0000726865srt:MinimumMemberus-gaap:FairValueInputsLevel3Membercik0000726865:FutureContractBenefitsIndexedAnnuityEmbeddedDerivativesMembercik0000726865:FutureContractBenefitsMemberus-gaap:MeasurementInputLapseRateMemberus-gaap:IncomeApproachValuationTechniqueMember2023-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

~~_________________~~_______________

(Mark One)

☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March 31, 2018~~ June 30, 2023

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to . ____________ to____________

Commission File ~~Number 1-6028~~ Number: 000-55871

_________________

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

_________________



Indiana	35-0472300
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~1300~~1301 South ~~Clinton~~Harrison Street, Fort Wayne, Indiana	46802
(Address of principal executive offices)	(Zip Code)

(260) 455-2000

(Registrant’s telephone number, including area ~~code:~~ ~~(260) 455-2000~~code)

_________________

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~


Large Accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated Filer	x	Smaller Reporting Company	¨
		Emerging Growth Company	¨

~~Large accelerated filer~~ ☐ ~~Accelerated filer~~ ☐ ~~Non-accelerated filer~~ ☒ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~ ☐ ~~Emerging growth company~~ ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May~~August 4, ~~2018,~~2023, 10,000,000 shares of common stock of the registrant ($2.50 par value) were outstanding, all of which were directly owned by Lincoln National Corporation.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND (b) OF

FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.

The Lincoln National Life Insurance Company

Table of Contents

Item

Page
PART I

1.
Financial Statements
1

2.
Management’s Narrative Analysis of The Results of Operations
42

    Forward-Looking Statements – Cautionary Language
42

    Critical Accounting Policies and Estimates
43

    Results of Consolidated Operations
44

    Results of Annuities
45

    Results of Retirement Plan Services
46

    Results of Life Insurance
47

    Results of Group Protection
48

    Results of Other Operations
49

    Realized Gain (Loss)
50

    Review of Consolidated Financial Condition
51

         Liquidity and Capital Resources
51

3.
Quantitative and Qualitative Disclosures About Market Risk
53

4.
Controls and Procedures
53

PART II

1.
Legal Proceedings
54

1A.
Risk Factors
54

2.
Unregistered Sales of Equity Securities and Use of Proceeds
55

5.
Other Information
55

6.
Exhibits
55

Exhibit Index for the Report on Form 10-Q
56

Signatures
57


		Page
PART I
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months
	ended June 30, 2023 and 2022	2
	Unaudited Consolidated Statements of Stockholders’ Equity for the three and six months
	ended June 30, 2023 and 2022	3
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	4
	Notes to Unaudited Consolidated Financial Statements:
	Note 1 – Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies	5
	Note 2 – New Accounting Standards	20
	Note 3 – Adoption of ASU 2018-12	20
	Note 4 – Investments	27
	Note 5 – Variable Interest Entities	38
	Note 6 – Derivatives	38
	Note 7 – DAC, VOBA, DSI and DFEL	47
	Note 8 – Reinsurance Note 9 – MRBs	49 50
	Note 10 – Separate Accounts	51
	Note 11 – Policyholder Account Balances	52
	Note 12 – Future Contract Benefits	55
	Note 13 – Fair Value of Financial Instruments	61
	Note 14 – Contingencies and Commitments	75
	Note 15 – Shares and Stockholder’s Equity	79
	Note 16 – Segment Information	81
	Note 17 – Realized Gain (Loss)	83
	Note 18 – Federal Income Taxes	84

Item 2.	Management’s Narrative Analysis of the Results of Operations	85
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	100
Item 4.	Controls and Procedures	102

PART II
Item 1.	Legal Proceedings	103
Item 1A.	Risk Factors	103
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103
Item 6.	Exhibits	103
	Exhibit Index for the Report on Form 10-Q	104
	Signatures	105

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CO~~NSOLIDATED~~CONSOLIDATED BALANCE SHEETS

(in millions, except share data)



		As of			As of			As of				As of
	March 31,			December 31,			June 30,				December 31,
		2018			2017			2023				2022
	(Unaudited)						(Unaudited)
ASSETS
Investments:
Available-for-sale securities, at fair value:
Fixed maturity securities (amortized cost: 2018 – $86,086; 2017 – $85,802)		$	90,709		$	93,340
Equity securities (cost: 2017 – $247)			-			246
Fixed maturity available-for-sale securities, at fair value
(amortized cost: 2023 - $110,681; 2022 - $110,944; allowance for credit losses: 2023 - $25; 2022 - $21)								$	103,119			$	99,465
Trading securities			1,468			1,533			2,895				3,446
Equity securities			112			-			403				427
Mortgage loans on real estate			10,954			10,662
Real estate			11			11
Mortgage loans on real estate, net of allowance for credit losses
(portion at fair value: 2023 - $404; 2022 - $487)									18,371				18,211
Policy loans			2,369			2,379			2,410				2,345
Derivative investments			725			845			5,065				3,519
Other investments			1,807			2,006			4,038				3,577
Total investments			108,155			111,022			136,301				130,990
Cash and invested cash			1,239			947			2,883				2,499
Deferred acquisition costs and value of business acquired			9,296			8,408
Premiums and fees receivable			479			394
Deferred acquisition costs, value of business acquired and deferred sales inducements									12,341				12,263
Reinsurance recoverables, net of allowance for credit losses									20,904				21,264
Market risk benefit assets									3,906				2,807
Accrued investment income			1,107			1,052			1,260				1,234
Reinsurance recoverables			6,707			6,515
Reinsurance related embedded derivatives			58			-
Funds withheld reinsurance assets			582			598
Goodwill			1,368			1,368			1,144				1,144
Other assets			7,382			7,349			20,788				19,926
Separate account assets			142,761			144,219			153,246				143,536
Total assets		$	279,134		$	281,872		$	352,773			$	335,663

LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Policyholder account balances								$	117,156			$	113,972
Future contract benefits		$	22,116		$	22,063			37,855				38,302
Other contract holder funds			79,998			79,481
Market risk benefit liabilities									1,548				2,078
Deferred front-end loads									5,444				5,045
Payables for collateral on investments									6,962				6,638
Short-term debt			39			10			273				562
Long-term debt			2,363			2,374			2,243				2,269
Reinsurance related embedded derivatives			-			51
Funds withheld reinsurance liabilities			4,588			4,348
Deferred gain on business sold through reinsurance			39			41
Payables for collateral on investments			4,172			4,354
Other liabilities			5,821			6,486			17,645				14,657
Separate account liabilities			142,761			144,219			153,246				143,536
Total liabilities			261,897			263,427			342,372				327,059

Contingencies and Commitments (See Note 9)
Contingencies and Commitments (See Note 14)

Stockholder’s Equity
Common stock – 10,000,000 shares authorized, issued and outstanding			10,712			10,713			12,935				12,903
Retained earnings			4,168			4,405			(730	)			1,414
Accumulated other comprehensive income (loss)			2,357			3,327			(1,804	)			(5,713	)
Total stockholder’s equity			17,237			18,445			10,401				8,604
Total liabilities and stockholder’s equity		$	279,134		$	281,872		$	352,773			$	335,663

‎

See accompanying Notes to Consolidated Financial Statements

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED ~~STATEMENTS~~STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)



	For the Three						For the Three						For the Six
	Months Ended						Months Ended						Months Ended
	March 31,						June 30,						June 30,
	2018			2017			2023			2022			2023			2022
Revenues
Insurance premiums	$	709		$	735		$	1,551		$	1,436		$	3,067		$	2,842
Fee income		1,391			1,291			1,307			1,349			2,628			2,743
Net investment income		1,176			1,176			1,476			1,338			2,885			2,690
Realized gain (loss):
Total other-than-temporary impairment losses on securities		(2	)		(4	)
Portion of loss recognized in other comprehensive income		-			-
Net other-than-temporary impairment losses on securities recognized in earnings		(2	)		(4	)
Realized gain (loss), excluding other-than-temporary impairment losses on securities		24			(85	)
Total realized gain (loss)		22			(89	)
Realized gain (loss)								(3,252	)		148			(3,646	)		508
Amortization of deferred gain (loss) on business sold through reinsurance		(1	)		17			8			10			17			20
Other revenues		107			99			157			133			313			287
Total revenues		3,404			3,229			1,247			4,414			5,264			9,090
Expenses
Benefits								1,676			1,922			3,872			4,024
Interest credited		645			639			804			706			1,585			1,399
Benefits		1,219			1,237
Market risk benefit (gain) loss								(1,238	)		716			(168	)		830
Policyholder liability remeasurement (gain) loss								(109	)		85			(227	)		126
Commissions and other expenses		1,010			964			1,281			1,158			2,530			2,370
Interest and debt expense		32			32			47			31			93			60
Strategic digitization expense		15			9
Spark program expense								41			44			64			75
Total expenses		2,921			2,881			2,502			4,662			7,749			8,884
Income (loss) before taxes		483			348			(1,255	)		(248	)		(2,485	)		206
Federal income tax expense (benefit)		76			(1	)		(299	)		(76	)		(601	)		(12	)
Net income (loss)		407			349			(956	)		(172	)		(1,884	)		218
Other comprehensive income (loss), net of tax:		(1,614	)		252
Unrealized investment gain (loss)								2,119			(6,518	)		3,896			(13,818	)
Market risk benefit non-performance risk gain (loss)								(924	)		354			102			374
Policyholder liability discount rate remeasurement gain (loss)								102			667			(88	)		1,426
Foreign currency translation adjustment								(1	)		-			(1	)		-
Funded status of employee benefit plans								-			1			-			-
Total other comprehensive income (loss), net of tax								1,296			(5,496	)		3,909			(12,018	)
Comprehensive income (loss)	$	(1,207	)	$	601		$	340		$	(5,668	)	$	2,025		$	(11,800	)

‎

See accompanying Notes to Consolidated Financial Statements

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

~~CONSOLIDATED~~CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(Unaudited, in millions)



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022

Common Stock
Balance as of beginning-of-period	$	12,922		$	11,948		$	12,903		$	11,950
Capital contribution from Lincoln National Corporation		-			65			5			65
Stock compensation/issued for benefit plans		13			7			27			5
Balance as of end-of-period		12,935			12,020			12,935			12,020

Retained Earnings
Balance as of beginning-of-period		381			4,099			1,414			3,734
Net income (loss)		(956	)		(172	)		(1,884	)		218
Dividends paid to Lincoln National Corporation		(155	)		(280	)		(260	)		(305	)
Balance as of end-of-period		(730	)		3,647			(730	)		3,647

Accumulated Other Comprehensive Income (Loss)
Balance as of beginning-of-period		(3,100	)		3,728			(5,713	)		10,250
Other comprehensive income (loss), net of tax		1,296			(5,496	)		3,909			(12,018	)
Balance as of end-of-period		(1,804	)		(1,768	)		(1,804	)		(1,768	)
Total stockholder’s equity as of end-of-period	$	10,401		$	13,899		$	10,401		$	13,899

For the Three

Months Ended

March 31,

2018

2017

Common Stock

Balance as of beginning-of-year
$
10,713

$
10,696

Stock compensation/issued for benefit plans

(1
)

(4
)
Balance as of end-of-period

10,712

10,692

Retained Earnings

Balance as of beginning-of-year

4,405

3,342

Cumulative effect from adoption of new accounting standards

(644
)

-

Net income (loss)

407

349

Dividends declared

-

(210
)
Balance as of end-of-period

4,168

3,481

Accumulated Other Comprehensive Income (Loss)

Balance as of beginning-of-year

3,327

1,782

Cumulative effect from adoption of new accounting standards

644

-

Other comprehensive income (loss), net of tax

(1,614
)

252

Balance as of end-of-period

2,357

2,034

Total stockholder’s equity as of end-of-period
$
17,237

$
16,207

‎

See accompanying Notes to Consolidated Financial Statements

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	For the Three						For the Six
	Months Ended						Months Ended
	March 31,						June 30,
	2018			2017			2023			2022
Cash Flows from Operating Activities
Net income (loss)	$	407		$	349		$	(1,884	)	$	218
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Realized (gain) loss								3,646			(508	)
Market risk benefit (gain) loss								(168	)		830
Sales and maturities (purchases) of trading securities, net								603			109
Amortization of deferred gain (loss) on business sold through reinsurance								(17	)		(20	)
Change in:
Deferred acquisition costs, value of business acquired, deferred sales inducements
and deferred front-end loads deferrals and interest, net of amortization		(5	)		4
Trading securities purchases, sales and maturities, net		38			23
Change in premiums and fees receivable		(85	)		(36	)
Change in accrued investment income		(43	)		(54	)
Change in future contract benefits and other contract holder funds		365			(189	)
Change in reinsurance related assets and liabilities		(520	)		34
Change in federal income tax accruals		76			(1	)
Realized (gain) loss		(22	)		89
Amortization of deferred (gain) loss on business sold through reinsurance		1			(17	)
Change in cash management agreement		128			(33	)
and deferred front-end loads								321			248
Accrued investment income								(8	)		(40	)
Insurance liabilities and reinsurance-related balances								(1,029	)		(258	)
Accrued expenses								(55	)		(344	)
Federal income tax accruals								(593	)		11
Cash management agreement								(594	)		2,427
Other		30			(53	)		(120	)		110
Net cash provided by (used in) operating activities		370			116			102			2,783

Cash Flows from Investing Activities
Purchases of available-for-sale securities and equity securities		(2,005	)		(3,014	)		(5,256	)		(8,090	)
Sales of available-for-sale securities and equity securities		430			457			2,405			236
Maturities of available-for-sale securities		1,353			1,279			2,741			3,165
Purchases of alternative investments		(63	)		(53	)		(317	)		(300	)
Sales and repayments of alternative investments		31			53			64			181
Proceeds from affiliate transfer of alternative investments		-			64
Issuance of mortgage loans on real estate		(546	)		(331	)		(719	)		(1,366	)
Repayment and maturities of mortgage loans on real estate		253			217			524			1,422
Issuance and repayment of policy loans, net		11			18
Net change in collateral on investments, derivatives and related settlements		(108	)		(15	)
Repayment (issuance) of policy loans, net								(68	)		(6	)
Net change in collateral on investments, certain derivatives and related settlements								(444	)		(2,322	)
Other		(33	)		(25	)		(158	)		(93	)
Net cash provided by (used in) investing activities		(677	)		(1,350	)		(1,228	)		(7,173	)

Cash Flows from Financing Activities
Capital contribution from Lincoln National Corporation								5			65
Payment of long-term debt, including current maturities								-			(40	)
Issuance (payment) of short-term debt		29			18			(288	)		(385	)
Deposits of fixed account values, including the fixed portion of variable		2,759			2,707
Withdrawals of fixed account values, including the fixed portion of variable		(1,486	)		(1,506	)
Transfers to and from separate accounts, net		(686	)		(356	)
Payment related to sale-leaseback transactions								(58	)		(47	)
Proceeds from certain financing arrangements								65			53
Payment related to certain financing arrangements								(20	)		-
Deposits of fixed account balances								7,516			7,412
Withdrawals of fixed account balances								(5,063	)		(3,538	)
Transfers from (to) separate accounts, net								(381	)		142
Common stock issued for benefit plans		(17	)		(18	)		(6	)		(21	)
Dividends paid		-			(210	)
Dividends paid to Lincoln National Corporation								(260	)		(305	)
Net cash provided by (used in) financing activities		599			635			1,510			3,336

Net increase (decrease) in cash, invested cash and restricted cash		292			(599	)		384			(1,054	)
Cash, invested cash and restricted cash as of beginning-of-year		947			2,057			2,499			2,331
Cash, invested cash and restricted cash as of end-of-period	$	1,239		$	1,458		$	2,883		$	1,277

See accompanying Notes to Consolidated Financial Statements

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations ~~and Basis of Presentation~~

~~Nature of Operations~~

The Lincoln National Life Insurance Company (“LNL” or the “Company,” which also may be referred to as “we,” “our” or “us”), a wholly-owned subsidiary of Lincoln National Corporation (“LNC” or the “Parent Company”), is domiciled in the state of Indiana. We own 100% of the outstanding common stock of one insurance company subsidiary, Lincoln Life & Annuity Company of New York (“LLANY”)~~, our insurance company subsidiary.~~. We also own several non-insurance companies, including Lincoln Financial Distributors, our wholesale distributor, and Lincoln Financial Advisors Corporation, part of LNC’s ~~wholesaling~~retail distributor, Lincoln Financial Network. LNL is licensed and ~~retailing business units, respectively.~~sells its products throughout the U.S. and several U.S. territories. Through our business segments, we sell a wide range of wealth protection, accumulation, group protection and retirement income products and solutions. These products primarily include ~~fixed and indexed annuities, variable annuities,~~ universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL and VUL, indexed universal life insurance (“IUL”), term life insurance, fixed and indexed annuities, variable annuities, group life, disability and dental and employer-sponsored retirement plans and ~~services,~~services. For more information on our segments and ~~group life, disability~~the products and ~~dental. LNL is licensed and sells its products throughout the U.S. and several U.S. territories. See~~solutions we provide, see Note ~~13 for additional information.~~16.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. ~~Therefore, the~~The information contained in the Notes to Consolidated Financial Statements included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2022, as amended by Amendment No. 1 thereto (“~~2017~~2022 Form 10-K”),as updated by our Current Report on Form 8-K filed with the SEC on May 23, 2023 (the “May 2023 Form 8-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized ~~in our 2017 Form 10-K.~~below.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. ~~Operating~~Interim results for the ~~three~~six months ended ~~March 31, 2018,~~June 30, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2018.~~2023. All material inter-company accounts and transactions have been eliminated in consolidation.

Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the presentation adopted in the current period.

We present disaggregated disclosures in the Notes below for long-duration insurance balances, applying the level of aggregation by reportable segment as follows:

Reportable Segment	Level of Aggregation
Life Insurance	Traditional Life
	UL and Other
Annuities	Variable Annuities
	Fixed Annuities
	Payout Annuities
Group Protection	Group Protection
Retirement Plan Services	Retirement Plan Services

The fixed annuities level of aggregation represents deferred fixed annuities. We have excluded amounts reported in Other Operations from our disaggregated disclosures that are attributable to the indemnity reinsurance agreements with Protective Life Insurance Company (“Protective”) and Swiss Re Life & Health America, Inc (“Swiss Re”) as these contracts are fully reinsured, run-off institutional pension business in the form of group annuity and the results of certain disability income business and not reflected in the results of the reportable segments listed above.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of LNL and all other entities in which we have a controlling financial interest and any variable interest entities (“VIEs”) in which we are the primary beneficiary. We use the equity method of

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accounting to recognize all of our investments in limited liability partnerships. All material inter-company accounts and transactions have been eliminated in consolidation.

Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in the consolidated financial statements.

Accounting Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. In applying these estimates and assumptions, management makes subjective and complex judgments that frequently require assumptions about matters that are uncertain and inherently subject to change, including matters related to or impacted by the COVID-19 pandemic. Actual results could differ from these estimates and assumptions. Included among the material (or potentially material) reported amounts and disclosures that require use of estimates are: fair value of certain financial assets, derivatives, allowances for credit losses, deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”), goodwill and other intangibles, market risk benefits (“MRBs”), future contract benefits, deferred front-end loads (“DFEL”), pension plans, stock-based incentive compensation, income taxes including the recoverability of our deferred tax assets, and the potential effects of resolving litigated matters.

Business Combinations

We use the acquisition method of accounting for all business combination transactions, and accordingly, recognize the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the consolidated financial statements. The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period as more information becomes available relative to the fair values as of the acquisition date. The consolidated financial statements include the results of operations of any acquired company since the acquisition date.

