2008 Annual Report to Shareholders - Lincoln Financial Group

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Overview Retirement Solutions – Defined Contribution The Defined Contribution segment provides employers the ability to offer tax-deferred retirement savings plans to their employees, primarily through 403(b) and 401(k) retirement savings plans. We provide a variety of plan investment vehicles, including individual and group variable annuities, group fixed annuities and mutual funds. We also offer a broad array of plan services including plan recordkeeping, compliance testing, participant education and other related services. Defined contribution (“DC”) plans are a popular employee benefit offered by many employers across a wide spectrum of industries and by employers large and small. Some plans include employer matching of contributions, which can increase participation by employees. Growth in the number of DC plans has occurred as these plans have been used as replacements for frozen or eliminated defined benefit retirement plans. In general, DC plans offer tax-deferred contributions and investment growth, thereby deferring the tax consequences of both the contributions and investment growth until withdrawals are made from the accumulated values, often at lower tax rates occurring during retirement. Lincoln’s 403(b) assets accounted for 60% of total assets under management in this segment as of December 31, 2008. The 401(k) business accounted for 46% of our new deposits during 2008 for this segment. Products and Services The Defined Contribution segment currently offers four primary offerings to the employer-sponsored market: LINCOLN DIRECTOR SM group variable annuity, LINCOLN ALLIANCE® program, Lincoln SmartFuture® program and Multi-Fund® variable annuity. The Defined Contribution segment’s deposits (in millions) were as follows: For the Years Ended December 31, 2008 2007 2006 Deposits Variable portion of variable annuity $ 2,170 $ 2,355 $ 2,525 Fixed portion of variable annuity 369 351 441 Total variable annuity 2,539 2,706 2,966 Fixed annuity 812 754 506 Mutual funds 2,196 2,090 1,113 Total deposits $ 5,547 $ 5,550 $ 4,585 LINCOLN DIRECTOR SM and Multi-Fund® products are variable annuities. LINCOLN ALLIANCE® and Lincoln SmartFuture® programs are mutual fund-based programs. This suite of products covers both the 403(b) and 401(k) marketplace. Both 403(b) and 401(k) plans are tax-deferred, defined contribution plans offered to employees of an entity to enable them to save for retirement. The 403(b) plans are available to employees of educational institutions, not-for-profit healthcare organizations and certain other not-for-profit entities, while 401(k) plans are generally available to employees of for-profit entities. The investment options for our annuities encompass the spectrum of asset classes with varying levels of risk and include both equity and fixed income. As of December 31, 2008 and 2007, healthcare clients accounted for 45% and 43% of account values for these products, respectively. LINCOLN DIRECTOR SM group variable annuity is a 401(k) DC retirement plan solution available to micro- to small-sized businesses, typically those that have DC plans with less than $3 million in account values. The LINCOLN DIRECTOR SM product offers participants a broad array of investment options from several fund families. In 2008, the investment options were significantly enhanced with the addition of the funds that had been offered only through the Lincoln American Legacy Retirement® group variable annuity. Lincoln American Legacy Retirement® was merged into LINCOLN DIRECTOR SM group variable annuity in 2008 and is no longer offered as a standalone product for new sales. LINCOLN DIRECTOR SM group variable annuity has the option of being serviced through a TPA or fully serviced by Lincoln. As of December 31, 2008, approximately 90% of LINCOLN DIRECTOR SM clients were serviced through TPAs. The Defined Contribution segment earns revenue through asset charges, investment income, surrender charges and recordkeeping fees from this product. Account values for LINCOLN DIRECTOR SM group variable annuity were $4.9 billion, $7.8 billion and $7.5 billion as of December 31, 2008, 2007 and 2006, respectively. Deposits for LINCOLN DIRECTOR SM group variable annuity were $1.5 billion, $1.6 billion and $1.8 billion during 2008, 2007 and 2006, respectively. 8
The LINCOLN ALLIANCE® program is a 401(k) or 403(b) DC retirement plan solution aimed at mid to large employers, typically those that have DC plans with $15 million or more in account value. The target market is primarily for-profit corporations, educational institutions and healthcare providers. The program bundles our traditional fixed annuity products with the employer’s choice of retail mutual funds, along with recordkeeping, plan compliance services and customized employee education services. Included in the product offering is the LIFESPAN® learning program, which provides participants with educational materials and one-on-one guidance for retirement planning assistance. The program allows the use of any retail mutual fund. We earn fees for our recordkeeping and educational services and the services we provide to mutual fund accounts. We also earn investment margins on fixed annuities. The retail mutual funds associated with this program are not included in the separate accounts reported on our