2008 Annual Report to Shareholders - Lincoln Financial Group

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Item Page Results of Investment Management 98 Results of Lincoln UK 101 Results of Other Operations 105 Realized Gain (Loss) 108 Consolidated Investments 114 Reinsurance 139 Review of Consolidated Financial Condition 141 Liquidity and Capital Resources 141 Other Matters 150 Other Factors Affecting Our Business 150 Recent Accounting Pronouncements 150 Acquisitions and Divestitures 150 Restructuring Activities 150 7A. Quantitative and Qualitative Disclosures About Market Risk 151 8. Financial Statements and Supplementary Data 159 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 245 9A. Controls and Procedures 245 9B. Other Information 246 PART III 10. Directors, Executive Officers and Corporate Governance 247 11. Executive Compensation 247 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 247 13. Certain Relationships and Related Transactions, and Director Independence 247 14. Principal Accountant Fees and Services 247 PART IV 15. Exhibits and Financial Statement Schedules 248 Signatures 249 Index to Financial Statement Schedules FS-1 Index to Exhibits E-1 ii
PART I The “Business” section and other parts of this Form 10-K contain forward-looking statements that involve inherent risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, and containing words such as “believes,” “estimates,” “anticipates,” “expects” or similar words are forward-looking statements. Our actual results may differ materially from the projected results discussed in the forward-looking statements. Factors that could cause such differences include, but are not limited to, those discussed in “Item 1A. Risk Factors” and in the “Forward-Looking Statements – Cautionary Language” in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) of the Form 10-K. Our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) are presented in “Part II – Item 8. Financial Statements and Supplementary Data.” Item 1. Business OVERVIEW Lincoln National Corporation (“LNC,” which also may be referred to as “Lincoln,” “we,” “our” or “us”) is a holding company, which operates multiple insurance and investment management businesses through subsidiary companies. Through our business segments, we sell a wide range of wealth protection, accumulation and retirement income products and solutions. These products include institutional and/or retail fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), term life insurance, mutual funds and managed accounts. LNC was organized under the laws of the state of Indiana in 1968. We currently maintain our principal executive offices in Radnor, Pennsylvania, which were previously located in Philadelphia, Pennsylvania. “Lincoln Financial Group” is the marketing name for LNC and its subsidiary companies. As of December 31, 2008, LNC had consolidated assets of $163.1 billion and consolidated stockholders’ equity of $8.0 billion. Prior to our realignment discussed below, we provided products and services in four operating businesses: Individual Markets; Employer Markets; Investment Management; and Lincoln UK. We reported results through six business segments: Individual Markets – Annuities; Individual Markets – Life Insurance; Employer Markets – Retirement Products; Employer Markets – Group Protection; Investment Management; and Lincoln UK. On July 21, 2008, we announced the realignment of our segments under our former Employer Markets and Individual Markets operating businesses into two new operating businesses – Retirement Solutions and Insurance Solutions. We believe the new structure more closely aligns with consumer needs and should lead to more coordinated product development and greater effectiveness across the enterprise. The only change to our prior segment reporting was to report the results of the Executive Benefits business, which was previously part of the Retirement Products segment, in the Life Insurance segment for all periods presented. These changes are in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information,” and reflect the manner in which we are organized for purposes of making operating decisions and assessing performance. We view the changes to the existing segments as immaterial. Accordingly, we provide products and services in four operating businesses and report results through six segments as follows: Business Retirement Solutions Insurance Solutions Investment Management Investment Management Lincoln UK Lincoln UK Corresponding Segments Annuities Defined Contribution (formerly Retirement Products) Life Insurance (including Executive Benefits business) Group Protection In addition, the results of our run-off Institutional Pension business, formerly reported in Employer Markets – Retirement Products – Executive Benefits, are included in Other Operations for all periods presented. Other Operations also includes the financial data for operations that are not directly related to the business segments, unallocated corporate items and the ongoing amortization of deferred gain on the indemnity reinsurance portion of the sale of our former reinsurance segment to Swiss Re Life & Health America Inc. (“Swiss Re”) in the fourth quarter of 2001. Unallocated corporate items include investment income on investments related to the amount of statutory surplus in our insurance subsidiaries that is not allocated to our business units and other corporate investments, interest expense on short-term and long-term borrowings and certain expenses, including restructuring and merger-related expenses. 1
Page 1: Lincoln National Corporation 2008 A
Page 4 and 5: insurance/long-term care product, b
Page 6 and 7: Manage costs prudently, find ways t
Page 9: Lincoln National Corporation Table
Page 13 and 14: Insurance Corporation’s (“FDIC
Page 15 and 16: charge period, which is generally h
Page 17 and 18: Individual fixed annuity account va
Page 19 and 20: The LINCOLN ALLIANCE® program is a
Page 21 and 22: customer. In either case, these amo
Page 23 and 24: management tracks the speed, accura
Page 25 and 26: for the general account of LNC’s
Page 27 and 28: Competition The Investment Manageme
Page 29 and 30: REINSURANCE We follow the industry
Page 31 and 32: Debt Ratings The long-term credit r
Page 33 and 34: inter-company transactions, includi
Page 35 and 36: Federal Initiatives The U.S. federa
Page 37 and 38: Intellectual Property We rely on a
Page 39 and 40: Difficult conditions in the global
Page 41 and 42: Our reserves for future policy bene
Page 43 and 44: Losses due to defaults by others co
Page 45 and 46: The determination of the amount of
Page 47 and 48: current debt, and accordingly, like
Page 49 and 50: A drop in the rankings of the mutua
Page 51 and 52: Our sales representatives are not c
Page 53 and 54: Executive Officers of the Registran
Page 55 and 56: Item 6. Selected Financial Data The
Page 57 and 58: measurement provisions of SFAS 157,
Page 59 and 60: advisory services through a nationa
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On January 8, 2009, the Office of T
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Critical Accounting Policies and Es
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Details underlying our prospective
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Details underlying our fourth quart
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For our tests performed as of Octob
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Fixed maturity, equity, trading sec
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issues that may adversely affect ce
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For information on our GLB hedging
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usiness. This is particularly relev
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RESULTS OF CONSOLIDATED OPERATIONS
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For the Years Ended December 31, Ch
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A $12 million favorable prospective
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We expect to manage the effect of c
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Basis Point Change For the Years En
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Retirement Solutions - Defined Cont
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We provide information about this s