Fair Value Measurement

Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset or non-performance risk, which would include our own credit risk. Our estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability, as opposed to the price that would be paid to acquire the asset or receive a liability (“entry price”). Pursuant to the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification^TM (“ASC”), we categorize our financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date, except for large holdings subject to “blockage discounts” that are excluded;

Level 2 – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and

Level 3 – inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and we make estimates and assumptions related to the pricing of the asset or liability, including assumptions regarding risk.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment.

When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult. However, Level 3 fair value investments may include, in addition to the unobservable or Level 3 inputs, observable components, which are components that are actively quoted or can be validated to market-based sources.

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Fixed Maturity Available-For-Sale Securities – Fair Valuation Methodologies and Associated Inputs

Securities classified as available-for-sale (“AFS”) consist of fixed maturity securities and are stated at fair value with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”). We measure the fair value of our securities classified as fixed maturity AFS based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity security, and we consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is based on a market approach that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach primarily include third-party pricing services, independent broker quotations or pricing matrices. We do not adjust prices received from third parties; however, we do analyze the third-party pricing services’ valuation methodologies and related inputs and perform additional evaluation to determine the appropriate level within the fair value hierarchy.

The observable and unobservable inputs to our valuation methodologies are based on a set of standard inputs that we generally use to evaluate all of our fixed maturity AFS securities. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. In addition, market indicators, industry and economic events are monitored, and further market data is acquired if certain triggers are met. For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. For private placement securities, we use pricing matrices that utilize observable pricing inputs of similar public securities and Treasury yields as inputs to the fair value measurement. Depending on the type of security or the daily market activity, standard inputs may be prioritized differently or may not be available for all fixed maturity AFS securities on any given day. For broker-quoted only securities, non-binding quotes from market makers or broker-dealers are obtained from sources recognized as market participants. For securities trading in less liquid or illiquid markets with limited or no pricing information, we use unobservable inputs to measure fair value.

The following summarizes our fair valuation methodologies and associated inputs, which are particular to the specified security type and are in addition to the defined standard inputs to our valuation methodologies for all of our fixed maturity AFS securities discussed above:

Corporate bonds and U.S. government bonds – We also use Trade Reporting and Compliance Engine^TM reported tables for our corporate bonds and vendor trading platform data for our U.S. government bonds.

Mortgage and asset-backed securities (“ABS”) – We also utilize additional inputs, which include new issues data, monthly payment information and monthly collateral performance, including prepayments, severity, delinquencies, step-down features and over collateralization features for each of our mortgage-backed securities (“MBS”), which include collateralized mortgage obligations and mortgage pass through securities backed by residential mortgages (“RMBS”), commercial mortgage-backed securities (“CMBS”) and collateralized loan obligations (“CLOs”).

State and municipal bonds – We also use additional inputs that include information from the Municipal Securities Rule Making Board, as well as material event notices, new issue data, issuer financial statements and Municipal Market Data benchmark yields for our state and municipal bonds.

Hybrid and redeemable preferred securities – We also utilize additional inputs of exchange prices (underlying and common stock of the same issuer) for our hybrid and redeemable preferred securities.

In order to validate the pricing information and broker-dealer quotes, we employ, where possible, procedures that include comparisons with similar observable positions, comparisons with subsequent sales and observations of general market movements for those security classes. We have policies and procedures in place to review the process that is utilized by our third-party pricing service and the output that is provided to us by the pricing service. On a periodic basis, we test the pricing for a sample of securities to evaluate the inputs and assumptions used by the pricing service, and we perform a comparison of the pricing service output to an alternative pricing source. We also evaluate prices provided by our primary pricing service to ensure that they are not stale or unreasonable by reviewing the prices for unusual changes from period to period based on certain parameters or for lack of change from one period to the next.

Fixed Maturity AFS Securities – Evaluation for Recovery of Amortized Cost

We regularly review our fixed maturity AFS securities (also referred to as “debt securities”) for declines in fair value that we determine to be impairment-related, including those attributable to credit risk factors that may require a credit loss allowance.

For our debt securities, we generally consider the following to determine whether our debt securities with unrealized losses are credit impaired:

The estimated range and average period until recovery;

The estimated range and average holding period to maturity;

Remaining payment terms of the security;

Current delinquencies and nonperforming assets of underlying collateral;

Expected future default rates;

Collateral value by vintage, geographic region, industry concentration or property type;

Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and

Contractual and regulatory cash obligations.

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For a debt security, if we intend to sell a security, or it is more likely than not we will be required to sell a debt security before recovery of its amortized cost basis and the fair value of the debt security is below amortized cost, we conclude that an impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). If we do not intend to sell a debt security, or it is not more likely than not we will be required to sell a debt security before recovery of its amortized cost basis but the present value of the cash flows expected to be collected is less than the amortized cost of the debt security (referred to as the credit loss), we conclude that an impairment has occurred, and a credit loss allowance is recorded, with a corresponding charge to realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). The remainder of the decline to fair value related to factors other than credit loss is recorded in other comprehensive income (“OCI”) to unrealized losses on fixed maturity AFS securities on the Consolidated Statements of Stockholder’s Equity, as this amount is considered a noncredit impairment.

When assessing our intent to sell a debt security, or if it is more likely than not we will be required to sell a debt security before recovery of its cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio, sales of securities to meet cash flow needs and sales of securities to capitalize on favorable pricing. Management considers the following as part of the evaluation:

The current economic environment and market conditions;

Our business strategy and current business plans;

The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;

Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies;

The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts;

The capital risk limits approved by management; and

Our current financial condition and liquidity demands.

In order to determine the amount of the credit loss for a debt security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover. The discount rate is the effective interest rate implicit in the underlying debt security. The effective interest rate is the original yield, or the coupon if the debt security was previously impaired. See the discussion below for additional information on the methodology and significant inputs, by security type, that we use to determine the amount of a credit loss.

To determine the recovery period of a debt security, we consider the facts and circumstances surrounding the underlying issuer including, but not limited to, the following:

Historical and implied volatility of the security;

The extent to which the fair value has been less than amortized cost;

Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;

Failure, if any, of the issuer of the security to make scheduled payments; and

Recoveries or additional declines in fair value subsequent to the balance sheet date.

In periods subsequent to the recognition of a credit loss impairment through a credit loss allowance, we continue to reassess the expected cash flows of the debt security at each subsequent measurement date as necessary. If the measurement of credit loss changes, we recognize a provision for (or reversal of) credit loss expense through realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss), limited by the amount that amortized cost exceeds fair value. Losses are charged against the allowance for credit losses when management believes the uncollectibility of a debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest on debt securities is written-off when deemed uncollectible.

To determine the recovery value of a corporate bond or CLO, we perform additional analysis related to the underlying issuer including, but not limited to, the following:

Fundamentals of the issuer to determine what we would recover if they were to file bankruptcy versus the price at which the market is trading;

Fundamentals of the industry in which the issuer operates;

Earnings multiples for the given industry or sector of an industry that the underlying issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;

Expected cash flows of the issuer (e.g., whether the issuer has cash flows in excess of what is required to fund its operations);

Expectations regarding defaults and recovery rates;

Changes to the rating of the security by a rating agency; and

Additional market information (e.g., if there has been a replacement of the corporate debt security).

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Each quarter, we review the cash flows for the MBS portfolio, including current credit enhancements and trends in the underlying collateral performance to determine whether or not they are sufficient to provide for the recovery of our amortized cost. To determine recovery value of a MBS, we perform additional analysis related to the underlying issuer including, but not limited to, the following:

Discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover;

Level of borrower creditworthiness of the home equity loans or residential mortgages that back an RMBS or commercial mortgages that back a CMBS;

Susceptibility to fair value fluctuations for changes in the interest rate environment;

Susceptibility to reinvestment risks, in cases where market yields are lower than the securities’ book yield earned;

Susceptibility to reinvestment risks, in cases where market yields are higher than the book yields earned on a security;

Expectations of sale of such a security where market yields are higher than the book yields earned on a security; and

Susceptibility to variability of prepayments.

When evaluating MBS and mortgage-related ABS, we consider a number of pool-specific factors as well as market level factors when determining whether or not the impairment on the security requires a credit loss allowance. The most important factor is the performance of the underlying collateral in the security and the trends of that performance in the prior periods. We use this information about the collateral to forecast the timing and rate of mortgage loan defaults, including making projections for loans that are already delinquent and for those loans that are currently performing but may become delinquent in the future. Other factors used in this analysis include the credit characteristics of borrowers, geographic distribution of underlying loans and timing of liquidations by state. Once default rates and timing assumptions are determined, we then make assumptions regarding the severity of a default if it were to occur. Factors that impact the severity assumption include expectations for future home price appreciation or depreciation, loan size, first lien versus second lien, existence of loan level private mortgage insurance, type of occupancy and geographic distribution of loans. Once default and severity assumptions are determined for the security in question, cash flows for the underlying collateral are projected including expected defaults and prepayments. These cash flows on the collateral are then translated to cash flows on our tranche based on the cash flow waterfall of the entire capital security structure. If this analysis indicates the entire principal on a particular security will not be returned, the security is reviewed for a credit loss by comparing the expected cash flows to amortized cost. To the extent that the security has already been impaired through a credit loss allowance or was purchased at a discount, such that the amortized cost of the security is less than or equal to the present value of cash flows expected to be collected, no credit loss allowance is required. Otherwise, if the amortized cost of the security is greater than the present value of the cash flows expected to be collected, and the security was not purchased at a discount greater than the expected principal loss, then an impairment through a credit loss allowance is recognized.

We further monitor the cash flows of all of our debt securities backed by mortgages on an ongoing basis. We also perform detailed analysis on all of our subprime, Alt-A, non-agency residential MBS and on a significant percentage of our debt securities backed by pools of commercial mortgages. The detailed analysis includes revising projected cash flows by updating the cash flows for actual cash received and applying assumptions with respect to expected defaults, foreclosures and recoveries in the future. These revised projected cash flows are then compared to the amount of credit enhancement (subordination) in the structure to determine whether the amortized cost of the security is recoverable. If it is not recoverable, we record an impairment through a credit loss allowance for the security.

Trading Securities

Trading securities consist of fixed maturity securities in designated portfolios, some of which support modified coinsurance and coinsurance with funds withheld reinsurance agreements. Investment results for the portfolios that support modified coinsurance and coinsurance with funds withheld reinsurance agreements, including gains and losses from sales, are passed directly to the reinsurers pursuant to contractual terms of the reinsurance agreements. Trading securities are carried at fair value, and changes in fair value and changes in the fair value of embedded derivative liabilities associated with the underlying reinsurance agreements are recorded in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss) as they occur.

Equity Securities

Equity securities are carried at fair value, and changes in fair value are recorded in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss) as they occur. Equity securities consist primarily of common stock of publicly-traded companies, privately placed securities and mutual fund shares. We measure the fair value of our equity securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific characteristics of the equity security. Fair values of publicly-traded equity securities are determined using quoted prices in active markets for identical or comparable securities. When quoted prices are not available, we use valuation methodologies most appropriate for the specific asset. Fair values for private placement securities are determined using discounted cash flow, earnings multiple and other valuation models. The fair values of mutual fund shares that transact regularly are based on transaction prices of identical fund shares.

Mortgage Loans on Real Estate

Mortgage loans on real estate consist of commercial and residential mortgage loans and are generally carried at unpaid principal balances adjusted for amortization of premiums and accretion of discounts and are net of allowance for credit losses. We carry certain commercial mortgage loans associated with modified coinsurance agreements at fair value where the fair value option has been elected. Interest

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income is accrued on the principal balance of the loan based on the loan’s contractual interest rate. Premiums and discounts are amortized using the effective yield method over the life of the loan. Interest income and amortization of premiums and discounts are reported in net investment income on the Consolidated Statements of Comprehensive Income (Loss) along with mortgage loan fees, which are recorded as they are incurred.

Our policy for commercial mortgage loans is to report loans that are 60 or more days past due, which equates to two or more payments missed, as delinquent. Our policy for residential mortgage loans is to report loans that are 90 or more days past due, which equates to three or more payments missed, as delinquent. We do not accrue interest on loans 90 days past due, and any interest received on these loans is either applied to the principal or recorded in net investment income on the Consolidated Statements of Comprehensive Income (Loss) when received, depending on the assessment of the collectability of the loan. We resume accruing interest once a loan complies with all of its original terms or restructured terms. Mortgage loans deemed uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are likewise credited to the allowance for credit losses. Accrued interest on mortgage loans is written-off when deemed uncollectible.

In connection with our recognition of an allowance for credit losses for mortgage loans on real estate, we perform a quantitative analysis using a probability of default/loss given default/exposure at default approach to estimate expected credit losses in our mortgage loan portfolio as well as unfunded commitments related to commercial mortgage loans, exclusive of certain mortgage loans held at fair value. Our model estimates expected credit losses over the contractual terms of the loans, which are the periods over which we are exposed to credit risk, adjusted for expected prepayments. Credit loss estimates are segmented by commercial mortgage loans, residential mortgage loans, and unfunded commitments related to commercial mortgage loans.

The allowance for credit losses for pooled loans of similar risk (i.e., commercial and residential mortgage loans) is estimated using relevant historical credit loss information adjusted for current conditions and reasonable and supportable forecasts of future conditions. Historical credit loss experience provides the basis for the estimation of expected credit losses with adjustments for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term lengths as well as adjustments for changes in environmental conditions, such as unemployment rates, property values, or other factors that management deems relevant. We apply probability weights to the positive, base and adverse scenarios we use. For periods beyond our reasonable and supportable forecast, we use implicit mean reversion over the remaining life of the recoverable, meaning our model will inherently revert to the baseline scenario as the baseline is representative of the historical average over a longer period of time.

Loans are considered impaired when it is probable that, based upon current information and events, we will be unable to collect all amounts due under the contractual terms of the loan agreement. When we determine that a loan is impaired, a specific credit loss allowance is established for the excess carrying value of the loan over its estimated value. The loan’s estimated value is based on: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the loan’s collateral.

Allowance for credit losses are maintained at a level we believe is adequate to absorb current expected lifetime credit losses. Our periodic evaluation of the adequacy of the allowance for credit losses is based on historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions, reasonable and supportable forecasts about the future and other relevant factors.

Mortgage loans on real estate are presented net of the allowance for credit losses on the Consolidated Balance Sheets. Changes in the allowance are reported in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). Mortgage loans on real estate deemed uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for credit losses, limited to the aggregate of amounts previously charged-off and expected to be charged-off.

Our commercial loan portfolio is primarily comprised of long-term loans secured by existing commercial real estate. We believe all of the commercial loans in our portfolio share three primary risks: borrower credit worthiness; sustainability of the cash flow of the property; and market risk; therefore, our methods of monitoring and assessing credit risk are consistent for our entire portfolio.

For our commercial mortgage loan portfolio, trends in market vacancy and rental rates are incorporated into the analysis that we perform for monitored loans and may contribute to the establishment of (or an increase or decrease in) an allowance for credit losses. In addition, we review each loan individually in our commercial mortgage loan portfolio on an annual basis to identify emerging risks. We focus on properties that experienced a reduction in debt-service coverage or that have significant exposure to tenants with deteriorating credit profiles. Where warranted, we establish or increase a credit loss allowance for a specific loan based upon this analysis.

We measure and assess the credit quality of our commercial mortgage loans by using loan-to-value and debt-service coverage ratios. The loan-to-value ratio compares the principal amount of the loan to the fair value at origination of the underlying property collateralizing the loan and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the principal amount is greater than the collateral value. Therefore, all else being equal, a lower loan-to-value ratio generally indicates a higher quality loan. The debt-service coverage ratio compares a property’s net operating income to its debt-service payments. Debt-service coverage ratios of less than 1.0 indicate that property operations do not generate enough income to cover its current debt payments. Therefore, all else being equal, a

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higher debt-service coverage ratio generally indicates a higher quality loan. These credit quality metrics are monitored and reviewed at least annually.

We have off-balance sheet commitments related to commercial mortgage loans. As such, an allowance for credit losses is developed based on the commercial mortgage loan process outlined above, along with an internally developed conversion factor.

Our residential loan portfolio is primarily comprised of first lien mortgages secured by existing residential real estate. In contrast to the commercial mortgage loan portfolio, residential mortgage loans are primarily smaller-balance homogenous loans that share similar risk characteristics. Therefore, these pools of loans are collectively evaluated for inherent credit losses. Such evaluations consider numerous factors, including, but not limited to borrower credit scores, collateral values, loss forecasts, geographic location, delinquency rates and economic trends. These evaluations and assessments are revised as conditions change and new information becomes available, including updated forecasts, which can cause the allowance for credit losses to increase or decrease over time as such evaluations are revised. Generally, residential mortgage loan pools exclude loans that are nonperforming, as those loans are evaluated individually using the evaluation framework for specific allowance for credit losses described above.

For residential mortgage loans, our primary credit quality indicator is whether the loan is performing or nonperforming. We generally define nonperforming residential mortgage loans as those that are 90 or more days past due and/or in nonaccrual status. There is generally a higher risk of experiencing credit losses when a residential mortgage loan is nonperforming. We monitor and update aging schedules and nonaccrual status on a monthly basis.

Policy Loans

Policy loans represent loans we issue to policyholders that use the cash surrender value of their life insurance policy as collateral. Policy loans are carried at unpaid principal balances.

Derivative Instruments

We hedge certain portions of our exposure to interest rate risk, foreign currency exchange risk, equity market risk and credit risk by entering into derivative transactions. Our derivative instruments are recognized as either assets or liabilities on the Consolidated Balance Sheets at estimated fair value. We have master netting agreements with each of our derivative counterparties that allow for the netting of our derivative asset and liability positions by counterparty. We categorize derivatives into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique as discussed above in “Fair Value Measurement.” The accounting for changes in the estimated fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged: as a cash flow hedge or a fair value hedge.

For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into net income in the same period or periods during which the hedged transaction affects net income. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of designated future cash flows of the hedged item (hedge ineffectiveness), if any, is recognized in net income during the period of change. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in net income during the period of change in estimated fair values. For derivative instruments not designated as hedging instruments, but that are economic hedges, the gain or loss is recognized in net income.

We purchase and issue financial instruments and products that contain embedded derivative instruments that are recorded with the associated host contract. When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes and reported within other assets or other liabilities on the Consolidated Balance Sheets. The embedded derivative is carried at fair value with changes in fair value recognized in net income during the period of change.

We employ several different methods for determining the fair value of our derivative instruments. The fair value of our derivative contracts are measured based on current settlement values, which are based on quoted market prices, industry standard models that are commercially available and broker quotes. These techniques project cash flows of the derivatives using current and implied future market conditions. We calculate the present value of the cash flows to measure the current fair market value of the derivative.

Other Investments

Other investments consist primarily of alternative investments, cash collateral receivables related to our derivative instruments, Federal Home Loan Bank (“FHLB”) common stock and short-term investments.

Alternative investments consist primarily of investments in limited partnerships (“LPs”). We account for our investments in LPs using the equity method to determine the carrying value. Recognition of alternative investment income is delayed due to the availability of the

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related financial statements, which are generally obtained from the partnerships’ general partners. As a result, our private equity investments are generally on a three-month delay and our hedge funds are on a one-month delay. In addition, the impact of audit adjustments related to completion of calendar-year financial statement audits of the investees are typically received during the second quarter of each calendar year. Accordingly, our investment income from alternative investments for any calendar-year period may not include the complete impact of the change in the underlying net assets for the partnership for that calendar-year period.

In uncleared derivative transactions, we and the counterparty enter into a credit support annex requiring either party to post collateral, which may be in the form of cash, equal to the net derivative exposure. Cash collateral we have posted to a counterparty is recorded within other investments. Cash collateral a counterparty has posted is recorded within payables for collateral on investments. We also have investments in FHLB common stock, carried at cost, that enable access to the FHLB lending program. For more information on our collateralized financing arrangements, see “Payables for Collateral on Investments” below.

