points that I want to make. If you look at the fact that -- and we talked about this last quarter, we built the capabilities over the course of last year to have a more consistent presence in the fixed marketplace, and that included a number of things. It included putting in place a more capital-efficient solution and flow agreement. We established shelf space with select distribution partners. And we also refined the strategic asset allocation that Chris had mentioned earlier.
So if you look across from the time that we did that across the last 4 quarters, what you'll see is that in the fourth quarter for us, we saw very significant sales. And in the first quarter, although down, still higher than they were in the second and third quarter. And additionally, we have a strong pipeline as we're moving into 2024.
So the critical piece for us in fixed is the capital efficiency and ensuring that we are achieving the risk-adjusted returns, and we feel really good about where we are. And more broadly speaking, we are very much focused as it relates to overall Annuity sales on products that have more stable cash flows and really supporting a more balanced mix. And so again, the fixed opportunity for us is part of that overall balance.

Wesley Collin Carmichael

And maybe just a question on the capital structure overall. And if you think out a couple of years, in particular, the press that you issued, I think, a little over a year ago, I know there's a debt maturity coming up, but anything that you guys are thinking out? I know you had recently raised some debt, but any actions you're thinking about taking on the capital structure side?

Christopher Michael Neczypor

Sure, Wes. So I would say a couple of things. Big picture as it relates to capital. I think we've communicated the longer-term objective to hold a buffer over 400. We talked about that last quarter, thinking around the 420 level. Going forward, the Osaic transaction will be a big step forward. We've also talked at the same time about deleveraging. That's obviously a priority for us. And so we raised the -- to your point, we raised $350 million in senior debt in the first quarter, largely to pre-fund some of the maturities over the next year. But we believe that post the closing of the transaction, we'll be in a position to bring down, at an aggregate level, our debt levels. So that's the first thing.
The second thing to your point is that the preferred will come due in 2027. We've been very vocal that it is our priority to repay that given the cost of that capital. And so as we look out over the next couple of years, bringing down the cost of that slice of the capital structure will be a priority. So nothing new to report from last quarter, but we are making progress across all fronts.

Operator

Next question comes from Suneet Kamath from Jefferies.

Suneet Laxman L. Kamath

Just wanted to start with Annuity sales. It looks like year-over-year you were down. And that seems in contrast to what we're seeing from other companies that have reported so far. So I just wanted to unpack that a little bit. Is there anything maybe competitive-wise that you're seeing in the market that's causing that gap or I just wanted to get some thoughts on your offering versus peers?

Ellen R. Gail Cooper

Sure. So Suneet, I'm going to start with the premise that we had talked about earlier. And that is that when we are focused on Annuity sales, we are also focusing on capital efficiency on ensuring that we are achieving our risk-adjusted returns. And so if you look across the product segments and I do want to mention that, yes, sales were down year-over-year about 10%. But if you look across the last 4 quarters, the second highest quarter outside of fourth quarter, which was a record for us in terms of overall Annuity sales.
So in the fixed annuity space, and I mentioned this previously, we established capabilities with a more consistent presence. We are focused on fixed annuity with select distribution partners, and that enables us to really ensure that we are achieving our target returns and our capital efficiency without solely competing on price. And so that's really important to us.
In the RILA space, and I'll spend a moment on this, this is a very important product category for us. We have seen quite a few new entrants in there that are making RILA more competitive. And so there, our sales year-over-year were down. And our action there is that this month, we have a refresh of our RILA product that we're referring to as RILA 2.0. And we really believe that this will provide additional differentiation and the ability to continue to grow this product category. And we've got some unique features in there around crediting strategies and other product features that we think will drive those sales as well.
And then finally, on the variable annuity side, VA without any guarantees continues to be a strong product segment for us. You see year-over-year sales growth there. And VA with guaranty, as I mentioned upfront, although much smaller overall allocation at about 20% sales with very high returns, we're really very pleased with that overall.
So if you add that up all together, overall, $2.8 billion of Annuity sales. We see a really strong pipeline as we move through 2024 that we feel really good about. And importantly, we're achieving our returns across all the product segments with capital efficiency, which is a very important part of our overall financial objectives.