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for this segment represents the exc
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age of the in-force block (discusse
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Insurance Fees Details underlying i
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Basis Point Change For the Years En
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Insurance Solutions - Group Protect
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Benefits and Interest Credited Deta
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Future Expectations We expect lower
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Investment advisory fees are genera
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Insurance Premiums Excluding the ef
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RESULTS OF OTHER OPERATIONS Other O
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We provide information about this s
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Comparison of 2008 to 2007 The favo
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GDB GDB represents the change in th
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Derivatives - Guaranteed Living Ben
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Details underlying our fixed maturi
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Available-for-Sale Securities The g
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The market value of investments bac
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The following summarizes our invest
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losses may change as a result of th
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The composition by industry categor
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Unrealized Loss on Below-Investment
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Unrealized Loss on Fixed Maturity a
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As of December 31, 2008 Length of T
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As of December 31, 2008, available-
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Alternative Investments The carryin
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The decline in net investment incom
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We consider economic factors and ci
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For factors that could cause actual
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We expect our domestic insurance su
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Details underlying debt and financi
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greater assurance to both issuers a
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In addition to the contractual comm
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Item 7A. Quantitative and Qualitati
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The following provides the principa
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tend to lag behind market rates. If
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As of December 31, 2008 As of Decem
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Item 8. Financial Statements and Su
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Report of Independent Registered Pu
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LINCOLN NATIONAL CORPORATION CONSOL
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LINCOLN NATIONAL CORPORATION CONSOL
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Accounting Estimates and Assumption
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principal or recorded in net invest
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evenues or amortization expense to
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Enterprises for Certain Nontraditio
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Income Taxes We file a U.S. consoli
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Level 2 - inputs to the valuation m
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Derivative Implementation Group Sta
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SFAS 161 - Disclosures about Deriva
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Dispositions Discontinued Media Ope
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5. Investments Available-for-Sale S
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The fair value and gross unrealized
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Mortgage Loans on Real Estate Mortg
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invested the proceeds of $850 milli
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Pursuant to SFAS 157, we have categ
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The settlement payments and mark-to
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Derivative Instruments Designated a
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Credit Default Swaps We buy credit
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A reconciliation of the effective t
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We recognize interest and penalties
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Changes in DFEL (in millions) were
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10. Goodwill and Specifically Ident
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11. Guaranteed Benefit Features We
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13. Short-Term and Long-Term Debt D
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The ACSM would generally require us
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mortgage loans which remain delinqu
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Accumulated OCI The following summa
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17. Underwriting, Acquisition, Insu
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Obligations, Funded Status and Assu
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Components of Net Periodic Benefit
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The expenses (in millions) for the
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Total unrecognized compensation exp
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Information with respect to our inc
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Information with respect to DIUS re
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Specified statutory information (in
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Mortgage Loans on Real Estate The f
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For the Year Ended December 31, 200
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As of December 31, 2007 Fair % of T
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Operating revenues represent GAAP r
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For the Years Ended December 31, 20
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25. Quarterly Results of Operations
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PART III Item 10. Directors, Execut
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SIGNATURES Pursuant to the requirem
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Index to Financial Statement Schedu
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LINCOLN NATIONAL CORPORATION SCHEDU
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INDEX TO EXHIBITS 2.1 Agreement and
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10.1 LNC Amended and Restated Incen
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10.39 LNC Non-Employee Director Com
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* This exhibit is a management cont
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Exhibit 23 CONSENT OF INDEPENDENT R
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Exhibit 31.2 Certification Pursuant
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Exhibit 32.2 Certification Pursuant
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[This page intentionally left blank
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Corporate Headquarters Lincoln Nati
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2008 Annual Report to Shareholders - Lincoln Financial Group

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