Short-term investments consist of securities with original maturities of one year or less, but greater than three months. Securities included in short-term investments are carried at fair value, with valuation methods and inputs consistent with those applied to fixed maturity AFS securities.

Cash and Invested Cash

Cash and invested cash is carried at cost and includes all highly liquid debt instruments purchased with an original maturity of three months or less.

DAC, VOBA, DSI and DFEL

Acquisition costs directly related to successful contract acquisitions or renewals of UL, VUL, traditional life insurance, group life and disability insurance, annuities and other investment contracts have been deferred (i.e., DAC). Such acquisition costs are capitalized in the period they are incurred and primarily include commissions, certain bonuses, portion of total compensation and benefits of certain employees involved in the acquisition process and medical and inspection fees. VOBA is an intangible asset that reflects the estimated fair value of in-force contracts in a life insurance company acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in force at the acquisition date. Bonus credits and excess interest for dollar cost averaging contracts are considered DSI and reported in deferred acquisition costs, value of business acquired and deferred sales inducements on the Consolidated Balance Sheets. Contract sales charges that are collected in the early years of an insurance contract are deferred and reported as deferred front-end loads (i.e., DFEL) on the Consolidated Balance Sheets.

DAC, VOBA, DSI and DFEL amortization is reported within the following financial statement line items on the Consolidated Statements of Comprehensive Income (Loss):

DAC and VOBA – commissions and other expenses

DSI – interest credited

DFEL – fee income

DAC, VOBA, DSI and DFEL are amortized on a constant level basis relative to the insurance in force over the expected term of the related contracts using the groupings and actuarial assumptions that are consistent with those used for calculating the related policyholder liability balances. Actuarial assumptions include, but are not limited to, mortality, morbidity and certain policyholder behaviors such as persistency, which are adjusted for emerging experience and expected trends of the related long-duration insurance contracts and certain investment contracts by each reportable segment. During the third quarter of each year, we conduct our comprehensive review and update these actuarial assumptions. We may update our actuarial assumptions in other quarters as we become aware of information that warrants updating outside of our comprehensive review. These resulting changes are applied prospectively.

The following provides a summary of our DAC, VOBA, DSI and DFEL amortization basis and expected amortization period by reportable segment:

Reportable Segment	Amortization Basis	Expected Amortization Period
Life Insurance	Policy count of policies in force	On average 60 years
Annuities	Total deposits paid to date on policies in force	Between 30 to 40 years
Group Protection	Group certificate contracts in force	4 years
Retirement Plan Services	Lives in force	Between 40 to 50 years

We account for modifications of insurance contracts that result in a substantially unchanged contract as a continuation of the replaced contract. We account for modifications of insurance contracts that result in a substantially changed contract as an extinguishment of the replaced contract.

For reinsurance transactions where we receive proceeds that represent recovery of our previously incurred acquisition costs, we reduce the applicable unamortized acquisition cost such that net acquisition costs are capitalized and charged to commissions and other expenses.

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Reinsurance

We and LLANY enter into reinsurance agreements in the normal course of business to limit our exposure to the risk of loss and to enhance our capital management.

In order for a reinsurance agreement to qualify for reinsurance accounting, the agreement must satisfy certain risk transfer conditions that include, among other items, a reasonable possibility of a significant loss for the assuming entity. When we apply reinsurance accounting, premiums, benefits and DAC amortization are reported net of reinsurance ceded, as applicable, on the Consolidated Statements of Comprehensive Income (Loss). Amounts currently recoverable, such as ceded reserves, other than ceded MRBs, are reported in reinsurance recoverables, and amounts currently payable to the reinsurers, such as premiums, are included in other liabilities on the Consolidated Balance Sheets.

We use deposit accounting to recognize reinsurance agreements that do not transfer significant insurance risk. This accounting treatment results in amounts paid or received by us to be considered on deposit with the reinsurer and such amounts are reported in other assets and other liabilities, respectively, on the Consolidated Balance Sheets. As amounts are paid or received, consistent with the underlying contracts, deposit assets or liabilities are adjusted. When there is a contractual right of offset, assets and liabilities and revenues and expenses from certain reinsurance contracts that grant statutory surplus relief to our insurance companies are netted on the Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss), respectively.

Reinsurance recoverables are measured and recognized consistent with the liabilities related to the underlying contracts. The interest assumption used for discounting reinsurance recoverables associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts is the upper-medium grade fixed income instrument (“single-A”) interest rate locked-in at the reinsurance contract issuance date. We remeasure reinsurance recoverables associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts with the current single-A interest rate as of the end of each reporting period. Ceded MRBs are accounted for separately from reinsurance recoverables. See “MRBs” below for additional information. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies and is reported within other assets on the Consolidated Balance Sheets.

We estimated an allowance for credit losses for all reinsurance recoverables and related reinsurance deposit assets held by our subsidiaries, other than ceded MRB assets. As such, we performed a quantitative analysis using a probability of loss model approach to estimate expected credit losses for reinsurance recoverables, inclusive of similar assets recognized using the deposit method of accounting. The credit loss allowance is a general allowance for pools of receivables with similar risk characteristics segmented by credit risk ratings and receivables assessed on an individual basis that do not share similar risk characteristics where we anticipate a credit loss over the life of reinsurance-related assets, other than ceded MRB assets.

Our model uses relevant internal or external historical loss information adjusted for current conditions and reasonable and supportable forecasts of future events and conditions in developing our credit loss estimate. We utilized historical credit rating data to form an estimation of probability of default of counterparties by means of a transition matrix that provides the rates of credit migration for credit ratings transitioning to impairment. We updated reinsurer credit ratings during the period to incorporate the most up-to-date information on the current state of the financial stability of our reinsurers. To simulate changes in economic conditions, we used positive, base and adverse scenarios that include varying levels of loss given default assumptions to reflect the impact of changes in severity of losses. We applied probability weights to the positive, base and adverse scenarios. For periods beyond our reasonable and supportable forecasts, we used implicit mean reversion over the remaining life of the recoverable. Additionally, we considered factors that impact our exposure at default that are driven by actuarial expectations around term assumptions rather than being directly driven by market or economic environment.

Our model estimates the expected credit losses over the life of the reinsurance asset. Credit loss estimates are segmented based on counterparty credit risk. Our modeling process utilizes counterparty credit ratings, collateral types and amounts, and term and run-off assumptions. For reinsurance recoverables that do not share similar risk characteristics, we assessed on an individual basis to determine a specific credit loss allowance.

We estimated expected credit losses over the contractual term of the recoverable, which is the period during which we are exposed to the credit risk. Reinsurance recoverables may not have explicit contractual lives, but are tied to the underlying insurance products; as a result, we estimated the contractual life by utilizing actuarial estimates of the timing of payouts related to those underlying products.

Reinsurance agreements often require the reinsurer to collateralize the recoverable with funds in a trust account or with a letter of credit for the benefit of the ceding insurance entity that can reduce the expected credit losses on a given agreement. As such, we review reinsurance collateral by individual agreement to sensitize risk of loss based on level of collateralization. This review is driven by the assumption that non-collateralized reinsurance recoverables would have materially higher losses in times of default. Therefore, reinsurance recoverables are pooled as either fully-collateralized or non-collateralized.

Reinsurance recoverables are presented net of the allowance for credit losses on the Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

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Reinsurance recoverables deemed uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for credit losses, limited to the aggregate of amounts previously charged-off and expected to be charged-off.

In the first quarter of 2023, the reinsurance arrangement with Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”) for certain variable annuity guaranteed benefit riders was modified from a coinsurance funds withheld arrangement to a modified coinsurance arrangement.

Goodwill

We recognize the excess of the purchase price, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of identifiable net assets acquired as goodwill. Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

We perform a quantitative goodwill impairment test where the fair value of the reporting unit is determined and compared to the carrying value of the reporting unit. If the carrying value of the reporting unit is greater than the reporting unit’s fair value, goodwill is impaired and written down to the reporting unit’s fair value; and a charge is reported in impairment of intangibles on the Consolidated Statements of Comprehensive Income (Loss). The results of one goodwill impairment test on one reporting unit cannot subsidize the results of another reporting unit.

Other Assets and Other Liabilities

Other assets consist primarily of certain reinsurance assets, net of allowance for credit losses, current and deferred taxes, premiums and fees receivable, property and equipment, balances associated with corporate-owned and bank-owned life insurance, receivables resulting from sales of securities that had not yet settled as of the balance sheet date, specifically identifiable intangible assets, operating lease right-of-use (“ROU”) assets, ceded MRB liabilities, finance lease assets and other receivables and prepaid expenses. Other liabilities consist primarily of certain reinsurance payables, ceded MRB assets, pension and other employee benefit liabilities, certain financing arrangements, derivative instrument liabilities, other policyholder liabilities, deferred gain on business sold through reinsurance, long-term operating lease liabilities, payables resulting from purchases of securities that had not yet settled as of the balance sheet date, finance lease liabilities and other accrued expenses.

The carrying values of specifically identifiable intangible assets are reviewed at least annually for indicators of impairment in value that are related to credit loss or non-credit, including unexpected or adverse changes in the following: the economic or competitive environments in which the company operates; profitability analyses; cash flow analyses; and the fair value of the relevant business operation. If there was an indication of impairment, then the discounted cash flow method would be used to measure the impairment, and the carrying value would be adjusted as necessary and reported in impairment of intangibles on the Consolidated Statements of Comprehensive Income (Loss). Sales force intangibles are attributable to the value of the new business distribution system acquired through business combinations. These assets are amortized on a straight-line basis over their useful life of 25 years. Specifically identifiable intangible assets also includes the value of customer relationships acquired (“VOCRA”) and value of distribution agreements (“VODA”). The carrying values of VOCRA and VODA are amortized using a straight-line basis over their weighted average life of 20 years and 13 years, respectively.

Property and equipment owned for company use is carried at cost less allowances for depreciation. Provisions for depreciation of investment real estate and property and equipment owned for company use are computed principally on the straight-line method over the estimated useful lives of the assets, which include buildings, computer hardware and software and other property and equipment. Certain assets on the Consolidated Balance Sheets are related to finance leases and certain financing arrangements and are depreciated in a manner consistent with our current depreciation policy for owned assets. We periodically review the carrying value of our long-lived assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. For long-lived assets to be held and used, impairments are recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Long-lived assets to be disposed of by abandonment or in an exchange for a similar productive long-lived asset are classified as held-for-use until they are disposed. Long-lived assets to be sold are classified as held-for-sale and are no longer depreciated. Certain criteria have to be met in order for the long-lived asset to be classified as held-for-sale, including that a sale is probable and expected to occur within one year. Long-lived assets classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell.

We lease office space and certain equipment under various long-term lease agreements. We determine if an arrangement is a lease at inception. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Our leases do not provide an implicit rate; therefore, we use our incremental borrowing rate at the commencement date in determining the present value of future payments. The ROU asset is calculated using the lease liability carrying amount, plus or minus prepaid/accrued lease payments, minus the unamortized balance of lease incentives received, plus unamortized initial direct costs. Lease terms used to calculate our lease obligation include options when we are

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reasonably certain that we will exercise such options. Our lease agreements may contain both lease and non-lease components, which are accounted for separately. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Other assets includes deferred losses on business sold through reinsurance attributable to our 2012 and 2014 reinsurance transactions where we ceded closed blocks of UL contracts with secondary guarantees to LNBAR, a wholly-owned subsidiary of LNC. We are recognizing the losses related to these transactions over a period of 30 years.

Other liabilities includes deferred gains on business sold through reinsurance. During 2009, we completed a reinsurance transaction whereby we assumed a closed block of term contracts from First Penn-Pacific Life Insurance Company, a wholly-owned subsidiary of LNC. We are recognizing the gain related to this transaction over a period of 15 years. During 2012, we completed a reinsurance transaction whereby we ceded a closed block of UL contracts with secondary guarantees to LNBAR. We are recognizing the gain related to the transaction over a period of 30 years. During 2013, we completed a reinsurance transaction whereby we ceded a closed block of UL contracts with secondary guarantees to LNBAR. During 2019, we amended the 2013 reinsurance transaction by recapturing the underlying base policy from LNBAR while continuing to cede the associated riders. We are recognizing the gain related to this transaction over the expected life of the underlying business, or 20 years. Effective October 1, 2018, we entered into a reinsurance agreement with Athene Holding Ltd. (“Athene”). We are recognizing the gain related to this transaction over the period in which the majority of account balances is expected to run off, or 20 years. Effective October 1, 2021, we entered into a reinsurance agreement with Security Life of Denver Insurance Company (a subsidiary of Resolution Life that we refer to herein as “Resolution Life”). We are recognizing the gain related to this transaction over the projected life of the policies, or 30 years.

Separate Account Assets and Liabilities

Separate accounts represent segregated funds that are maintained to meet specific investment objectives of policyholders who direct the investments and bear the investment risk, except to the extent of minimum guarantees made by the Company with respect to certain accounts. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company.

We report separate account assets as a summary total on the Consolidated Balance Sheets based on the fair value of the underlying investments. The underlying investments consist primarily of mutual funds, fixed maturity AFS securities, short-term investments and cash. Investment income and net realized and unrealized gains (losses) of the separate accounts generally accrue directly to the policyholders; therefore, they are not reflected on the Consolidated Statements of Comprehensive Income (Loss), and the Consolidated Statements of Cash Flows do not reflect investment activity of the separate accounts. Asset-based fees and contract administration charges (collectively referred to as “policyholder assessments”) are assessed against the accounts and included within fee income on the Consolidated Statements of Comprehensive Income (Loss). An amount equivalent to the separate account assets is recorded as separate account liabilities, representing the account balance obligated to be returned to the policyholder.

Future Contract Benefits

Future contract benefits represent liability reserves, including liability for future policy benefits (“LFPB”), liability for future claims reserves and additional liability for other insurance benefits that we have established and carry based on estimates of how much we will need to pay for future benefits and claims.

The LFPB associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts is measured using a net premium ratio approach. This approach accrues expected benefits and claims in proportion to the premium revenue recognized. For life-contingent payout annuity contracts with limited premium payments, as premium collection is not the completion of the earnings process, gross premiums in excess of net premiums are deferred. This excess of gross premiums received over the related net premiums is referred to as the deferred profit liability (“DPL”). The DPL is included in the LFPB, and profits are recognized over the life of the contracts.

In measuring our LFPB, we establish cohorts, which are groupings of long-duration contracts. Factors that we consider in determining cohorts include, but are not limited to, our contract classification and issue year requirements, product risk characteristics, assumptions and modeling level used in the valuation systems. The net premium ratio is capped at 100% at the individual cohort level. Expected benefits and claims in excess of premium revenue recognized are expensed immediately.

We use actuarial assumptions to best estimate future premium and benefit cash flows (“cash flow assumptions”) as well as the actual historical cash flows received and paid to derive a net premium ratio in measuring the LFPB. These actuarial assumptions include mortality rates, morbidity, policyholder behavior (e.g., persistency) and withdrawals based principally on generally accepted actuarial methods and assumptions. During the third quarter of each year, we conduct our comprehensive review of the cash flow assumptions and projection models used in estimating these liabilities and update these assumptions (excluding the claims settlement expense assumption that is locked in at inception) in the calculation of the net premium ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of such update. On a quarterly basis, we retrospectively update the net premium ratio for actual experience. The remeasurement of LFPB for both assumption updates and actual experience are reported within policyholder liability remeasurement gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). For all contract cohorts issued after January 1, 2021, interest is accrued on LFPB at the single-A interest rate on the contract cohort inception date. For

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contract cohorts issued prior to January 1, 2021, interest remains accruing at the original discount rate in effect on the contract cohort inception date due to the modified retrospective transition method. We also remeasure the LFPB using the single-A interest rate as of the end of each reporting period, which is reported within policyholder liability discount rate remeasurement gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

We evaluate the liability for future claims on our long-term life and disability group products. Given the term and renewal features of our product and funding nature of the associated premiums, we have determined that the liability value is generally zero for policies that are not on claim. Therefore, the liability for future claims represents future payments on claims for which a disability event has occurred as of the valuation date. In measuring the liability for future claims, we establish cohorts similar to the process described above and use actuarial assumptions primarily based on claim termination rates, offsets for other insurance including social security and long-term disability incidence and severity assumptions. Cash flow assumptions are subject to the comprehensive review process discussed above. On a quarterly basis, the liability for future claims is updated for actual claims experience. The remeasurement of the liability for future claims for both assumption updates and actual experience are reported within policyholder liability remeasurement gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). We remeasure the liability for future claims using a single-A interest rate as of the end of each reporting period, which is reported within policyholder liability discount rate remeasurement gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

We use the single-A interest rate curve to discount cash flows used to calculate the LFPB and the liability for future claims. This curve is developed using the upper-medium grade (low credit risk) fixed-income instrument yields that are intended to reflect the duration characteristics of the applicable insurance liabilities.

We issue UL contracts with separate accounts that may include various types of guaranteed benefits that are not accounted for as MRBs or embedded derivatives. These guaranteed benefits require an additional liability that is calculated by estimating the present value of total expected benefit payments over the life of the contract from inception divided by the present value of total expected assessments over the life of the contract (“benefit ratio”) multiplied by the cumulative assessments recorded from the contract inception through the balance sheet date less the cumulative payments plus interest on the liability. Cash flow assumptions incorporated in a benefit ratio in measuring these additional liabilities for other insurance benefits include mortality rates, morbidity, policyholder behavior (e.g., persistency) and withdrawals based principally on generally accepted actuarial methods and assumptions. During the third quarter of each year, we conduct our comprehensive review of the cash flow assumptions and projection models used in estimating these liabilities and update these assumptions in the calculation of the benefit ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of such update. On a quarterly basis, we retrospectively update the benefit ratio for actual experience. The remeasurement of additional liability for both assumptions and actual experience are reported within policyholder liability remeasurement gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). As future cash flow assumption and experience updates result in changes in expected benefit payments or assessments, the benefit ratio is recalculated using the updated expected benefit payments and assessments over the life of the contract since inception. The revised benefit ratio is then applied to the liability calculation described above.

Premium deficiency testing is performed for interest-sensitive life products periodically using best estimate assumptions as of the testing date to test the adequacy and appropriateness of the established net reserve (i.e., GAAP reserves net of any DSI or VOBA assets). The premium deficiency test is also performed using a discount rate based on the average crediting rate. A premium deficiency exists when the net reserve plus the present value of expected future gross premiums are determined to be insufficient to cover expected future benefits and non-level expenses.

The business written or assumed by us includes participating life insurance contracts, under which the policyholder is entitled to share in the earnings of such contracts via receipt of dividends. The dividend scale for participating policies is reviewed annually and may be adjusted to reflect recent experience and future expectations.

MRBs

MRBs are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose us to other-than-nominal capital market risk upon the occurrence of a specific event or circumstance, such as death, annuitization or periodic withdrawal. MRBs do not include the death benefit component of a life insurance contract (i.e., the difference between the account balance and the death benefit amount). All long-duration insurance contracts and certain investment contracts are subject to MRB evaluation. An MRB can be in either an asset or a liability position. Our MRB assets and MRB liabilities are reported at fair value separately on the Consolidated Balance Sheets.

We issue variable and fixed annuity contracts that may include various types of guaranteed living benefit (“GLB”) and guaranteed death benefit (“GDB”) riders that we have classified as MRBs. For contracts that contain multiple features that qualify as MRBs, the MRBs are valued on a combined basis using an integrated model. We have entered into reinsurance agreements to cede certain GLB and GDB riders where the reinsurance agreements themselves are accounted for as MRBs or contain MRBs. We therefore record ceded MRB assets and ceded MRB liabilities associated with these reinsurance agreements. Ceded MRB liabilities are included in other assets and ceded MRB assets are included in other liabilities on the Consolidated Balance Sheets.

