2008 Annual Report to Shareholders - Lincoln Financial Group

Focused on Capital and Risk Management
With market conditions depressing our overall performance, during the second half of the year our priorities increasingly focused
on capital preservation and risk mitigation. To preserve and strengthen the company’s capital position, Lincoln took a number of
actions, such as engaging in expense reduction initiatives, suspending share buy-back programs and reducing its dividend.
Although the decision to reduce the dividend was a very difficult one, on balance, our Board of Directors believes that preserving
capital in this environment is in the long-term best interests of shareholders.
While it would be inaccurate to say that we anticipated the depth and severity of the market disruption, we put our investment
portfolio in a defensive position heading into 2008 by reducing our real estate and high-yield bond exposures. Prolonged weakness
in the economy will hurt even well-positioned and diversified bond portfolios, and therefore, we anticipate elevated levels of
impairments relative to historical default rates throughout 2009. We are continuing to hold more cash and focusing new purchases
on higher quality assets, as well as leveraging the fixed income expertise of Delaware Investments, Lincoln’s investment
management subsidiary which also manages our general account assets.
Responding to the extreme pressures in the economy, the major independent rating agencies have taken ratings actions designed to
reflect the impact of the severe equity market declines on life insurer’s earnings and capital. Currently, the ratings on our primary
insurance subsidiary for financial strength remain at strong “AA-” levels with several of the major rating agencies. However, given
the negative outlook on the industry and, in some cases, on Lincoln specifically, and overall market volatility, it is difficult to
predict the future actions of ratings agencies. This makes it even more vital that we continue to protect our capital base and reduce
risk.
Benefiting Others through Corporate Citizenship
During times like these, it is especially important to recognize that our commitment to corporate citizenship benefits all
stakeholders: shareholders, communities and employees.
In 2008, Lincoln Financial Foundation contributed more than $11 million to support nonprofit organizations in the communities
where our employees live and work, with a focus on supporting education and workforce development, providing for basic needs
and increasing access to the arts. Lincoln Foundation also contributed nearly $1 million to United Way agencies, and our
employees donated nearly $1 million to the United Way in workplace campaigns.
Lincoln remains committed to supporting volunteerism in three ways: participation on nonprofit boards; activities such as drives
for local charities, including food banks and blood drives; and through LIVE, Lincoln Invests in Volunteer Experiences, which
awarded nearly $40,000 to nonprofits in 2008 in recognition of employees donating 50 hours of personal volunteer time.
Our People are Leading the Charge
As part of our commitment to providing excellent products and service to our customers, Lincoln continued its commitment to
developing and retaining top talent in the insurance and financial services industry.
In 2008, we strengthened our culture by implementing a new performance management system designed to effectively help
managers and employees assess their career paths and goals and enhanced our leadership development through new programs that
reinforce our Leadership Expectations. Employees also had access to new resources to help them achieve their personal and
professional goals. In addition, we confirmed employees’ engagement in our strategic direction and our company through an
enterprise-wide survey, where we outperformed industry benchmarks for employee advocacy and passion for our brand.
Overall, our people strategy is to provide a rewarding environment where employees can grow both personally and professionally,
while offering tools that empower them to embrace their financial futures.
Making Progress in the Year Ahead
Recognizing the serious challenges facing us and our industry, and with a healthy respect for the unknown, we are nonetheless
confident that our business model, product solutions and advice will position us to make progress during this difficult period and
enable us to seize the opportunities that will emerge from this environment. With this in mind, our company is embracing the
following goals:
Adhere to our Retirement Solutions, Insurance Solutions, and Investment Management strategies for growth;
Continue to take market share by deepening our relationships with intermediaries and making sure clients understand and take
advantage of the innovative products and solutions we offer;
Work to exceed customers’ expectations by delivering a distinct experience that differentiates Lincoln as an essential partner in
this industry;
Continue our disciplined approach to product design, pricing and risk transfer;