Consolidated Balance Sheets, as we do not have any ownership interest in them. LINCOLN ALLIANCE® program account values were $9.4 billion, $9.5 billion and $7.0 billion as of December 31, 2008, 2007 and 2006, respectively. The Lincoln SmartFuture® program is a 401(k) or 403(b) DC retirement plan solution aimed at small to mid to large employers, typically those that have DC plans with between $3 million to $15 million or more in account value. The target market is primarily for-profit corporations, educational institutions and healthcare providers. The Lincoln SmartFuture® program was introduced in 2008 and is built on the LINCOLN ALLIANCE® platform. Like LINCOLN ALLIANCE®, the program bundles our traditional fixed annuity products with retail mutual funds, recordkeeping, plan compliance services and employee education services using the LIFESPAN® learning program, which is described further above. However, the Lincoln SmartFuture® program allows the employer to choose from a list of over 100 retail mutual funds chosen by us, which consists of a broad range of low-cost funds. Services for this program are typically not customized for each employer. We earn fees for our recordkeeping and educational services and the services we provide to mutual fund accounts. We also earn investment margins on fixed annuities. The retail mutual funds associated with this program are not included in the separate accounts reported on our Consolidated Balance Sheets, as we do not have any ownership interest in them. Lincoln SmartFuture® program account values were $104 million as of December 31, 2008. Multi-Fund® Variable Annuity is a defined contribution retirement plan solution with full-bundled administrative services and high quality investment choices marketed to small- to mid-sized healthcare, education, governmental and not-for-profit plans. The product can be sold either to the employer through the Multi-Fund® group variable annuity contract or directly to the individual through the Multi-Fund® select variable annuity contract. Included in the product offering is the LIFESPAN® learning program, which is described further above. We earn mortality and expense charges, investment income and surrender charges from this product. The Multi-Fund® variable annuity is currently available in all states except New York. Account values for the Multi- Fund® variable annuity were $9.7 billion, $13.3 billion and $13.5 billion as of December 31, 2008, 2007 and 2006, respectively. Multi-Fund® program deposits represented 15%, 17% and 20% of the segment’s deposits in 2008, 2007 and 2006, respectively. Distribution Defined contribution products are distributed by LFD, which has approximately 80 internal and external wholesalers (including sales managers). The wholesalers distribute the defined contribution products through advisors, consultants, banks, wirehouses, TPAs and individual planners. The Multi-Fund® program is sold primarily by affiliated advisors; certain non-affiliated advisors can also distribute the product. The LINCOLN ALLIANCE® program and the Lincoln SmartFuture® program are sold primarily through consultants and affiliated advisors. LINCOLN DIRECTOR SM group variable annuity is sold primarily by TPAs and individual planners and is in the early stages of introduction to wirehouses and banks. Competition The defined contribution marketplace is very competitive and is comprised of many providers – with no one company dominating the market for all products. We compete with numerous other financial services companies. The main factors upon which entities in this market compete are distribution channel access and the quality of wholesalers, investment performance, cost, product features, speed to market, brand recognition, financial strength ratings, crediting rates and client service. Overview INSURANCE SOLUTIONS The Insurance Solutions business provides its products through two segments: Life Insurance and Group Protection. The Life Insurance segment offers wealth protection and transfer opportunities through both individual and survivorship versions of UL and VUL, as well as term insurance and the MoneyGuard® product, a linked-benefit product (which is a UL policy linked with riders that provide for long-term care costs). The Group Protection segment focuses on offering group term life, disability income and dental insurance primarily in the small to mid-sized employer marketplace for their eligible employees. 9
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 and 10: Lincoln National Corporation Table
Page 11 and 12: PART I The “Business” section a
Page 13 and 14: Insurance Corporation’s (“FDIC
Page 15 and 16: charge period, which is generally h
Page 17: Individual fixed annuity account va
Page 21 and 22: customer. In either case, these amo
Page 23 and 24: management tracks the speed, accura
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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
Page 61 and 62: On January 8, 2009, the Office of T
Page 63 and 64: Critical Accounting Policies and Es
Page 65 and 66: Details underlying our prospective
Page 67 and 68: 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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Corporate Headquarters Lincoln Nati
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2008 Annual Report to Shareholders - Lincoln Financial Group

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