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MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our non-performance risk. Ceded MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our counterparties’ non-performance risk. The scenario assumptions, at each valuation date, are those we view to be appropriate for a hypothetical market participant and include assumptions for capital markets, policyholder behavior (e.g., policy lapse, rider utilization, etc.) mortality, risk margin and administrative expenses. These assumptions are based on a combination of historical data and actuarial judgments. During the third quarter of each year, we conduct our comprehensive review of the actuarial assumptions and projection models used in estimating these MRBs and update these assumptions on a prospective basis as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. The assumptions for our own non-performance risk and our counterparties’ non-performance risk for MRBs and ceded MRBs, respectively, are determined at each valuation date and reflect our and our counterparties’ risks of not fulfilling the obligations of the underlying liability. The spread for the non-performance risk is added to the discount rates used in determining the fair value from the net cash flows. For information on fair value inputs, see Note 13.

Policyholder Account Balances

Policyholder account balances include the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. The liability for policyholder account balances includes UL and VUL and investment-type annuity products where account balances are equal to deposits plus interest credited less withdrawals, surrender charges, policyholder assessments, as well as amounts representing the fair value of embedded derivative instruments associated with our IUL and indexed annuity products. During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used in estimating these embedded derivatives and update assumptions as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update.

Short-Term and Long-Term Debt

Short-term debt has contractual or expected maturities of one year or less. Long-term debt has contractual or expected maturities greater than one year.

Payables for Collateral on Investments

When we enter into collateralized financing transactions on our investments, a liability is recorded equal to the cash or non-cash collateral received. This liability is included within payables for collateral on investments on the Consolidated Balance Sheets. Income and expenses associated with these transactions are recorded as investment income and investment expenses within net investment income on the Consolidated Statements of Comprehensive Income (Loss). Changes in payables for collateral on investments are reflected within cash flows from investing activities on the Consolidated Statements of Cash Flows.

Contingencies and Commitments

A loss contingency is an existing condition, situation or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. Contingencies arising from environmental remediation costs, regulatory judgments, claims, assessments, guarantees, litigation, recourse reserves, fines, penalties and other sources are recorded when deemed probable and reasonably estimable, based on our best estimate.

Fee Income

Fee income for investment and interest-sensitive life insurance contracts consists of asset-based fees, percent of premium charges, contract administration charges and surrender charges that are assessed against policyholder account balances. Investment products consist primarily of individual and group variable and fixed annuities. Interest-sensitive life insurance products include UL, VUL, linked-benefit UL and VUL and other interest-sensitive life insurance policies. These products include life insurance sold to individuals, corporate-owned life insurance and bank-owned life insurance.

The timing of revenue recognition as it relates to fees assessed on investment contracts is determined based on the nature of such fees. Asset-based fees and contract administration charges are assessed on a daily or monthly basis and recognized as revenue as performance obligations are met, over the period underlying customer assets are owned or advisory services are provided. Percent of premium charges are assessed at the time of premium payment and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract by the policyholder in accordance with contractual terms. For investment and interest-sensitive life insurance contracts, the amounts collected from policyholders are considered deposits and are not included in revenue.

Wholesaling-related 12b-1 fees received from separate account fund sponsors as compensation for servicing the underlying mutual funds are recorded as revenues based on a contractual percentage of the market value of mutual fund assets over the period shares are owned by customers. Net investment advisory fees related to asset management of certain separate account funds are recorded as revenues based on a contractual percentage of the customer’s managed assets over the period advisory services are provided.

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Insurance Premiums

Insurance premiums consist primarily of group insurance products, traditional life insurance and payout annuities with life contingencies. These insurance premiums are recognized as revenue when due.

Net Investment Income

We earn investment income on the underlying general account investments supporting our fixed products less related expenses. Dividends and interest income, recorded in net investment income, are recognized when earned. Amortization of premiums and accretion of discounts on investments in debt securities are reflected in net investment income over the contractual terms of the investments in a manner that produces a constant effective yield.

For CLOs and MBS, included in the trading and fixed maturity AFS securities portfolios, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from originally anticipated prepayments, the retrospective effective yield is recalculated to reflect actual payments to date and a catch up adjustment is recorded in the current period. In addition, the new effective yield, which reflects anticipated future payments, is used prospectively. Any adjustments resulting from changes in effective yield are reflected in net investment income on the Consolidated Statements of Comprehensive Income (Loss).

Realized Gain (Loss)

Realized gain (loss) includes realized gains and losses from the sale of investments, write-downs for impairments of investments and changes in the allowance for credit losses for financial assets, changes in fair value of mortgage loans on real estate accounted for under the fair value option, changes in fair value of equity securities, certain derivative and embedded derivative gains and losses, gains and losses on the sale of subsidiaries and businesses and net gains and losses on reinsurance-related embedded derivatives and trading securities. Realized gains and losses on the sale of investments are determined using the specific identification method. Realized gain (loss) is reported net of allocations of investment gains and losses to certain policyholders, certain funds withheld on reinsurance arrangements and certain modified coinsurance arrangements for which we have a contractual obligation.

MRB Gain (Loss)

MRB gain (loss) includes the change in fair value of MRB and ceded MRB assets and liabilities. Changes in the fair value of MRB assets and liabilities are recognized in net income (loss), except for the portion attributable to the change in non-performance risk that is recognized in OCI. Changes in the fair value of ceded MRB assets and liabilities, including the changes in our counterparties’ non-performance risks, are recognized in net income (loss).

Other Revenues

Other revenues consist primarily of fees attributable to broker-dealer services recorded as performance obligations are met, either at the time of sale or over time based on a contractual percentage of customer account balances, and proceeds from reinsurance recaptures. The broker-dealer services primarily relate to our retail sales network and consist of commission revenue for the sale of non-affiliated securities recorded on a trade date basis and advisory fee income. Advisory fee income is asset-based revenues recorded as earned based on a contractual percentage of customer account balances. Other revenues earned by our Group Protection segment consist of fees from administrative services performed, which are recognized as performance obligations are met over the terms of the underlying agreements.

Interest Credited

We credit interest to our policyholder account balances based on the contractual terms supporting our products.

Benefits

Benefits for UL and other interest-sensitive life insurance products include benefit claims incurred during the period in excess of contract account balances. Benefits also include the change in reserves for life insurance products with secondary guarantee benefits, annuity products with guaranteed death and living benefits and certain annuities with life contingencies. For traditional life, group life and disability income products, benefits are recognized when incurred in a manner consistent with the related premium recognition policies.

Policyholder Liability Remeasurement Gain (Loss)

Policyholder liability remeasurement gain (loss) recognized in net income (loss) includes remeasurement gains and losses resulting from updates in cash flow assumptions and actual variance from expected experience used in the net premium ratio or benefit ratio calculation for future policy benefits associated with traditional life insurance and limited payment life-contingent annuity products, liabilities for future claims associated with our group products, and additional liabilities for other insurance benefits on certain guaranteed benefits associated with our UL products.

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Policyholder liability remeasurement gain (loss) recognized in OCI includes any changes resulting from the discount rate remeasurement of future policy benefits associated with traditional life insurance and limited payment life-contingent annuity products and liabilities for future claims associated with our group products as of each reporting period.

Spark Program Expense

Spark program expense consists primarily of costs related to our Spark Initiative.

Pension and Other Postretirement Benefit Plans

Pursuant to the accounting rules for our obligations to employees and agents under our various pension and other postretirement benefit plans, we are required to make a number of assumptions to estimate related liabilities and expenses. The mortality assumption is based on actual and anticipated plan experience, determined using acceptable actuarial methods. We use assumptions for the weighted-average discount rate and expected return on plan assets to estimate pension expense. The discount rate assumptions are determined using an analysis of current market information and the projected benefit flows associated with these plans. The expected long-term rate of return on plan assets is based on historical and projected future rates of return on the funds invested in the plan. The calculation of our accumulated postretirement benefit obligation also uses an assumption of weighted-average annual rate of increase in the per capita cost of covered benefits, which reflects a health care cost trend rate.

Stock-Based Compensation

In general, we expense the fair value of stock awards included in our incentive compensation plans. As of the date LNC’s Board of Directors approves stock awards, the fair value of stock options is determined using a Black-Scholes options valuation methodology, and the fair value of other stock awards is based upon the market value of the stock. The fair value of the awards is expensed over the performance or service period, which generally corresponds to the vesting period, and is recognized as an increase to common stock in stockholder’s equity. We apply an estimated forfeiture rate to our accrual of compensation cost. We classify certain stock awards as liabilities. For these awards, the settlement value is classified as a liability on the Consolidated Balance Sheets, and the liability is marked-to-market through net income at the end of each reporting period. Stock-based compensation expense is reflected in commissions and other expenses on the Consolidated Statements of Comprehensive Income (Loss).

Interest and Debt Expense

Interest expense on our short-term and long-term debt is recognized as due and any associated premiums, discounts and debt issuance costs are amortized (accreted) over the term of the related borrowing utilizing the effective interest method. In addition, gains or losses related to certain derivative instruments associated with debt are recognized in interest and debt expense during the period of the change.

Income Taxes

LNC files a U.S. consolidated income tax return that includes us and LNC’s other eligible subsidiaries. Ineligible subsidiaries file separate individual corporate tax returns. Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes. A valuation allowance is recorded to the extent required. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies we would employ to avoid a tax benefit from expiring unused.

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2. New Accounting Standards

~~Adoption of New Accounting Standards~~

The following table provides a description of our adoption of new Accounting Standards Updates (“ASUs”) issued by the ~~Financial Accounting Standards Board~~FASB and the impact of the adoption on ~~our~~the consolidated financial statements. ASUs not listed below were assessed and determined to be either not applicable or ~~not material~~insignificant in presentation or amount.


Standard	Description	Effective Date ~~of Adoption~~	Effect on Financial Statements or Other Significant Matters
ASU ~~2014-09, Revenue from Contracts with Customers~~2020-04, Reference Rate Reform (Topic 848) and ~~all~~ related amendments	The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. Additionally, changes to the critical terms of a hedging relationship affected by reference rate reform will not require entities to de-designate the relationship if certain requirements are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, with certain exceptions. The amendments are effective for contract modifications made between March 12, 2020, and December 31, 2024.	March 12, 2020 through December 31, 2024	This standard ~~establishes the core principle of recognizing revenue~~may be elected and applied prospectively. We have elected practical expedients under this guidance to depict the transfer of promised goods and services and defines a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation. Although the standard and all related amendments supersede nearly all existing revenue recognition guidance under GAAP, the guidance does not amend themaintain hedge accounting for ~~insurance and investment contracts recognized in accordance with Accounting Standards Codification~~ ™ ~~("ASC") Topic 944, Financial Services – Insurance, leases, financial instruments and guarantees.~~	~~January 1, 2018~~	We adopted the standard and all related amendments using the modified retrospective method. Our primary sources of revenue are recognized in accordance with ASC Topic 944, Financial Services – Insurance; as such, revenue within the scope of the new standard primarily includes commissions and advisory fees earned by our broker dealer operation. The adoption didcertain derivatives. This ASU has not ~~have~~had a material impact on our consolidated financial condition, results of operations, stockholder's equity or cash flows. There were no material changes in the timing or measurement of revenues based upon the guidance. As a result, there is no cumulative effect on retained earnings. For more information, see Note 13.

~~Standard~~	~~Description~~	~~Date of Adoption~~	~~Effect on Financial Statements or Other Significant Matters~~
~~ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities~~	These amendments require, among other things, the fair value measurement of investments in equity securities and certain other ownership interests that do not result in consolidation and are not accounted for under the equity method of accounting. The change in fair value of the impacted investments in equity securities must be recognized in net income in the period of the change in fair value. In addition, the amendments include certain enhancements to the presentation and disclosure requirements for financial assets and financial liabilities. The guidance does not apply to Federal Home Loan Bank (“FHLB”) Stock. Early adoption of the ASU is generally not permitted, except as defined in the ASU. The amendments were adopted in the financial statements through a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption.	~~January 1, 2018~~	At the time of adoption, we had equity securities classified as available-for-sale (“AFS”) with a total carrying value of $246 million. We classified, prospectively, $110 million of equity securities within the scope of this ASU in a separate line on our Consolidated Balance Sheets. The remaining securities, consisting of $136 million of FHLB stock, are classified in other investments on our Consolidated Balance Sheet and carried at cost. The cumulative-effect adjustment of adopting this ASU did not have a material impact on our consolidated financial condition or results of operations.
~~ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income~~	These amendments require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects associated with the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act (“Tax Act”) of 2017. The amount of the reclassification is equal to the impact of the change in deferred taxes related to amounts recorded in accumulated other comprehensive income (loss) (“AOCI”) resulting from the change in the statutory corporate tax rate from 35% to 21%. Early adoption is permitted and retrospective application is required.	~~January 1, 2018~~	~~We retrospectively reclassified $644 million of stranded tax effects from AOCI to retained earnings in the period of adoption.~~

~~Future Adoption of New Accounting Standards~~

~~The following table provides a description of future adoptions of new accounting standards that may have an impact on our financial statements when adopted:~~


~~Standard~~	~~Description~~	~~Projected Date of Adoption~~	~~Effect on Financial Statements or Other Significant Matters~~
~~ASU 2016-02, Leases~~	This standard establishes a new accounting model for leases. Lessees will recognize most leases on the balance sheet as a right-of-use asset and a related lease liability. The lease liability is measured as the present value of the lease payments over the lease term with the right-of-use asset measured at the lease liability amount and including adjustments for certain lease incentives and initial direct costs. Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP. This ASU permits a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption. Early adoption is permitted.	~~January 1, 2019~~	We continue to gather information to determine our leases that are within the scope of this standard. We do not expect there to be a significant difference in our pattern of lease expense recognition under this ASU.

~~Standard~~	~~Description~~	~~Projected Date of Adoption~~	~~Effect on Financial Statements or Other Significant Matters~~
~~ASU 2016-13, Measurement of Credit Losses on Financial Instruments~~	These amendments adopt a new model to measure and recognize credit losses for most financial assets. The method used to measure estimated credit losses for AFS debt securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the amortized cost of those debt securities. The amendments will permit entities to recognize improvements in credit loss estimates on AFS debt securities by reducing the allowance account immediately through earnings. The amendments will be adopted through a cumulative effect adjustment to the beginning balance of retained earnings as of the first reporting period in which the amendments are effective. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein.	~~January 1, 2020~~	~~We are currently evaluating the impact of adopting this ASU on~~ our consolidated financial condition and results of operations ~~with a primary focus on our fixed maturity securities, mortgage loans and reinsurance recoverables.~~to date.
ASU ~~2017-08, Premium Amortization on Purchased Callable Debt Securities~~2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments	~~These amendments require an entity to shorten the amortization period~~See Note 3 for ~~certain callable debt securities held at~~information about ASU 2018-12.	January 1, 2023	We adopted this ASU effective January 1, 2023, with a ~~premium so that the premium is amortized to the earliest call date. Early adoption is permitted, and the ASU requires adoption under~~transition date of January 1, 2021, using a modified retrospective ~~basis through~~approach, except for MRBs for which we applied a ~~cumulative-effect adjustment~~full retrospective transition approach. See Note 3 for transition disclosures related to the ~~beginning balance~~adoption of ~~retained earnings.~~	~~January 1, 2019~~	~~We are currently evaluating the impact of adopting~~ this ~~ASU on our consolidated financial condition and results of operations.~~
~~ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities~~	These amendments change both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. These amendments retain the threshold of highly effective for hedging relationships, remove the requirement to bifurcate between the portions of the hedging relationship that are effective and ineffective, record hedge item and hedging instrument results in the same financial statement line item, require quantitative assessment initially for all hedging relationships unless the hedging relationship meets the definition of either the shortcut method or critical terms match method and allow the contractual specified index rate to be designated as the hedged risk in a cash flow hedge of interest rate risk of a variable rate financial instrument. These amendments also eliminate the benchmark interest rate concept for variable rate instruments. Early adoption is permitted.	~~January 1, 2019~~	~~We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.~~ ASU.

3. ~~Acquisition~~Adoption of ASU 2018-12

~~As previously announced, on May~~On January 1, ~~2018, LNL~~2023, we adopted FASB ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and ~~LNC completed the previously disclosed acquisition of all of the issued and outstanding capital stock of Liberty Life Assurance Company of Boston~~related amendments (“~~Liberty Life”), which operated Liberty’s group benefits business (the “Liberty Group Business”) and individual life and individual and group annuity business (the “Liberty Life Business”).~~

~~The acquisition was completed pursuant to a Master Transaction Agreement (the “Master Transaction Agreement”~~ASU 2018-12”) with ~~Liberty Mutual Insurance Company (“LMIC”), Liberty Mutual Fire Insurance Company (together with LMIC, “Sellers”),~~a transition date of January 1, 2021. ASU 2018-12 updated accounting and reporting requirements for ~~the limited purposes set forth therein, Liberty Mutual Group Inc. (“Liberty”), Protective Life Insurance Company (“Reinsurer”),~~long-duration contracts and for the limited purposes set forth therein, Protective Life Corporation, which Master Transaction Agreement was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 23, 2018.

Additionally, pursuant to the Master Transaction Agreement, Liberty Life entered into reinsurance agreements (the “Reinsurance Agreements”) and related ancillary documents with each of Reinsurer and Protective Life and Annuity Insurance Company (together with Reinsurer, “Reinsurers”) at the closing of the transaction. On the terms and subject to the conditions of the Reinsurance Agreements, Liberty Life ceded to Reinsurers, effective as of May 1, certain investment contracts issued by insurance ~~policies relating to the Liberty Life Business. To support their obligations~~entities. We adopted ASU 2018-12 under the ~~Reinsurance Agreements, Reinsurers have established trust accounts~~modified retrospective approach, except for MRBs, which applied the ~~benefit of LNL.~~full retrospective approach. Our consolidated financial statements are presented under the new guidance for reporting periods beginning January 1, 2021.

~~4. Variable Interest Entities~~

~~Consolidated VIEs~~

~~See Note 4~~Under ASU 2018-12, we include actual historical cash flows along with best estimate future cash flows to derive the net premium ratio when calculating the LFPB associated with our traditional and limited-payment long-duration contracts. We review and update, if necessary, assumptions used to measure future cash flows included in ~~our 2017 Form 10-K~~the net premium ratio at least annually. Historical cash flows included in the net premium ratio are updated for ~~a detailed discussion~~actual experience quarterly and as assumptions are updated. Changes in the measurement of our ~~consolidated variable interest entities (“VIEs”),~~LFPB result from updates to cash flow assumptions and actual experience, which ~~information is incorporated herein by reference.~~

~~Unconsolidated VIEs~~

~~See Note 4 in our 2017 Form 10-K for a detailed discussion of our unconsolidated VIEs, which information is incorporated herein by reference.~~

~~Limited Partnerships and Limited Liability Companies~~

~~We invest in certain limited partnerships (“LPs”) and limited liability companies (“LLCs”), including qualified affordable housing projects, that we have concluded~~impacts are VIEs. We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs. Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs.

The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $1.5 billion and $1.4 billion as of March 31, 2018 and December 31, 2017, respectively. Included in these carrying amounts are our investments in qualified affordable housing projects, which were $29 million and $31 million as of March 31, 2018, and December 31, 2017, respectively. We do not have any contingent commitments to provide additional capital funding to these qualified affordable housing projects. We received returns from these qualified affordable housing projects in the form of income tax credits and other tax benefits of less than $1 million for the three months ended March 31, 2018 and 2017, which were recognized in federal income tax expense (benefit)reported within policyholder remeasurement gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). We use an upper-medium grade (low credit risk) fixed-income instrument yield (single-A) discount rate when calculating the LFPB. This discount rate is updated quarterly at each reporting date with the impact recognized in OCI. ASU 2018-12 also eliminated loss recognition testing, premium deficiency testing and the provision for adverse deviation for LFPB.

