Aging And Digital Trends Will Spur Insurance Demand Despite Risks

Key Takeaways

• Growth in annuity sales, retirement products, and workplace solutions is fueled by demographic trends, product innovation, and expanded distribution capabilities.
  
• Investments in digital modernization, optimized product mix, and yield enhancement are improving efficiency, profitability, and long-term earnings visibility.
  
• Heavy reliance on interest-sensitive products, demographic headwinds, and legacy risks threaten Lincoln’s long-term growth, margin stability, and ability to attract new, younger customers.

Catalysts

Through its subsidiaries, operates multiple insurance and retirement businesses in the United States.

• Lincoln National is positioned to benefit from the ongoing demographic shift of aging in the U.S. population, which is driving increasing demand for annuities, retirement plan services, and life insurance. The company’s robust annuity sales growth, acceleration in retirement deposits, and ongoing innovation in retirement income products set the stage for sustained top-line growth as this cohort expands.
  
• The continued acceleration in consumer responsibility for financial wellness, notably through 401(k)s, IRAs, and employer-based group products, is generating demand for Lincoln’s workplace solutions. The firm’s expansion of its retirement plan services and group protection offerings, along with superior distribution and client engagement, is expected to fuel double-digit deposit growth and strong recurring premium increases—supporting long-term revenue and earnings visibility.
  
• Strategic investments in digital modernization and technology—including automation, digital servicing, and predictive analytics—are enabling Lincoln to drive operating efficiencies and improve customer experience. These initiatives are already contributing to reductions in general and administrative expenses and are anticipated to further expand net margins and free cash flow conversion over the next several years.
  
• Optimization of product mix with a growing share of spread-based annuities and disciplined use of capital-efficient reinsurance (including the Bermuda-based affiliate) will strengthen Lincoln’s risk-adjusted returns and profitability. This mix shift is expected to enhance growth in spread income, allow for greater earnings retention, and improve capital flexibility, driving a higher bottom-line and free cash flow growth.
  
• Secular tailwinds including a higher interest rate environment are materially boosting investment yields on Lincoln’s large general account, enhancing net investment income across the business. The firm’s active asset mix optimization and focus on private and structured assets are increasing portfolio yields, a trend likely to support ongoing earnings growth, margin expansion, and higher free cash flow in the coming years.

Lincoln National Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Lincoln National compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Lincoln National's revenue will grow by 4.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 17.7% today to 7.7% in 3 years time.
• The bullish analysts expect earnings to reach $1.6 billion (and earnings per share of $9.54) by about April 2028, down from $3.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 6.1x on those 2028 earnings, up from 1.7x today. This future PE is lower than the current PE for the US Insurance industry at 13.5x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Lincoln National Future Earnings Per Share Growth

Risks

• Aging demographic shifts may decrease the number of new life insurance policy buyers and, despite current progress, Lincoln’s stated life insurance sales were essentially unchanged, which could limit future top-line revenue growth.
  
• The company’s strong dependence on interest-sensitive products such as annuities and universal life leaves Lincoln exposed to the risk of customer policy surrenders during periods of market volatility, resulting in potentially unpredictable and volatile revenues and earnings.
  
• Prolonged periods of lower interest rates or generally lower yields on fixed-income assets may compress investment spreads, particularly given Lincoln’s large bond portfolio and recent push into spread-based products, thereby reducing net margins and earnings over time.
  
• Legacy variable annuity blocks with unfavorable guarantees continue to pose a risk of elevated reserve requirements and capital strain, which, if market conditions turn adverse, could pressure Lincoln’s net margins and deployable capital.
  
• Technological disruption and rising consumer skepticism toward traditional life and annuity products, especially among younger generations and in light of insurtech competitors offering more user-friendly digital experiences, may cap future new business growth and erode Lincoln’s revenue over the long term.

Valuation

• The assumed bullish price target for Lincoln National is $46.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Lincoln National's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $31.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $20.6 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 6.1x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $31.73, the bullish analyst price target of $46.0 is 31.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.