2008 Annual Report to Shareholders - Lincoln Financial Group

To Our Shareholders:
The Year in Review
2008 was a year of intensifying challenges for our industry. Along with many of our peers, Lincoln National Corporation
(“Lincoln”) faced elevated investment losses, earnings pressure brought on by a sharp decline in the equity markets, and
disappointing actions by the independent ratings agencies. In all, it was an unsatisfactory year in terms of Lincoln’s share price
performance and earnings results, and in addition, we made the necessary move to preserve capital by reducing the dividend.
As we took actions to deal with the extraordinary capital and investment markets, we also focused on our operations to uphold our
industry franchise position. Highlights of this included:
Realigning our businesses into Insurance Solutions and Retirement Solutions, a move that clarified our ongoing strategic focus
and effectiveness;
Strengthening our senior management with the hiring of two experienced executives to lead Lincoln Financial Distributors and
Human Resources;
Taking difficult but prudent steps to lower our costs through reductions in our operating expenses and in our workforce;
Adding new products and modifying our annuity income products to mitigate risk and increase profitability; and
Substantially increasing our communications with our business partners to help maintain these important relationships.
It is likely that the external conditions will continue to be difficult throughout 2009. However, we are confident in our competitive
position and our ability to adapt and manage through these volatile markets.
Here is a snapshot of our full year 2008 financial results:
Net income of $57 million, or $0.22 per diluted share;
$28.8 billion of consolidated retail deposits;
$2.5 billion of consolidated net retail flows;
$178.0 billion consolidated assets under management;
Life Insurance in force of $545.2 billion;
Group Protection sales of $316 million, premiums up 10%;
Individual variable annuities deposits of $10 billion, positive net flows; and
Defined Contribution deposits of $5.5 billion, net flows up 132%.
Keeping our Business Moving Forward
Despite the weakening economy, Lincoln experienced pockets of relative strength, specifically in the areas of Group Protection
and Lincoln Financial Network (“LFN”), our retail distribution organization. In addition, Lincoln maintained its market leadership
position within many of our distribution partner firms. We achieved positive net flows in Retirement Solutions and Insurance
Solutions for the fourth quarter and full year, reflecting retail and wholesale distribution strength and a comprehensive product
line-up.
In an increasingly uncertain world, our business model, the products we manufacture and the advice we deliver are even more
relevant in helping our customers secure their financial futures. Leveraging our powerful wholesale and retail distribution
organizations, we are undertaking even greater efforts to help clients make sense of the challenges of this economic environment
and how our products can assist them now and in the future. We are also continuing to develop new solutions and services, such
as our Lincoln AssetEdge SM variable life insurance product and our industry-leading underwriting capabilities that differentiate
Lincoln as an essential partner in this industry.
Powerful Advice-Focused Distribution
Our powerful wholesale and retail distribution expertise provided a strong defense against the external economic climate in 2008.
Lincoln Financial Distributors
Lincoln Financial Distributors (“LFD”), our wholesaling organization, continued to focus on positioning our firm for growth by
leveraging our strong wholesaler presence and delivering comprehensive Lincoln solutions to our strategic partner intermediary
firms and financial advisor clients. LFD successfully retained top talent and continued to empower its effective sales force of
wholesalers and sales managers.
Despite pressure from an increasingly challenging economic environment, LFD maintained leading market share positions in
variable annuity and life sales in many of our top strategic partner firms. LFD grew sales of MoneyGuard®, a universal life