~~Our exposure to loss is limited~~ASU 2018-12 introduced the category of MRBs, which are contracts or contract features that provide protection to the policyholder from other-than-nominal capital ~~we invest~~market risk and expose us to other-than-nominal capital market risk upon the occurrence of a specific event or circumstance, such as death, annuitization or periodic withdrawal. MRBs are required to be measured at fair value, with periodic changes in fair value reported within MRB gain (loss) on our Consolidated Statements of Comprehensive Income (Loss), except for periodic changes to instrument-specific credit risk related to direct policies, which are recognized in OCI. Changes in the ~~LPs~~fair value of ceded MRB

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assets and ~~LLCs,~~liabilities are also reported within MRB gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

ASU 2018-12 simplified the amortization model for DAC and ~~there have been~~DAC-like intangible balances, including VOBA, DSI and DFEL. Historically these balances were amortized in proportion to premium or over expected gross profits. They are now amortized on a constant-level basis over the expected term of the contract. Loss recognition testing and impairment testing are no ~~indicators~~longer applicable for DAC.

ASU 2018-12 requires disaggregated rollforwards of ~~impairment that would require us~~the beginning of year to ~~recognize an impairment loss~~the end of the reporting period balances. We also disclose information about inputs, judgments, assumptions, methods, changes during the period and the effect of these changes on the measurement of applicable balances. In determining the appropriate level of aggregation, we considered our reportable segments, nature and risk characteristics of our products and level of aggregation we used in disclosures presented outside the financial statements.

The following table presents the cumulative effect adjustments (in millions), after-tax and shown as increase (decrease), to the components of stockholder’s equity due to the adoption of ASU 2018-12 as of January 1, 2021, by primary accounting topic:



							Total
	Retained						Stockholder’s
	Earnings			AOCI			Equity
Shadow impacts:
DAC, VOBA, DSI and DFEL	$	-		$	2,271		$	2,271
Additional liabilities for other
insurance benefits		-			1,197			1,197
LFPB and other ⁽¹⁾		(121	)		(1,520	)		(1,641	)
MRBs ⁽²⁾		(1,699	)		2,874			1,175
Total	$	(1,820	)	$	4,822		$	3,002

⁽¹⁾Includes impacts to reserves and ceded reserves reported within future contract benefits and reinsurance recoverables, respectively on the Consolidated Balance Sheets, excluding shadow impacts on additional liabilities for other insurance benefits.

⁽²⁾Includes impacts related to MRB assets and MRB liabilities reported on the ~~LPs~~Consolidated Balance Sheets, and ~~LLCs~~ceded MRBs reported within other assets on the Consolidated Balance Sheets.

The following table summarizes the effect of the adoption of ASU 2018-12 as of ~~March~~January 1, 2021, (in millions) on the Consolidated Balance Sheets:



							Total
	Retained						Stockholder’s
	Earnings			AOCI			Equity
DAC, VOBA and DSI	$	-		$	6,079		$	6,079
Reinsurance recoverables		607			2,556			3,163
Other assets ⁽¹⁾		5,795			-			5,795
Future contract benefits		(760	)		(2,966	)		(3,726	)
MRBs, net		(7,956	)		3,656			(4,300	)
DFEL		-			(3,190	)		(3,190	)
Other liabilities ⁽²⁾		494			(1,313	)		(819	)
Total	$	(1,820	)	$	4,822		$	3,002

⁽¹⁾Consists primarily of ceded MRB adjustments.

⁽²⁾Consists of state and federal tax adjustments.

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The following table summarizes the changes in DAC, VOBA and DSI, pre-tax, (in millions) due to the adoption of ASU 2018-12 and reconciles this balance to the Consolidated Balance Sheets:



			Impact from
	Balance		Removal of		Balance
	Pre-Adoption		Shadow		Post-Adoption
	December 31,		Balances		January 1,
	2020		from AOCI		2021
DAC
Traditional Life	$	1,041	$	-	$	1,041
UL and Other		297		5,031		5,328
Variable Annuities		3,675		52		3,727
Fixed Annuities		264		215		479
Group Protection		187		-		187
Retirement Plan Services		126		112		238
Total DAC		5,590		5,410		11,000

VOBA
Traditional Life		67		-		67
UL and Other		167		630		797
Fixed Annuities		-		23		23
Total VOBA		234		653		887

DSI ⁽¹⁾
UL and Other		35		-		35
Variable Annuities		194		2		196
Fixed Annuities		17		13		30
Retirement Plan Services		13		1		14
Total DSI		259		16		275
Total DAC, VOBA and DSI	$	6,083	$	6,079	$	12,162

⁽¹⁾Pre-adoption DSI balance was previously reported in other assets on the Consolidated Balance Sheets.

The following table summarizes the changes in DFEL, pre-tax, (in millions) due to the adoption of ASU 2018-12 and reconciles this balance to the Consolidated Balance Sheets:



			Impact from
	Balance		Removal of		Balance
	Pre-Adoption		Shadow		Post-Adoption
	December 31,		Balances		January 1,
	2020		from AOCI		2021
DFEL ⁽¹⁾
UL and Other	$	77	$	3,185	$	3,262
Variable Annuities		319		5		324
Total DFEL	$	396	$	3,190	$	3,586

⁽¹⁾Pre-adoption DFEL balance was previously reported in other contract holder funds on the Consolidated Balance Sheets.

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The following table summarizes the changes in future contract benefits, pre-tax, (in millions) due to the adoption of ASU 2018-12 and reconciles this balance to the Consolidated Balance Sheets:



			Impact from			Single-A
	Balance		Removal of			Discount		Cumulative			Balance
	Pre-Adoption		Shadow			Rate		Effect to			Post-Adoption
	December 31,		Balances			Measurement		Retained			January 1,
	2020 ⁽¹⁾		from AOCI			in AOCI		Earnings			2021
LFPB
Traditional Life	$	3,062	$	-		$	852	$	(2	)	$	3,912
Payout Annuities		2,313		(105	)		415		44			2,667
Liability for Future Claims
Group Protection		5,422		-			517		-			5,939
Additional Liabilities for Other
Insurance Benefits
UL and Other		13,687		(1,515	)		-		92			12,264
Other Operations ⁽²⁾		10,309		(80	)		2,882		626			13,737
Other ⁽³⁾		3,525		-			-		-			3,525
Total future contract benefits	$	38,318	$	(1,700	)	$	4,666	$	760		$	42,044

⁽¹⁾Balance pre-adoption excludes features that meet the definition of an MRB upon transition, including features that were previously accounted for as an additional liability. Also, balance pre-adoption reflects certain reclassifications of non-life contingent account balances from future contract benefits to policyholder account balances within the Consolidated Balance Sheets.

⁽²⁾Represents future contract benefits reported in Other Operations primarily attributable to the indemnity reinsurance agreements with Protective ($6.3 billion and $7.4 billion as of December 31, ~~2018.~~ 2020, and January 1, 2021, respectively) and Swiss Re ($1.8 billion and $3.3 billion as of December 31, 2020, and January 1, 2021, respectively). Includes LFPB and additional liabilities balances.

⁽³⁾Represents other miscellaneous reserves outside the scope of ASU 2018-12.

The following table summarizes the changes in reinsurance recoverables, pre-tax, (in millions) due to the adoption of ASU 2018-12 and reconciles this balance to the Consolidated Balance Sheets:



			Single-A
	Balance		Discount		Cumulative			Balance
	Pre-Adoption		Rate		Effect to			Post-Adoption
	December 31,		Measurement		Retained			January 1,
	2020 ⁽¹⁾		in AOCI		Earnings			2021
Reinsured LFPB
Traditional Life	$	372	$	88	$	-		$	460
Payout Annuities		5		-		-			5
Reinsured Liability for Future
Claims
Group Protection		148		14		-			162
Reinsured Additional Liabilities
for Other Insurance Benefits
UL and Other		922		-		(3	)		919
Reinsured Other Operations ⁽²⁾		14,757		2,454		610			17,821
Reinsured Other ⁽³⁾		1,346		-		-			1,346
Total reinsurance recoverables	$	17,550	$	2,556	$	607		$	20,713

⁽¹⁾Balance pre-adoption excludes features that meet the definition of a ceded MRB upon transition, including features that were previously accounted for as reinsured additional liabilities.

⁽²⁾Represents reinsurance recoverables reported in Other Operations primarily attributable to the indemnity reinsurance agreements with Protective ($12.0 billion and $13.2 billion as of December 31, 2020, and January 1, 2021, respectively) and Swiss Re ($1.7 billion and $3.2 billion as of December 31, 2020, and January 1, 2021, respectively). Includes reinsured LFPB and reinsured additional liabilities balances.

⁽³⁾Represents other miscellaneous reinsurance recoverables outside the scope of ASU 2018-12.

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The following table summarizes the changes in the net liability position of MRBs, pre-tax, (in millions) due to the adoption of ASU 2018-12 and reconciles this balance to the Consolidated Balance Sheets:




	Balance		Cumulative			Cumulative			Balance
	Pre-Adoption		Effect of			Effect to			Post-Adoption
	December 31,		Credit Risk			Retained			January 1,
	2020⁽¹⁾		to AOCI			Earnings			2021
MRBs, Net
Variable Annuities	$	831	$	(3,592	)	$	7,968		$	5,207
Fixed Annuities		192		(52	)		(22	)		118
Retirement Plan Services		11		(12	)		10			9
Total MRBs, net	$	1,034	$	(3,656	)	$	7,956		$	5,334

~~5. Investments~~⁽¹⁾Balance pre-adoption includes all features that meet the definition of an MRB upon transition, including features that were previously accounted for as additional liabilities or embedded derivatives.

~~AFS Securities~~The following table summarizes the changes in the net asset position of ceded MRBs, pre-tax, (in millions) due to the adoption of ASU 2018-12, reported in other assets on the Consolidated Balance Sheets:




	Balance		Cumulative		Balance
	Pre-Adoption		Effect to		Post-Adoption
	December 31,		Retained		January 1,
	2020⁽¹⁾		Earnings		2021
Ceded MRBs, Net
Variable Annuities	$	828	$	5,700	$	6,528
Retirement Plan Services		1		10		11
Total ceded MRBs, net	$	829	$	5,710	$	6,539

~~See~~⁽¹⁾Balance pre-adoption includes all features that meet the definition of a ceded MRB upon transition, including features that were previously accounted for as reinsured additional liabilities or embedded derivatives.

The following summarizes the effect of the adoption of ASU 2018-12 (in millions) on certain financial statement line items within the previously reported Consolidated Balance Sheets:



	As of December 31, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Deferred acquisition costs, value of business acquired and
deferred sales inducements ⁽²⁾	$	13,873		$	(1,610	)	$	12,263
Reinsurance recoverables, net of allowance for credit losses		23,910			(2,646	)		21,264
Market risk benefit assets		-			2,807			2,807
Other assets ⁽²⁾		21,080			(1,154	)		19,926
Total assets		338,266			(2,603	)		335,663
Future contract benefits ⁽²⁾		41,203			(2,901	)		38,302
Market risk benefit liabilities		-			2,078			2,078
Deferred front-end loads ⁽²⁾		5,695			(650	)		5,045
Other liabilities ⁽²⁾		16,125			(1,468	)		14,657
Total liabilities		330,000			(2,941	)		327,059
Retained earnings		2,436			(1,022	)		1,414
Accumulated other comprehensive income (loss)		(7,073	)		1,360			(5,713	)
Total stockholder’s equity		8,266			338			8,604

⁽¹⁾The amounts as previously reported were derived from Note 1 in our ~~2017~~2022 Form 10-K, ~~for information regarding~~as updated by the May 2023 Form 8-K.

⁽²⁾Certain amounts have been reclassified to conform to the presentation adopted in the current period.

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The following summarizes the effect of the adoption of ASU 2018-12 (in millions) on certain financial statement line items within the previously reported Consolidated Statements of Comprehensive Income (Loss):



	For the Three Months Ended June 30, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Fee income	$	1,446		$	(97	)	$	1,349
Realized gain (loss)		70			78			148
Total revenues		4,433			(19	)		4,414
Benefits		2,051			(129	)		1,922
Interest credited		701			5			706
Market risk benefit (gain) loss		-			716			716
Policyholder liability remeasurement (gain) loss		-			85			85
Commissions and other expenses		1,077			81			1,158
Total expenses		3,904			758			4,662
Income (loss) before taxes		529			(777	)		(248	)
Federal income tax expense (benefit)		86			(162	)		(76	)
Net income (loss)		443			(615	)		(172	)
Unrealized investment gain (loss)		(5,447	)		(1,071	)		(6,518	)
Market risk benefit non-performance risk gain (loss)		-			354			354
Policyholder liability discount rate remeasurement gain (loss)		-			667			667
Total other comprehensive income (loss), net of tax		(5,446	)		(50	)		(5,496	)
Comprehensive income (loss)		(5,003	)		(665	)		(5,668	)



	For the Six Months Ended June 30, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Fee income	$	2,948		$	(205	)	$	2,743
Realized gain (loss)		327			181			508
Total revenues		9,114			(24	)		9,090
Benefits		4,250			(226	)		4,024
Interest credited		1,392			7			1,399
Market risk benefit (gain) loss		-			830			830
Policyholder liability remeasurement (gain) loss		-			126			126
Commissions and other expenses		2,268			102			2,370
Total expenses		8,045			839			8,884
Income (loss) before taxes		1,069			(863	)		206
Federal income tax expense (benefit)		168			(180	)		(12	)
Net income (loss)		901			(683	)		218
Unrealized investment gain (loss)		(10,437	)		(3,381	)		(13,818	)
Market risk benefit non-performance risk gain (loss)		-			374			374
Policyholder liability discount rate remeasurement gain (loss)		-			1,426			1,426
Total other comprehensive income (loss), net of tax		(10,437	)		(1,581	)		(12,018	)
Comprehensive income (loss)		(9,536	)		(2,264	)		(11,800	)

⁽¹⁾The amounts as previously reported were derived from Note 24 in our ~~accounting policy relating~~2022 Form 10-K.

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	For the Three Months Ended June 30, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Retained earnings balance as of beginning-of-period	$	4,799		$	(700	)	$	4,099
Net income (loss)		443			(615	)		(172	)
Retained earnings balance as of end-of-period		4,962			(1,315	)		3,647
Accumulated other comprehensive income (loss) balance
as of beginning-of-period		1,553			2,175			3,728
Other comprehensive income (loss), net of tax		(5,446	)		(50	)		(5,496	)
Accumulated other comprehensive income (loss) balance
as of end-of-period		(3,893	)		2,125			(1,768	)
Total stockholder’s equity as of end-of-period		13,089			810			13,899



	For the Six Months Ended June 30, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Retained earnings balance as of beginning-of-year	$	4,366		$	(632	)	$	3,734
Net income (loss)		901			(683	)		218
Retained earnings balance as of end-of-period		4,962			(1,315	)		3,647
Accumulated other comprehensive income (loss) balance
as of beginning-of-year		6,544			3,706			10,250
Other comprehensive income (loss), net of tax		(10,437	)		(1,581	)		(12,018	)
Accumulated other comprehensive income (loss) balance
as of end-of-period		(3,893	)		2,125			(1,768	)
Total stockholder’s equity as of end-of-period		13,089			810			13,899

⁽¹⁾The amounts as previously reported were derived from Note 24 in our 2022 Form 10-K.

The following summarizes the effect of the adoption of ASU 2018-12 (in millions) on certain financial statement line items within the previously reported Consolidated Statements of Cash Flows:



	For the Six Months Ended June 30, 2022
				Adoption
	As			of New
	Previously			Accounting			As
	Reported ⁽¹⁾			Standard			Adjusted
Net income (loss)	$	901		$	(683	)	$	218
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Realized (gain) loss		(327	)		(181	)		(508	)
Market risk benefit (gain) loss		-			830			830
Change in:
Deferred acquisition costs, value of business acquired, deferred sales
inducements and deferred front-end loads		(10	)		258			248
Insurance liabilities and reinsurance-related balances ⁽²⁾		(198	)		(60	)		(258	)
Accrued expenses		(340	)		(4	)		(344	)
Federal income tax accruals		192			(181	)		11
Other ⁽²⁾		89			21			110

⁽¹⁾The amounts as previously reported were derived from Note 24 in our 2022 Form 10-K.

⁽²⁾Certain amounts have been reclassified to conform to the presentation adopted in the current period.

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4. Investments

Fixed Maturity AFS securities, which also includes additional disclosures regarding our fair value measurements. In addition, we adopted ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in 2018 that resulted in a new classification and measurement of our equity securities. See Note 2 for additional information.Securities

The amortized cost, gross unrealized gains and losses, ~~and other-than-temporary impairment (“OTTI”)~~allowance for credit losses and fair value of fixed maturity AFS securities (in millions) were as follows:



												As of June 30, 2023
	As of March 31, 2018																	Allowance
	Amortized		Gross Unrealized							Fair		Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		OTTI (1)			Value		Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	75,264	$	4,465	$	898	$	(8	)	$	78,839	$	88,108	$	850	$	7,216	$	13	$	81,729
Asset-backed securities ("ABS")		847		46		7		(15	)		901
U.S. government bonds		343		28		2		-			369		395		5		30		-		370
State and municipal bonds													5,001		214		253		-		4,962
Foreign government bonds		390		45		-		-			435		307		15		45		-		277
Residential mortgage-backed securities ("RMBS")		3,090		127		65		(21	)		3,173
Commercial mortgage-backed securities ("CMBS")		668		5		14		(3	)		662
Collateralized loan obligations ("CLOs")		872		1		3		(5	)		875
State and municipal bonds		4,051		803		10		-			4,844
RMBS													2,089		21		151		6		1,953
CMBS													1,891		1		208		-		1,684
ABS													12,539		40		786		5		11,788
Hybrid and redeemable preferred securities		561		70		20		-			611		351		26		20		1		356
Total AFS securities	$	86,086	$	5,590	$	1,019	$	(52	)	$	90,709
Total fixed maturity AFS securities												$	110,681	$	1,172	$	8,709	$	25	$	103,119



												As of December 31, 2022
	As of December 31, 2017																	Allowance
	Amortized		Gross Unrealized							Fair		Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		OTTI (1)			Value		Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	74,921	$	6,573	$	341	$	(7	)	$	81,160	$	88,950	$	763	$	10,538	$	9	$	79,166
ABS		882		51		6		(26	)		953
U.S. government bonds		497		37		1		-			533		377		5		31		-		351
State and municipal bonds													5,198		170		483		-		4,885
Foreign government bonds		391		55		-		-			446		339		17		45		-		311
RMBS		3,125		148		36		(21	)		3,258		2,025		21		203		7		1,836
CMBS		589		10		2		(2	)		599		1,908		3		244		-		1,667
CLOs		803		2		2		(5	)		808
State and municipal bonds		4,033		932		6		-			4,959
ABS													11,791		37		925		4		10,899
Hybrid and redeemable preferred securities		561		85		22		-			624		356		25		30		1		350
Total fixed maturity securities		85,802		7,893		416		(61	)		93,340
Equity AFS securities		247		16		17		-			246
Total AFS securities	$	86,049	$	7,909	$	433	$	(61	)	$	93,586
Total fixed maturity AFS securities												$	110,944	$	1,041	$	12,499	$	21	$	99,465

⁽¹⁾

~~Includes unrealized (gains) and losses on impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date.~~

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of ~~March 31, 2018,~~June 30, 2023, were as follows:



	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	3,501	$	3,535	$	3,523	$	3,481
Due after one year through five years		17,420		17,740		18,371		17,485
Due after five years through ten years		16,530		16,713		18,548		17,136
Due after ten years		43,158		47,110		53,720		49,592
Subtotal		80,609		85,098		94,162		87,694
Structured securities (ABS, MBS, CLOs)		5,477		5,611
Structured securities (RMBS, CMBS, ABS)						16,519		15,425
Total fixed maturity AFS securities	$	86,086	$	90,709	$	110,681	$	103,119

Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.