Suneet Laxman L. Kamath

Okay. That makes sense. And then I guess my second question is just on distribution. Have there been any major changes to your distribution footprint? It does seem like as we traveled through the quarter, we were seeing more press releases about departures, but maybe that's not indicative of what's going on with the overall distribution organization. So just some thoughts there would be helpful.

Ellen R. Gail Cooper

Yes. I think that some of what you're referring to were perhaps departures within the wealth management organization, not related to the wholesaling distribution associated with our retail or with our workplace businesses. So let me say a couple of things about our distribution. Our distribution footprint, if there's anything that we can say in terms of changing, we continue to expand, we continue to enhance, and there have been no material changes as it relates to overall distribution.
On the Annuity side, we continue to have an incredibly strong footprint with significant shelf space. We've got a national presence. We have over 500 sales-facing professionals. We very much are aligning ourselves with industry partners with -- that are really very much focused on the fact that we are a solutions provider within the annuity space with a well-diversified sales mix. And then we have a number of other additional sales tools, best-in-class marketing, technology, et cetera, that are really driving distribution effectiveness.
On the Life side, I want to spend a moment there on the retail side. Some of what we've done there is we have realigned our Life distribution team. And part of what we're doing there is we are putting our wholesalers closer to the decision makers at our key strategic partners. And part of what this is doing is it's really enabling us to ultimately accelerate the product shift that we're in the process of doing around realigning our overall Life strategy.
So we're more closely matching go-to-market strategies, and we are already seeing some progress there as it relates to improved pipeline, in particular, in the IUL space. So we expect that some of these enhancements will further optimize the overall distribution footprint.
So let me just pause there. There's also a lot of expanding and enhancing that we're doing on the workplace side, both on the Retirement side and also on the Group side that we believe will support the acceleration of sales as well. And we can discuss that if that's another part that you would like to talk about.

Suneet Laxman L. Kamath

Yes, that's fine. We can leave it there and pick it up later.

Operator

Next question comes from Elyse Greenspan from Wells Fargo.

Elyse Beth Greenspan

My first question is on Life Insurance. I believe you said that the first quarter was in line with your expectations. But if we adjust for the notable items that you called out, you had a loss in the quarter. So just trying to tie that together just relative to your expectations, and I guess the guidance you gave for that business, right, that's for modest earnings for the full year?

Christopher Michael Neczypor

Sure, Elyse. So keep in mind, I think the simple answer to your question is Q1 has heavier seasonality as it relates to mortality, right? That's true for us, it's true for the industry. So when you look at the guidance that we gave, I think we were actually slightly better depending on how you think about the midpoint. But if you look year-over-year, essentially the change in earnings for the retail Life business is almost entirely explained by the Fortitude Re transaction with slightly better alternative investment income.
So just to reiterate what I said in our prepared remarks, the quarter was in line from a retail Life perspective. And to your specific question as it relates to the outlook, just keep in mind that for the full year, you have to think about it from a seasonality perspective in first quarter, which tends to be heavier just due to the mortality. Does that help?

Elyse Beth Greenspan

Yes. And then my second question, you gave us a little bit of update, right, on the capital benefit from the Wealth Management deal. And Chris, I think you said, right, you guys want to keep the RBC at like 420. So is the right way to think about it that the RBC benefit you'll take from that transaction will get you to 420, and then the rest will either be at parent or used for some debt actions?

Christopher Michael Neczypor

So I think philosophically, that's correct, Elyse. We ended the first quarter actually slightly better than where we were at year-end. So capital -- and that's despite the onetime significant item. So capital continues to be moving in the right direction. We'll close, hopefully, in the next week or 2 on the Osaic transaction. It's great to have approval there. And then we will look, as we've been discussing for the past 2 quarters that what opportunities exist from a deleveraging perspective. But I think you're exactly right. The idea is we intend to hold a buffer in excess of the 400 target. We've described 420 as the way to think about it, and the closing of the deal will get us largely there.

Operator

(Operator Instructions) We will pause for a brief moment to wait for the questions to come in.

Tina Madon

Okay. As we have no additional questions, I just want to thank everybody for joining us this morning. If you have additional questions after the call, please don't hesitate to get in contact with us or e-mail us at investorrelations@lfg.com. Thank you.

Operator

Thank you for joining in today's call. We hope you have a wonderful day. You may now all disconnect from the session.