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The fair value and gross unrealized losses ~~including the portion~~ of ~~OTTI recognized in other comprehensive income (loss) (“OCI”), of~~fixed maturity AFS securities (dollars in millions), for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:



	As of March 31, 2018
	Less Than or Equal					Greater Than										As of June 30, 2023
	to Twelve Months					Twelve Months					Total					Less Than or Equal					Greater Than
				Gross					Gross					Gross		to Twelve Months					Twelve Months					Total
			Unrealized					Unrealized					Unrealized					Gross					Gross					Gross
	Fair		Losses and			Fair		Losses and			Fair		Losses and			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			OTTI		Value			OTTI		Value			OTTI		Value			Losses		Value			Losses		Value			Losses ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	19,380		$	496	$	4,371		$	405	$	23,751		$	901	$	21,580		$	694	$	43,435		$	6,522	$	65,015		$	7,216
ABS		101			2		134			13		235			15
U.S. government bonds		100			1		18			1		118			2		114			8		142			22		256			30
State and municipal bonds																	558			9		1,520			244		2,078			253
Foreign government bonds																	69			3		118			42		187			45
RMBS		638			17		566			48		1,204			65		762			25		915			126		1,677			151
CMBS		450			10		59			4		509			14		408			15		1,222			193		1,630			208
CLOs		547			3		75			-		622			3
State and municipal bonds		94			2		95			8		189			10
ABS																	3,182			115		7,446			671		10,628			786
Hybrid and redeemable
preferred securities		36			1		123			19		159			20		56			4		124			16		180			20
Total AFS securities	$	21,346		$	532	$	5,441		$	498	$	26,787		$	1,030
Total fixed maturity AFS securities																$	26,729		$	873	$	54,922		$	7,836	$	81,651		$	8,709

Total number of AFS securities in an unrealized loss position															2,156
Total number of fixed maturity AFS securities in an unrealized loss position																Total number of fixed maturity AFS securities in an unrealized loss position														8,279



	As of December 31, 2022
	Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total
				Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	57,656		$	8,684	$	6,867		$	1,854	$	64,523		$	10,538
U.S. government bonds		236			25		27			6		263			31
State and municipal bonds		1,850			414		227			69		2,077			483
Foreign government bonds		122			18		58			27		180			45
RMBS		1,337			160		191			43		1,528			203
CMBS		1,224			156		312			88		1,536			244
ABS		6,712			551		3,325			374		10,037			925
Hybrid and redeemable
preferred securities		61			5		98			25		159			30
Total fixed maturity AFS securities	$	69,198		$	10,013	$	11,105		$	2,486	$	80,303		$	12,499

Total number of fixed maturity AFS securities in an unrealized loss position															8,106

⁽¹⁾As of June 30, 2023, and December 31, 2022, we recognized $10 million and $6 million of gross unrealized losses, respectively, in OCI for fixed maturity AFS securities for which an allowance for credit losses has been recorded.

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As of December 31, 2017

Less Than or Equal

Greater Than

to Twelve Months

Twelve Months

Total

Gross

Gross

Gross

Unrealized

Unrealized

Unrealized

Fair
Losses and
Fair
Losses and
Fair

Losses and

Value

OTTI

Value

OTTI

Value

OTTI

Fixed maturity AFS securities:

Corporate bonds
$
4,726

$
67

$
4,706

$
276

$
9,432

$
343

ABS

56

-

143

15

199

15

U.S. government bonds

156

-

19

1

175

1

RMBS

277

4

599

33

876

37

CMBS

113

-

60

3

173

3

CLOs

281

2

72

-

353

2

State and municipal bonds

33

-

89

5

122

5

Hybrid and redeemable

preferred securities

20

-

124

22

144

22

Total fixed maturity securities

5,662

73

5,812

355

11,474

428

Equity AFS securities

22

14

8

3

30

17

Total AFS securities
$
5,684

$
87

$
5,820

$
358

$
11,504

$
445

Total number of AFS securities in an unrealized loss position

1,095

The fair value, gross unrealized losses ~~the portion of OTTI recognized in OCI~~ (in millions) and number of fixed maturity AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:



	As of March 31, 2018									As of June 30, 2023
								Number				Gross			Number
	Fair		Gross Unrealized					of		Fair		Unrealized			of
	Value		Losses		OTTI		Securities (1)			Value		Losses		Securities⁽¹⁾
Less than six months	$	102	$	33	$	2			18	$	4,561	$	1,294			665
Six months or greater, but less than nine months		17		8		-			4		208		80			28
Nine months or greater, but less than twelve months		-		-		-			3		4,152		1,494			661
Twelve months or greater		174		60		8			30		4,587		2,223			656
Total	$	293	$	101	$	10			55	$	13,508	$	5,091			2,010



	As of December 31, 2017									As of December 31, 2022
								Number				Gross			Number
	Fair		Gross Unrealized					of		Fair		Unrealized			of
	Value		Losses		OTTI		Securities (1)			Value		Losses		Securities⁽¹⁾
Less than six months	$	156	$	57	$	1			26	$	10,895	$	3,514			1,489
Six months or greater, but less than nine months		2		1		-			4		4,256		2,150			640
Nine months or greater, but less than twelve months		12		6		-			7		362		243			73
Twelve months or greater		209		77		10			49		2		-			15
Total	$	379	$	141	$	11			86	$	15,515	$	5,907			2,217

⁽¹⁾

~~We may reflect a security in more than one aging category based on various purchase dates.~~

⁽¹⁾We may reflect a security in more than one aging category based on various purchase dates.

~~We regularly review our investment holdings for OTTI.~~

Our gross unrealized losses ~~including the portion of OTTI recognized in OCI,~~ on fixed maturity AFS securities ~~increased~~decreased by ~~$602 million~~$3.8 billion for the ~~three~~six months ended ~~March 31, 2018. As discussed further below, we~~June 30, 2023, due in part to the impairment on certain fixed maturity AFS securities intended to be sold as part of the previously announced Fortitude Reinsurance Company Ltd. (“Fortitude Re”) reinsurance transaction. We do not believe the unrealized loss position as of ~~March 31, 2018, did not represent OTTI as~~June 30, 2023, required an impairment recognized in earnings as: (i) we did not intend to sell these fixed maturity AFS securities; (ii) it is not more likely than not that we will be required to sell ~~these~~the fixed maturity AFS securities before recovery of their amortized cost basis; and (iii) the ~~estimated future cash flows were equal~~difference in the fair value compared to ~~or greater than~~ the amortized cost ~~basis of the debt securities.~~

was due to factors other than credit loss. Based upon this evaluation as of ~~March 31, 2018,~~June 30, 2023, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums, ~~and fees~~fee income and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our ~~temporarily-impaired~~impaired securities. For additional information related to the intent to sell impairments, see “Impairments on Fixed Maturity AFS Securities” below.

As of ~~March 31, 2018,~~June 30, 2023, the unrealized losses associated with our corporate bond, U.S. government bond, state and municipal bond and foreign government bond securities were attributable primarily to rising interest rates and widening credit spreads ~~and rising interest rates~~ since purchase. We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost ~~for~~of each ~~temporarily-impaired~~impaired security.

Credit ratings express opinions about the credit quality of a security. Securities rated investment grade (those rated BBB- or higher by S&P Global Ratings (“S&P”) or Baa3 or higher by Moody’s Investors Service (“Moody’s”)) are generally considered by the rating agencies and market participants to be low credit risk. As of ~~March~~June 30, 2023, and December 31, ~~2018,~~2022, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of June 30, 2023, and December 31, 2022, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.1 billion and $3.5 billion, respectively, and a fair value of $2.9 billion and $3.3 billion, respectively. Based upon the analysis discussed above, we believe that as of June 30, 2023, and December 31, 2022, we would have recovered the amortized cost of each corporate bond.

As of June 30, 2023, the unrealized losses associated with our ~~mortgage-backed securities (“MBS”)~~MBS and ABS were attributable primarily to rising interest rates and widening credit spreads ~~and rising interest rates~~ since purchase. We assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities and prepayment rates. We estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost of each ~~temporarily-impaired~~impaired security.

As of ~~March 31, 2018,~~June 30, 2023, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of underlying issuers. For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon

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credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each ~~temporarily-impaired~~impaired security.

Credit Loss Impairment on Fixed Maturity AFS Securities

We regularly review our fixed maturity AFS securities for declines in fair value that we determine to be impairment-related, including those attributable to credit risk factors that may require an allowance for credit losses. Changes in the ~~amount of~~allowance for credit ~~loss of OTTI recognized in net income (loss) where the portion related to other factors was recognized in OCI (in millions)~~losses on fixed maturity AFS securities (in millions), aggregated by investment category, were as follows:

For the Three

Months Ended

March 31,

2018

2017

Balance as of beginning-of-year
$
358

$
411

Increases attributable to:

Credit losses on securities for which an OTTI was not previously recognized

2

1

Credit losses on securities for which an OTTI was previously recognized

-

3

Decreases attributable to:

Securities sold, paid down or matured

(1
)

(41
)
Balance as of end-of-period
$
359

$
374


	For the Three
	Months Ended
	June 30, 2023
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-period	$	26		$	6	$	5	$	37
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		2			-		-		2
Additions (reductions) for securities for which credit losses
were previously recognized		(3	)		-		1		(2	)
Reductions for securities charged-off		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	13		$	6	$	6	$	25

During the three months ended March 31, 2018 and 2017, we recorded credit losses on securities for which an OTTI was not previously recognized as we determined the cash flows expected to be collected would not be sufficient to recover the entire amortized cost basis of the debt security. The credit losses we recorded on securities for which an OTTI was not previously recognized were attributable primarily to one or a combination of the following reasons:

Of course
	For the Six
	Months Ended
	June 30, 2023
	Corporate
	Bonds			RMBS			Other		Total
Balance as of beginning-of-year	$	9		$	7		$	5	$	21
Additions from purchases of PCD debt securities ⁽¹⁾		-			-			-		-
Additions for securities for which credit losses were not
previously recognized		20			-			-		20
Additions (reductions) for securities for which credit losses
were previously recognized		(3	)		(1	)		1		(3	)
Reductions for securities disposed		(1	)		-			-		(1	)
Reductions for securities charged-off		(12	)		-			-		(12	)
Balance as of end-of-period ⁽²⁾	$	13		$	6		$	6	$	25


	For the Three
	Months Ended
	June 30, 2022
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-period	$	16		$	2	$	2	$	20
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		1			-		-		1
Additions (reductions) for securities for which credit losses
were previously recognized		2			1		-		3
Reductions for securities charged-off		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	7		$	3	$	2	$	12

~~Failure of the issuer of the security to make scheduled payments;~~

~~Deterioration of creditworthiness of the issuer;~~

~~Deterioration of conditions specifically related to the security;~~

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~~Deterioration of fundamentals of the industry in which the issuer operates; and~~

~~Deterioration of the rating of the security by a rating agency.~~

	For the Six
	Months Ended
	June 30, 2022
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-year	$	17		$	1	$	1	$	19
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		1			-		1		2
Additions (reductions) for securities for which credit losses
were previously recognized		2			2		-		4
Reductions for securities disposed		(1	)		-		-		(1	)
Reductions for securities charged-off		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	7		$	3	$	2	$	12

~~We recognize the OTTI attributed to the noncredit portion as a separate component in OCI referred to as unrealized OTTI~~⁽¹⁾Represents purchased credit-deteriorated (“PCD”) fixed maturity AFS securities.

⁽²⁾As of June 30, 2023 and 2022, accrued investment income on fixed maturity AFS ~~securities.~~ securities totaled $1.1 billion and $1.0 billion, respectively, and was excluded from the estimate of credit losses.

Mortgage Loans on Real Estate

~~See Note 1 in our 2017 Form 10-K for information regarding our accounting policy relating to mortgage loans on real estate.~~

Mortgage loans on real estate principally involve commercial real estate. The commercial loans are geographically diversified throughout the U.S. with the largest concentrations in California, which accounted for 20% and 21% of mortgage loans on real estate as of March 31, 2018, and December 31, 2017, respectively, and Texas which accounted for 12% of mortgage loans on real estate as of March 31, 2018, and December 31, 2017.

The following provides the current and past due composition of our mortgage loans on real estate (in millions):



	As of
	March 31,				December 31,				As of June 30, 2023									As of December 31, 2022
		2018				2017			Commercial			Residential			Total			Commercial			Residential			Total
Current		$	10,954			$	10,662		$	16,932		$	1,471		$	18,403		$	16,913		$	1,315		$	18,228
60 to 90 days past due			-				-
Greater than 90 days past due			3				3
Valuation allowance associated with impaired mortgage loans on real estate			(3	)			(3	)
30 to 59 days past due										-			20			20			19			23			42
60 to 89 days past due										-			4			4			-			6			6
90 or more days past due										-			45			45			-			33			33
Allowance for credit losses										(81	)		(23	)		(104	)		(83	)		(15	)		(98	)
Unamortized premium (discount)			-				-			(8	)		39			31			(9	)		36			27
Mark-to-market gains (losses) ⁽¹⁾										(27	)		(1	)		(28	)		(27	)		-			(27	)
Total carrying value		$	10,954			$	10,662		$	16,816		$	1,555		$	18,371		$	16,813		$	1,398		$	18,211

~~The number of impaired~~⁽¹⁾Represents the mark-to-market on certain mortgage loans on real estate ~~each~~for which we have elected the fair value option. See Note 13 for additional information.

Our commercial mortgage loan portfolio had the largest concentrations in California, which accounted for 28% of ~~which had an associated specific valuation allowance, and the carrying value of impaired~~commercial mortgage loans on real estate ~~(dollars in millions) were~~ as ~~follows:~~

As of
As of

March 31,
December 31,

2018

2017

Number of impaired mortgage loans on real estate

3

3

Principal balance of impaired mortgage loans on real estate

$
11

$
11

Valuation allowance associated with impaired mortgage loans on real estate

(3
)

(3
)
Carrying value of impaired mortgage loans on real estate

$
8

$
8

~~The changes in the valuation allowance associated with impaired~~of June 30, 2023, and December 31, 2022, and Texas, which accounted for 9% of commercial mortgage loans on real estate ~~(in millions)~~as of June 30, 2023, and December 31, 2022.

As of June 30, 2023, our residential mortgage loan portfolio had the largest concentrations in California and New York, which accounted for 15% and 13% of residential mortgage loans on real estate, respectively. As of December 31, 2022, our residential mortgage loan portfolio had the largest concentrations in California and New Jersey, which accounted for 17% and 12% of residential mortgage loans on real estate, respectively.

As of June 30, 2023, and December 31, 2022, we had 90 and 73 residential mortgage loans, respectively, that were either delinquent or in foreclosure. As of June 30, 2023, and December 31, 2022, we had 67 and 49 residential mortgage loans in foreclosure, respectively, with an aggregate carrying value of $28 million and $21 million, respectively.

We adopted ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures as ~~follows:~~of January 1, 2023, and accordingly no longer

identify certain debt modifications as troubled debt restructurings. Losses from loan modifications for the three and six months ended June 30, 2023, were less than $1 million and reported in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

For the Three

Months Ended

March 31,

2018

2017

Balance as of beginning-of-year
$
3

$
2

Additions

-

-

Charge-offs, net of recoveries

-

-

Balance as of end-of-period
$
3

$
2

Table of Contents

As of June 30, 2023, and December 31, 2022, there were two specifically identified impaired commercial mortgage loans, with an aggregate carrying value of less than $1 million.

As of June 30, 2023, and December 31, 2022, there were 64 and 37 specifically identified impaired residential mortgage loans, respectively, with an aggregate carrying value of $29 million and $16 million, respectively.

Additional information related to impaired mortgage loans on real estate (in millions) was as follows:



	For the Three				For the Three				For the Six
	Months Ended				Months Ended				Months Ended
	March 31,				June 30,				June 30,
	2018		2017		2023		2022		2023		2022
Average carrying value for impaired mortgage loans on real estate	$	8	$	5
Average aggregate carrying value for impaired mortgage loans on real estate					$	24	$	15	$	21	$	18
Interest income recognized on impaired mortgage loans on real estate		-		-		-		-		-		-
Interest income collected on impaired mortgage loans on real estate		-		-		-		-		-		-

The amortized cost of mortgage loans on real estate on nonaccrual status (in millions) was as follows:



	As of June 30, 2023				As of December 31, 2022
	Nonaccrual				Nonaccrual
	with no				with no
	Allowance				Allowance
	for Credit				for Credit
	Losses		Nonaccrual		Losses		Nonaccrual
Commercial mortgage loans on real estate	$	-	$	-	$	-	$	-
Residential mortgage loans on real estate		-		47		-		34
Total	$	-	$	47	$	-	$	34

~~As described in Note 1 in our 2017 Form 10-K, we~~

We use ~~the~~ loan-to-value and debt-service coverage ratios as credit quality indicators for our commercial mortgage loans on real estate. The amortized cost of commercial mortgage loans on real estate ~~which~~(dollars in millions) by year of origination and credit quality indicator was as follows:



	As of June 30, 2023
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2023	$	427	1.80	$	32	1.45	$	-	-	$	459
2022		1,769	2.07		91	2.05		1	1.13		1,861
2021		2,326	3.06		67	1.51		-	-		2,393
2020		1,243	2.90		12	1.55		-	-		1,255
2019		2,550	2.21		87	1.50		18	1.43		2,655
2018 and prior		7,895	2.39		244	1.67		162	1.57		8,301
Total	$	16,210		$	533		$	181		$	16,924

Table of Contents


	As of December 31, 2022
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2022	$	1,769	2.06	$	105	1.50	$	2	1.45	$	1,876
2021		2,335	3.05		72	1.53		-	-		2,407
2020		1,280	2.99		17	1.58		-	-		1,297
2019		2,643	2.17		81	1.50		29	1.58		2,753
2018		2,222	2.17		67	1.62		-	-		2,289
2017 and prior		6,170	2.44		131	1.75		-	-		6,301
Total	$	16,419		$	473		$	31		$	16,923

We use loan performance status as the primary credit quality indicator for our residential mortgage loans on real estate. The amortized cost of residential mortgage loans on real estate (in millions) by year of origination and credit quality indicator was as follows:



	As of June 30, 2023
	Performing		Nonperforming			Total
Origination Year
2023	$	185		$	-	$	185
2022		602			14		616
2021		496			10		506
2020		87			1		88
2019		105			19		124
2018 and prior		57			3		60
Total	$	1,532		$	47	$	1,579


	As of December 31, 2022
	Performing		Nonperforming			Total
Origination Year
2022	$	578		$	5	$	583
2021		527			6		533
2020		90			3		93
2019		119			18		137
2018		65			2		67
2017 and prior		-			-		-
Total	$	1,379		$	34	$	1,413

Credit Losses on Mortgage Loans on Real Estate

Changes in the allowance for credit losses on mortgage loans on real estate (in millions) were as ~~follows (dollars in millions):~~follows:

As of March 31, 2018

As of December 31, 2017

Debt-

Debt-

Service

Service

Carrying

% of

Coverage

Carrying

% of

Coverage

Loan-to-Value Ratio
Value

Total

Ratio

Value

Total

Ratio

Less than 65%
$
9,865

90.0%

2.27

$
9,563

89.7%

2.27

65% to 74%

995

9.1%

1.93

1,000

9.4%

1.94

75% to 100%

86

0.8%

0.98

91

0.8%

0.97

Greater than 100%

8

0.1%

0.82

8

0.1%

0.82

Total mortgage loans on real estate
$
10,954

100.0%

$
10,662

100.0%



	For the Three
	Months Ended
	June 30, 2023
	Commercial			Residential		Total
Balance as of beginning-of-period	$	83		$	20	$	103
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(2	)		3		1
Additions from purchases of PCD mortgage loans on real estate		-			-		-
Balance as of end-of-period ⁽²⁾	$	81		$	23	$	104

‎

Table of Contents


	For the Six
	Months Ended
	June 30, 2023
	Commercial			Residential		Total
Balance as of beginning-of-year	$	83		$	15	$	98
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(2	)		8		6
Additions from purchases of PCD mortgage loans on real estate		-			-		-
Balance as of end-of-period ⁽²⁾	$	81		$	23	$	104


	For the Three
	Months Ended
	June 30, 2022
	Commercial		Residential			Total
Balance as of beginning-of-period	$	59	$	18		$	77
Additions (reductions) from provision for credit loss expense ⁽¹⁾		13		(9	)		4
Additions from purchases of PCD mortgage loans on real estate		-		-			-
Balance as of end-of-period ⁽²⁾	$	72	$	9		$	81


	For the Six
	Months Ended
	June 30, 2022
	Commercial			Residential			Total
Balance as of beginning-of-year	$	78		$	17		$	95
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(6	)		(8	)		(14	)
Additions from purchases of PCD mortgage loans on real estate		-			-			-
Balance as of end-of-period ⁽²⁾	$	72		$	9		$	81

⁽¹⁾We recognized $(2) million and less than $(1) million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the three months ended June 30, 2023 and 2022, respectively. We recognized $(1) million and less than $(1) million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the six months ended June 30, 2023 and 2022, respectively.

⁽²⁾Accrued investment income on mortgage loans on real estate totaled $53 million and $49 million as of June 30, 2023 and 2022, respectively, and was excluded from the estimate of credit losses.

Alternative Investments

As of ~~March 31, 2018,~~June 30, 2023, and December 31, ~~2017,~~2022, alternative investments included investments in ~~225~~329 and ~~221~~328 different partnerships, respectively, and ~~the portfolios~~ represented approximately 1%2% of ~~our overall invested assets.~~total investments.

~~Realized Gain (Loss) Related to Certain Investments~~

~~The detail of the realized gain (loss) related to certain investments (in millions) was as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Fixed maturity AFS securities: (1)

Gross gains
$
13

$
8

Gross losses

(32
)

(12
)
Equity AFS securities:

Gross gains

-

1

Gross losses

-

-

Gain (loss) on other investments (2)

(1
)

(4
)
Associated amortization of DAC, VOBA, DSI and DFEL

and changes in other contract holder funds

(5
)

(7
)
Total realized gain (loss) related to certain investments, pre-tax
$
(25
)
$
(14
)

⁽¹⁾

~~These amounts are represented net of related fair value hedging activity. See Note 6 for more information.~~

⁽²⁾

~~Includes market adjustments on equity securities still held as of March 31, 2018 of less than $1 million.~~

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Impairments on Fixed Maturity AFS Securities

Details underlying ~~write-downs taken as a result of OTTI (in millions)~~intent to sell impairments and credit loss benefit (expense) incurred that were recognized in net income (loss) and

included in realized gain (loss) on fixed maturity AFS securities ~~above, and the portion of OTTI recognized in OCI~~ (in millions) were as follows:

For the Three

Months Ended

March 31,

2018

2017

OTTI Recognized in Net Income (Loss)

Fixed maturity AFS securities:

Corporate bonds
$
(2
)
$
(2
)
ABS

-

(1
)
RMBS

-

(1
)
Gross OTTI recognized in net income (loss)

(2
)

(4
)
Associated amortization of DAC, VOBA, DSI and DFEL

-

-

Net OTTI recognized in net income (loss), pre-tax
$
(2
)
$
(4
)

Portion of OTTI Recognized in OCI

Gross OTTI recognized in OCI
$
-

$
-

Change in DAC, VOBA, DSI and DFEL

-

-

Net portion of OTTI recognized in OCI, pre-tax
$
-

$
-



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Intent to Sell Impairments⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	(2,748	)	$	-		$	(2,748	)	$	-
State and municipal bonds		(151	)		-			(151	)		-
RMBS		(55	)		-			(55	)		-
CMBS		(52	)		-			(52	)		-
ABS		(53	)		-			(53	)		-
Hybrid and redeemable preferred securities		(3	)		-			(3	)		-
Total intent to sell impairments	$	(3,062	)	$	-		$	(3,062	)	$	-

Credit Loss Benefit (Expense)
Fixed maturity AFS securities:
Corporate bonds	$	1		$	(3	)	$	(16	)	$	(2	)
RMBS		-			(1	)		1			(2	)
ABS		-			-			-			(1	)
Total credit loss benefit (expense)	$	1		$	(4	)	$	(15	)	$	(5	)

~~Determination~~⁽¹⁾Represents impairment of ~~Credit Losses on Corporate Bonds and ABS~~

Ascertain fixed maturity AFS securities in an unrealized loss position, resulting from the Company's intent to sell these securities as part of ~~March 31, 2018, and December 31, 2017, we reviewed our corporate bond and ABS portfolios for potential shortfall~~the previously announced Fortitude Re reinsurance transaction. Within the investment portfolio anticipated to be sold in ~~contractual principal and interest based on numerous subjective and objective inputs. The factors used~~the transaction, there are additional fixed maturity AFS securities in an unrealized gain position of approximately $477 million pre-tax as of June 30, 2023. Pursuant to ~~determine~~ the ~~amount of credit~~applicable accounting guidance, the Company impaired the securities in a loss ~~for each individual security, include, but are not limited~~position down to ~~near term risk, substantial discrepancy between book and~~fair market value ~~sector or company-specific volatility, negative operating trends and trading levels wider than peers.~~

~~Credit ratings express opinions about~~upon entry into the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by Standard & Poor’s (“S&P”) Rating Services or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are generally considered by the rating agencies and market participants to be low credit risk. As of March 31, 2018, and December 31, 2017, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of March 31, 2018, and December 31, 2017, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.3 billion and $3.4 billion, respectively, and a fair value of $3.2 billion and $3.4 billion, respectively. As of March 31, 2018, and December 31, 2017, 98% of the fair value of our ABS portfolio was rated investment grade. As of March 31, 2018, and December 31, 2017, the portion of our ABS portfolio rated below investment grade had an amortized cost of $43 million and a fair value of $41 million. Based upon the analysis discussed above, we believe as of March 31, 2018, and December 31, 2017, that we would recover the amortized cost of each investment grade corporate bond and ABS security.

~~Determination of Credit Losses on MBS~~

As of March 31, 2018, and December 31, 2017, default rates were projected by considering underlying MBS loan performance and collateral type. Projected default rates on existing delinquencies vary between 10% to 100% depending on loan type and severity of delinquency status. In addition, we estimate the potential contributions of currently performing loans that may become delinquentagreement in the ~~future based on~~second quarter and will recognize a gain for any securities in an unrealized gain position at the ~~change in delinquencies and loan liquidations experienced in~~time when the ~~recent history. Finally, we develop a default rate timing curve by aggregating the defaults~~transaction closes. See Note 8 for ~~all loans in the pool (delinquent loans, foreclosure and real estate owned and new delinquencies from currently performing loans) and the associated loan-level loss severities.~~ additional information.
‎

We use certain available loan characteristics such as lien status, loan sizes and occupancy to estimate the loss severity of loans. Second lien loans are assigned 100% severity, if defaulted. For first lien loans, we assume a minimum of 30% severity with higher severity assumed for investor properties and further adjusted by housing price assumptions. With the default rate timing curve and loan-level loss severity, we derive the future expected credit losses.

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Payables for Collateral on Investments

The carrying value of the payables for collateral on investments ~~(in millions)~~ included on ~~our~~the Consolidated Balance Sheets and the fair value of the related investments or collateral (in millions) consisted of the following:



	As of March 31, 2018				As of December 31, 2017				As of June 30, 2023				As of December 31, 2022
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value		Value		Value
Collateral payable for derivative investments (1)	$	587	$	587	$	701	$	701	$	4,522	$	4,522	$	3,210	$	3,210
Securities pledged under securities lending agreements (2)		154		149		222		213		290		282		298		287
Securities pledged under repurchase agreements (3)		531		557		531		554
Investments pledged for Federal Home Loan Bank of
Indianapolis (“FHLBI”) (4)		2,900		4,206		2,900		4,235
Investments pledged for FHLBI ⁽³⁾										2,150		2,725		3,130		3,925
Total payables for collateral on investments	$	4,172	$	5,499	$	4,354	$	5,703	$	6,962	$	7,529	$	6,638	$	7,422

⁽¹⁾

We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. See Note 6 for additional information.

⁽²⁾

Our pledged securities under securities lending agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We generally obtain collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. We value collateral daily and obtain additional collateral when deemed appropriate. The cash received in our securities lending program is typically invested in cash and invested cash or fixed maturity AFS securities.

⁽³⁾

Our pledged securities under repurchase agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount equal to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received in our repurchase program is typically invested in fixed maturity AFS securities.

⁽⁴⁾

Our pledged investments for FHLBI are included in fixed maturity AFS securities and mortgage loans on real estate on our Consolidated Balance Sheets. The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate. The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities.

⁽¹⁾We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. This also includes interest payable on collateral. See Note 6 for additional information.

⁽²⁾Our pledged securities under securities lending agreements are included in fixed maturity AFS securities on the Consolidated Balance Sheets. We generally obtain collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. We value collateral daily and obtain additional collateral when deemed appropriate. The cash received in our securities lending program is typically invested in cash and invested cash or fixed maturity AFS securities.

⁽³⁾Our pledged investments for FHLB of Indianapolis (“FHLBI”) are included in fixed maturity AFS securities and mortgage loans on real estate on the Consolidated Balance Sheets. The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate. The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities.

We have repurchase agreements through which we can obtain liquidity by pledging securities. The collateral requirements are generally 80% to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received in our repurchase program is typically invested in fixed maturity AFS securities. As of June 30, 2023, and December 31, 2022, we were not participating in any open repurchase agreements.

Increase (decrease) in payables for collateral on investments (in millions) consisted of the following:



	For the Three						For the Six
	Months Ended						Months Ended
	March 31,						June 30,
	2018			2017			2023			2022
Collateral payable for derivative investments	$	(114	)	$	36		$	1,312		$	(2,269	)
Securities pledged under securities lending agreements		(68	)		(90	)		(8	)		58
Securities pledged under repurchase agreements		-			1
Investments pledged for FHLBI		-			150			(980	)		800
Total increase (decrease) in payables for collateral on investments	$	(182	)	$	97		$	324		$	(1,411	)

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Table of Contents

We have elected not to offset our ~~repurchase agreements and~~ securities lending transactions in ~~our~~the consolidated financial statements. The remaining contractual maturities of ~~repurchase agreements and~~ securities lending transactions accounted for as secured borrowings (in millions) were as follows:


											As of June 30, 2023
	As of March 31, 2018										Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
	Overnight and Continuous		Up to 30 Days		30 – 90 Days		Greater Than 90 Days		Total
Repurchase Agreements
Corporate bonds	$	-	$	100	$	281	$	150	$	531
Total		-		100		281		150		531
Securities Lending
Corporate bonds		154		-		-		-		154	$	285	$	-	$	-	$	-	$	285
Total		154		-		-		-		154
Equity securities												5		-		-		-		5
Total gross secured borrowings	$	154	$	100	$	281	$	150	$	685	$	290	$	-	$	-	$	-	$	290



	As of December 31, 2022
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	288	$	-	$	-	$	-	$	288
Foreign government bonds		2		-		-		-		2
Equity securities		8		-		-		-		8
Total gross secured borrowings	$	298	$	-	$	-	$	-	$	298

As of December 31, 2017

Overnight and Continuous

Up to 30 Days

30 – 90 Days

Greater Than 90 Days

Total

Repurchase Agreements

Corporate bonds
$
-

$
100

$
281

$
150

$
531

Total

-

100

281

150

531

Securities Lending

Corporate bonds

222

-

-

-

222

Total

222

-

-

-

222

Total gross secured borrowings
$
222

$
100

$
281

$
150

$
753

We accept collateral in the form of securities in connection with repurchase agreements. In instances where we are permitted to sell or re-pledge the securities received, we report the fair value of the collateral received and a related obligation to return the collateral in the consolidated financial statements. In addition, we receive securities in connection with securities borrowing agreements ~~which~~that we are permitted to sell or re-pledge. As of ~~March 31, 2018,~~June 30, 2023, the fair value of all collateral received that we are permitted to sell or re-pledge was ~~$629 million. As of March 31, 2018,~~$25 million, and we ~~have~~had re-pledged ~~$337 million~~all of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative investments.

Investment Commitments

As of ~~March 31, 2018,~~June 30, 2023, our investment commitments were ~~$1.6~~$2.5 billion, which included ~~$735~~$1.9 billion of LPs, $412 million of ~~LPs, $582~~private placement securities and $226 million of mortgage loans on real ~~estate and $280 million of private placement securities.~~estate.

Concentrations of Financial Instruments

As of ~~March 31, 2018, and December 31, 2017,~~June 30, 2023, our most significant investments in one issuer were our investments in securities issued by ~~the Federal Home Loan Mortgage Corporation~~White Chapel LLC and White Chapel V LLC with a fair value of ~~$1.4~~$1.0 billion, ~~and $1.2 billion, respectively,~~ or 1% of total investments. As of December 31, 2022, our ~~invested assets portfolio, and~~most significant investments in one issuer were our investments in securities issued by White Chapel LLC and the Federal National Mortgage Association with a fair value of ~~$1.2~~$1.0 billion and ~~$930~~$702 million, respectively, or 1% of ~~our invested assets portfolio.~~total investments. These concentrations include fixed maturity AFS, trading and equity securities.

As of ~~March~~June 30, 2023, and December 31, ~~2018,~~2022, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of $20.0 billion and $19.2 billion, respectively, or 15% of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of ~~$14.8~~$15.1 billion and ~~$13.6~~$14.3 billion, respectively, or ~~14% and 13%, respectively,~~11% of our invested assets portfolio. As of December 31, 2017, our most significant investments in one industry were our investments in securities in the consumer non-cyclical industry and the utilities industry with a fair of $14.3 billion and $13.8 billion, respectively, or 13% and 12%, respectively, of our invested assets portfolio.total investments. These concentrations include fixed maturity AFS, trading and equity securities.

‎

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5. Variable Interest Entities

Unconsolidated Variable Interest Entities

Structured Securities

Through our investment activities, we make passive investments in structured securities issued by VIEs for which we are not the manager. These structured securities include our ABS, RMBS and CMBS. We have not provided financial or other support with respect to these VIEs other than our original investment. We have determined that we are not the primary beneficiary of these VIEs due to the relative size of our investment in comparison to the principal amount of the structured securities issued by the VIEs and the level of credit subordination that reduces our obligation to absorb losses or right to receive benefits. Our maximum exposure to loss on these structured securities is limited to the amortized cost for these investments. We recognize our variable interest in these VIEs at fair value on our Consolidated Balance Sheets. For information about these structured securities, see Note 4.

Limited Partnerships and Limited Liability Companies

We invest in certain LPs and limited liability companies (“LLCs”) that we have concluded are VIEs. Our exposure to loss is limited to the capital we invest in the LPs and LLCs. We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs. Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs. The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $3.2 billion and $3.0 billion as of June 30, 2023, and December 31, 2022, respectively.

6. Derivative Instruments

We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk, equity market risk, basis risk, commodity risk and credit risk. ~~See Note 1~~We assess these risks by continually identifying and monitoring changes in our ~~2017 Form 10-K~~exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities.

Derivative activities are monitored by various management committees. The committees are responsible for ~~a detailed discussion~~overseeing the implementation of various hedging strategies that are developed through the ~~accounting treatment for derivative instruments. See Note 6 in our 2017 Form 10-K for a detailed discussion~~analysis of ~~our derivative instruments~~financial simulation models and ~~use of them in~~other internal and industry sources. The resulting hedging strategies are incorporated into our overall risk management ~~strategy, which information is incorporated herein by reference.~~ strategies.

See Note 1213 for additional disclosures related to the fair value of our derivative instruments.

Interest Rate Contracts

We use derivative instruments as part of our interest rate risk management strategy. These instruments are economic hedges unless otherwise noted and include:

Forward-Starting Interest Rate Swaps

We use forward-starting interest rate swaps to hedge the interest rate exposure within our life and annuity products.

Interest Rate Cap Corridors

We use interest rate cap corridors to provide a level of protection from the effect of rising interest rates for certain life insurance products and annuity contracts. Interest rate cap corridors involve purchasing an interest rate cap at a specific cap rate and selling an interest rate cap with a higher cap rate. For each corridor, the amount of quarterly payments, if any, is determined by the rate at which the underlying index rate resets above the original capped rate. The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the higher capped rate. There is no additional liability to us other than the purchase price associated with the interest rate cap corridor.

Interest Rate Futures

We use interest rate futures contracts to hedge the liability exposure on certain options in variable annuity products. These futures contracts require payment between our counterparty and us on a daily basis for changes in the futures index price.

Interest Rate Swap Agreements

We use interest rate swap agreements to hedge the liability exposure on certain options in variable annuity products.

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We also use interest rate swap agreements designated and qualifying as cash flow hedges to hedge the interest rate risk of floating-rate bond coupon payments by replicating a fixed-rate bond.

Finally, we use interest rate swap agreements designated and qualifying as fair value hedges to hedge against changes in the fair value of certain fixed maturity securities due to interest rate risks.

Reverse Treasury Locks

We use reverse treasury locks designated and qualifying as cash flow hedges to hedge the interest rate exposure related to the anticipated purchase of fixed-rate securities or the anticipated future cash flows of floating-rate fixed maturity securities due to changes in interest rates. These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Foreign Currency Contracts

We use derivative instruments as part of our foreign currency risk management strategy. These instruments are economic hedges unless otherwise noted and include:

Currency Futures

We use currency futures to hedge foreign exchange risk associated with certain options in variable annuity products. Currency futures exchange one currency for another at a specified date in the future at a specified exchange rate.

Foreign Currency Swaps

We use foreign currency swaps to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange one currency for another at specified dates in the future at a specified exchange rate.

We also use foreign currency swaps designated and qualifying as cash flow hedges to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies.

Foreign Currency Forwards

We use foreign currency forwards to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency forward is a contractual agreement to exchange one currency for another at specified dates in the future at a specified current exchange rate.

Equity Market Contracts

We use derivative instruments as part of our equity market risk management strategy that are economic hedges and include:

Call Options Based on the S&P 500^® Index and Other Indices

We use call options to hedge the liability exposure on certain options in variable annuity, indexed variable annuity, fixed indexed annuity, IUL and VUL products.

Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the S&P 500 Index or other indices. Policyholders may elect to rebalance index options at renewal dates. At the end of each indexed term, which can be up to six years, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees. We use call options that are highly correlated to the portfolio allocation decisions of our policyholders, such that we are economically hedged with respect to equity returns for the current reset period.

Consumer Price Index Swaps

We use consumer price index swaps to hedge the liability exposure on certain options in fixed annuity products. Consumer price index swaps are contracts entered into at no cost and whose payoff is the difference between the consumer price index inflation rate and the fixed-rate determined as of inception.

Equity Futures

We use equity futures contracts to hedge the liability exposure on certain options in variable annuity products. These futures contracts require payment between our counterparty and us on a daily basis for changes in the futures index price.

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Put Options

We use put options to hedge the liability exposure on certain options in variable annuity, indexed variable annuity and VUL products. Put options are contracts that require buyers to pay at a specified future date the amount, if any, by which a specified equity index is less than the strike rate stated in the agreement, applied to a notional amount.

Total Return Swaps

We use total return swaps to hedge the liability exposure on certain options in variable annuity products and indexed variable annuity products.

In addition, we use total return swaps to hedge a portion of the liability related to our deferred compensation plans. We receive the total return on a portfolio of indexes and pay a floating-rate of interest.

Commodity Contracts

We use commodity contracts to economically hedge certain investments that are closely tied to the changes in commodity values. The commodity contract is an over-the-counter contract that combines a purchase put/sold call to lock in a commodity price within a predetermined range in exchange for a net premium.

Credit Contracts

We use derivative instruments as part of our credit risk management strategy that are economic hedges and include:

Credit Default Swaps – Buying Protection

We use credit default swaps (“CDSs”) to hedge the liability exposure on certain options in variable annuity products.

We buy CDSs to hedge against a drop in bond prices due to credit concerns of certain bond issuers. A CDS allows us to put the bond back to the counterparty at par upon a default event by the bond issuer. A default event is defined as bankruptcy, failure to pay, obligation acceleration or restructuring.

CDSs – Selling Protection

We use CDSs to hedge the liability exposure on certain options in variable annuity products.

We sell CDSs to offer credit protection to policyholders and investors. The CDSs hedge the policyholders and investors against a drop in bond prices due to credit concerns of certain bond issuers. A CDS allows the investor to put the bond back to us at par upon a default event by the bond issuer. A default event is defined as bankruptcy, failure to pay, obligation acceleration or restructuring.

Other Derivatives

Lapse Protection Rider Ceded Derivative

We also have an inter-company agreement through which LNBAR, an affiliated insurer, assumes the risk under certain UL contracts for lapse protection riders (“LPR”). If the policyholder’s account balance is insufficient to pay the cost of insurance charges required to keep the policy in force, and the policyholder has made the required deposits, we will be reimbursed for those charges.

Embedded Derivatives

We have embedded derivatives that include:

Indexed Annuity and IUL Contracts Embedded Derivatives

Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the S&P 500^® Index or other indices. Policyholders may elect to rebalance index options at renewal dates. At the end of each indexed term, which can be up to six years, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees. We use options that are highly correlated to the portfolio allocation decisions of our policyholders, such that we are economically hedged with respect to equity returns for the current reset period.

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Reinsurance-Related Embedded Derivatives

We have certain modified coinsurance and coinsurance with funds withheld reinsurance agreements with embedded derivatives related to the withheld assets of the related funds. These derivatives are considered total return swaps with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements.

We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure. Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:



	As of March 31, 2018						As of December 31, 2017						As of June 30, 2023						As of December 31, 2022
	Notional		Fair Value				Notional		Fair Value				Notional		Fair Value				Notional		Fair Value
	Amounts		Asset		Liability		Amounts		Asset		Liability		Amounts		Asset		Liability		Amounts		Asset		Liability
Qualifying Hedges
Cash flow hedges:
Interest rate contracts (1)	$	1,674	$	21	$	37	$	1,544	$	45	$	16	$	877	$	2	$	125	$	1,377	$	4	$	232
Foreign currency contracts (1)		1,887		47		139		1,804		79		79		4,548		601		36		4,383		643		18
Total cash flow hedges		3,561		68		176		3,348		124		95		5,425		603		161		5,760		647		250
Fair value hedges:
Interest rate contracts (1)		564		-		142		563		-		174		484		2		42		524		2		44
Non-Qualifying Hedges
Interest rate contracts (1)		99,814		498		164		72,937		657		127		85,019		638		925		105,977		709		935
Foreign currency contracts (1)		114		-		-		22		-		-		357		19		2		395		27		2
Equity market contracts (1)		30,416		656		374		30,918		562		557		234,998		8,671		4,152		142,653		5,135		2,035
Commodity contracts ⁽¹⁾														27		14		15		13		14		3
Credit contracts (1)		-		-		-		52		-		-		52		-		-		-		-		-
LPR ceded derivative ⁽²⁾														-		202		-		-		212		-
Embedded derivatives:
Guaranteed living benefit ("GLB")
direct (2)		-		1,110		-		-		903		-
GLB ceded (2) (3)		-		45		1,155		-		51		954
Reinsurance related (4)		-		58		-		-		-		51
Indexed annuity and IUL contracts (2) (5)		-		17		1,346		-		11		1,418
Reinsurance-related ⁽³⁾														-		690		-		-		681		-
Indexed annuity and IUL contracts ^{(3) (4)}														-		603		7,510		-		525		4,783
Total derivative instruments	$	134,469	$	2,452	$	3,357	$	107,840	$	2,308	$	3,376	$	326,362	$	11,442	$	12,807	$	255,322	$	7,952	$	8,052

⁽¹⁾

~~Reported in derivative investments and other liabilities on our Consolidated Balance Sheets.~~

⁽²⁾

~~Reported in other assets on our Consolidated Balance Sheets.~~

⁽³⁾

~~Reported in other liabilities on our Consolidated Balance Sheets.~~

⁽⁴⁾

~~Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.~~

⁽⁵⁾

~~Reported in future contract benefits on our Consolidated Balance Sheets.~~

⁽¹⁾These asset and liability balances are presented on a gross basis. Amounts are reported in derivative investments and other liabilities on the Consolidated Balance Sheets after the evaluation for right of offset subject to master netting agreements.

⁽²⁾Reported in other assets on the Consolidated Balance Sheets.

⁽³⁾Reported in other assets and other liabilities on the Consolidated Balance Sheets.

⁽⁴⁾Reported in policyholder account balances on the Consolidated Balance Sheets.

The maturity of the notional amounts of derivative instruments (in millions) was as follows:



	Remaining Life as of March 31, 2018												Remaining Life as of June 30, 2023
	Less Than		1 – 5		6 – 10		11 – 30		Over 30				Less Than		1 – 5		6 – 10		11 – 30		Over 30
	1 Year		Years		Years		Years		Years		Total		1 Year		Years		Years		Years		Years		Total
Interest rate contracts (1)	$	25,136	$	13,592	$	45,940	$	17,384	$	-	$	102,052	$	19,186	$	21,463	$	21,929	$	20,802	$	3,000	$	86,380
Foreign currency contracts (2)		114		290		426		1,161		10		2,001		222		918		1,632		2,091		42		4,905
Equity market contracts		18,923		8,431		384		14		2,664		30,416		155,638		61,524		7,241		9		10,586		234,998
Commodity contracts														27		-		-		-		-		27
Credit contracts														-		52		-		-		-		52
Total derivative instruments
with notional amounts	$	44,173	$	22,313	$	46,750	$	18,559	$	2,674	$	134,469	$	175,073	$	83,957	$	30,802	$	22,902	$	13,628	$	326,362

⁽¹⁾As of June 30, 2023, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was December 18, 2024.

⁽²⁾As of June 30, 2023, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 16, 2061.

⁽¹⁾

~~As of March 31, 2018, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was November 2019.~~

⁽²⁾

~~As of March 31, 2018, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was September 2049.~~

1941

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The following amounts (in millions) were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair

value hedges:

Cumulative Fair Value

Hedging Adjustment

Included in the

Amortized Cost of the

Hedged

Assets / (Liabilities)

As of

June 30,

December 31,

June 30,

December 31,

2023

2022

2023

2022

Line Item in the Consolidated Balance Sheets in

which the Hedged Item is Included

Fixed maturity AFS securities, at fair value

536

587

The change in our unrealized gain (loss) on derivative instruments inwithin AOCI (in millions) was as follows:



	For the Three						For the Six
	Months Ended						Months Ended
	March 31,						June 30,
	2018			2017			2023			2022
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	27		$	93		$	301		$	258
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period:
Cumulative effect from adoption of
new accounting standard		6			-
Cash flow hedges:
Interest rate contracts		(46	)		(8	)		124			(307	)
Foreign currency contracts		(37	)		11			80			19
Change in foreign currency exchange rate adjustment		(50	)		(20	)		(110	)		373
Change in DAC, VOBA, DSI and DFEL		4			(4	)
Income tax benefit (expense)		28			7			(20	)		(18	)
Less:
Reclassification adjustment for gains (losses)
included in net income (loss):
Cash flow hedges:
Interest rate contracts (1)		1			2			-			1
Foreign currency contracts (1)		5			4			27			30
Foreign currency contracts (2)		-			5			3			4
Associated amortization of DAC, VOBA, DSI and DFEL		(1	)		(2	)
Income tax benefit (expense)		(1	)		(3	)		(6	)		(7	)
Balance as of end-of-period	$	(72	)	$	73		$	351		$	297

⁽¹⁾The OCI offset is reported within net investment income on the Consolidated Statements of Comprehensive Income (Loss).

⁽²⁾The OCI offset is reported within realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽¹⁾

~~The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss).~~

⁽²⁾

~~The OCI offset is reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).~~

2042

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The ~~gains (losses) on derivative instruments~~effects of qualifying and non-qualifying hedges (in millions) ~~recorded within income (loss) from continuing operations~~ on ~~our~~the Consolidated Statements of Comprehensive Income (Loss) were as follows:

For the Three

Months Ended

March 31,

2018

2017

Qualifying Hedges

Cash flow hedges:

Interest rate contracts (1)
$
1

$
2

Foreign currency contracts (1)

5

4

Foreign currency contracts (2)

-

5

Total cash flow hedges

6

11

Fair value hedges:

Interest rate contracts (1)

(4
)

(7
)

Interest rate contracts (2)

33

8

Total fair value hedges

29

1

Non-Qualifying Hedges

Interest rate contracts (2)

(312
)

(50
)

Foreign currency contracts (2)

2

3

Equity market contracts (2)

7

(526
)

Equity market contracts (3)

(2
)

9

Embedded derivatives:

Reinsurance related (2)

125

(21
)

Indexed annuity and IUL contracts (2)

52

(120
)

Total derivative instruments
$
(93
)
$
(693
)


	Gain (Loss) Recognized in Income
	For the Three Months Ended June 30,
	2023									2022
	Realized			Net						Realized			Net
	Gain			Investment						Gain			Investment
	(Loss)			Income			Benefits			(Loss)			Income			Benefits
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	(3,252	)	$	1,476		$	1,676		$	148		$	1,338		$	1,922


Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(19	)		-			-			(58	)		-
Derivatives designated as
hedging instruments		-			19			-			-			58			-
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			-			-			-			-			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			13			-			1			17			-

Non-Qualifying Hedges
Interest rate contracts		(319	)		-			-			(625	)		-			-
Foreign currency contracts		-			-			-			2			-			-
Equity market contracts		809			-			-			(1,588	)		-			-
Commodity contracts		-			-			-			9			-			-
Credit contracts		(1	)		-			-			-			-			-
LPR ceded derivative		-			-			(3	)		-			-			51
Embedded derivatives:
Reinsurance-related		76			-			-			432			-			-
Indexed annuity and IUL
contracts		(1,554	)		-			-			2,177			-			-

⁽¹⁾

~~Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss).~~

⁽²⁾

~~Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).~~

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⁽³⁾

~~Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).~~


	Gain (Loss) Recognized in Income
	For the Six Months Ended June 30,
	2023								2022
	Realized			Net					Realized			Net
	Gain			Investment					Gain			Investment
	(Loss)			Income			Benefits		(Loss)			Income			Benefits
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	(3,646	)	$	2,885		$	3,871	$	508		$	2,690		$	4,024


Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(3	)		-		-			(121	)		-
Derivatives designated as																-
hedging instruments		-			3			-		-			121
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			-			-		-			1			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		3			27			-		4			30			-


Non-Qualifying Hedges
Interest rate contracts		12			-			-		(1,446	)		-			-
Foreign currency contracts		(2	)		-			-		3			-			-
Equity market contracts		750			-			-		(1,912	)		-			-
Commodity contracts		11			-			-		9			-			-
Credit contracts		(2	)		-			-		-			-			-
LPR ceded derivative		-			-			10		-			-			103
Embedded derivatives:
Reinsurance-related		9			-			-		979			-			-
Indexed annuity and IUL
contracts		(2,266	)		-			-		2,683			-			-

~~Gains (losses) recognized as a component of OCI (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Offset to net investment income
$
6

$
6

Offset to realized gain (loss)
$
-

$
5

As of ~~March 31, 2018, $28~~June 30, 2023, $50 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements.

For the ~~three~~six months ended ~~March 31, 2018~~June 30, 2023 and ~~2017,~~2022, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.

As of ~~March~~June 30, 2023 and December 31, ~~2018,~~2022, we did not have any exposure related to ~~credit default swaps~~CDSs for which we are the seller.

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~~As of December 31, 2017, information related to our credit default swaps for which we are the seller (dollars in millions) was as follows:~~

As of December 31, 2017

Credit

Reason

Nature

Rating of

Number

Maximum

for

of
Underlying
of

Fair

Potential

Credit Contract Type

Maturity

Entering

Recourse

Obligation (1)

Instruments

Value (2)

Payout

Basket credit default swaps

12/20/2022

(3)

(4)

BBB+

1

$
1

$
52

1

$
1

$
52

⁽¹⁾

~~Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings.~~

⁽²⁾

~~Broker quotes are used to determine the market value of our credit default swaps.~~

⁽³⁾

~~Credit default swaps were entered into in order to hedge the liability exposure on certain variable annuity products.~~

⁽⁴⁾

~~Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.~~

~~Details underlying the associated collateral of our credit default swaps for which we are the seller if credit risk-related contingent features were triggered (in millions) were as follows:~~

As of

As of

March 31,
December 31,

2018

2017

Maximum potential payout

$
-

$
52

Less: Counterparty thresholds

-

-

Maximum collateral potentially required to post

$
-

$
52

Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding. If these netting agreements were not in place, we would have been required to post collateral if the market value was less than zero.

Credit Risk

We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or non-performance ~~risk (“NPR”).~~risk. The ~~NPR~~non-performance risk is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure, less collateral held. As of ~~March 31, 2018,~~June 30, 2023, the ~~NPR~~non-performance risk adjustment was ~~less than $1 million.~~zero. The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, we and ~~our insurance subsidiary~~LLANY have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts. In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor. AsWe did not have any exposure as of ~~March 31, 2018 and~~June 30, 2023, or December 31, ~~2017, our exposure was zero.~~ 2022.

The amounts recognized (in millions) by S&P credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows:



	As of March 31, 2018					As of December 31, 2017					As of June 30, 2023					As of December 31, 2022
	Collateral		Collateral			Collateral		Collateral			Collateral		Collateral			Collateral		Collateral
	Posted by		Posted by			Posted by		Posted by			Posted by		Posted by			Posted by		Posted by
S&P	Counter-		LNL			Counter-		LNL			Counter-		LNL			Counter-		LNL
Credit	Party		(Held by			Party		(Held by			Party		(Held by			Party		(Held by
Rating of	(Held by		Counter-			(Held by		Counter-			(Held by		Counter-			(Held by		Counter-
Counterparty	LNL)		Party)			LNL)		Party)			LNL)		Party)			LNL)		Party)

AA-	$	79	$	(4	)	$	116	$	(1	)	$	980	$	(12	)	$	383	$	(6	)
A+		103		(104	)		178		(453	)		3,460		(258	)		1,718		(151	)
A		185		(3	)		170		(48	)		66		(41	)		1,099		-
A-		219		-			237		-
BBB+		-		(11	)		-		(4	)
	$	586	$	(122	)	$	701	$	(506	)	$	4,506	$	(311	)	$	3,200	$	(157	)

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Balance Sheet Offsetting

Information related to the effects of offsetting on the Consolidated Balance Sheets (in millions) was as follows:



		As of March 31, 2018										As of June 30, 2023
					Embedded										Embedded
	Derivative										Derivative
	Instruments							Total			Instruments							Total

Financial Assets
Gross amount of recognized assets		$	976			$	1,230	$	2,206			$	8,875			$	1,293	$	10,168
Gross amounts offset			(251	)			-		(251	)			(3,810	)			-		(3,810	)
Net amount of assets			725				1,230		1,955				5,065				1,293		6,358
Gross amounts not offset:
Cash collateral			(586	)			-		(586	)			(4,506	)			-		(4,506	)
Non-cash collateral			(80	)			-		(80	)
Non-cash collateral ⁽¹⁾													(559	)			-		(559	)
Net amount		$	59			$	1,230	$	1,289			$	-			$	1,293	$	1,293

Financial Liabilities
Gross amount of recognized liabilities		$	728			$	2,501	$	3,229			$	1,486			$	7,510	$	8,996
Gross amounts offset			(247	)			-		(247	)			(1,071	)			-		(1,071	)
Net amount of liabilities			481				2,501		2,982				415				7,510		7,925
Gross amounts not offset:
Cash collateral			(122	)			-		(122	)			(311	)			-		(311	)
Non-cash collateral			(205	)			-		(205	)
Non-cash collateral ⁽²⁾													(59	)			-		(59	)
Net amount		$	154			$	2,501	$	2,655			$	45			$	7,510	$	7,555

⁽¹⁾Excludes excess non-cash collateral received of $946 million, as the collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.

⁽²⁾There was no excess non-cash collateral pledged as of June 30, 2023.



		As of December 31, 2022
					Embedded
	Derivative				Derivative
	Instruments				Instruments			Total

Financial Assets
Gross amount of recognized assets		$	6,483			$	1,206	$	7,689
Gross amounts offset			(2,964	)			-		(2,964	)
Net amount of assets			3,519				1,206		4,725
Gross amounts not offset:
Cash collateral			(3,200	)			-		(3,200	)
Non-cash collateral ⁽¹⁾			(319	)			-		(319	)
Net amount		$	-			$	1,206	$	1,206

Financial Liabilities
Gross amount of recognized liabilities		$	304			$	4,783	$	5,087
Gross amounts offset			(50	)			-		(50	)
Net amount of liabilities			254				4,783		5,037
Gross amounts not offset:
Cash collateral			(157	)			-		(157	)
Non-cash collateral ⁽²⁾			(46	)			-		(46	)
Net amount		$	51			$	4,783	$	4,834

⁽¹⁾Excludes excess non-cash collateral received of $1.1 billion, as the collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.

⁽²⁾There was no excess non-cash collateral pledged as of December 31, 2022.

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7. DAC, VOBA, DSI and DFEL

The following table reconciles DAC, VOBA and DSI (in millions) to the Consolidated Balance Sheets:


	As of		As of
	June 30,		December 31,
	2023		2022
DAC, VOBA and DSI
Traditional Life	$	1,366	$	1,336
UL and Other		6,074		6,002
Variable Annuities		4,030		4,047
Fixed Annuities		465		479
Group Protection		145		141
Retirement Plan Services		261		258
Total DAC, VOBA and DSI	$	12,341	$	12,263

The following table reconciles DFEL (in millions) to the Consolidated Balance Sheets:

As of December 31, 2017

Embedded

Derivative
Derivative

Instruments
Instruments

Total

Financial Assets

Gross amount of recognized assets

$
1,082

$
965

$
2,047

Gross amounts offset

(237
)

-

(237
)
Net amount of assets

845

965

1,810

Gross amounts not offset:

Cash collateral

(701
)

-

(701
)
Net amount

$
144

$
965

$
1,109

Financial Liabilities

Gross amount of recognized liabilities

$
1,037

$
2,423

$
3,460

Gross amounts offset

(261
)

-

(261
)
Net amount of liabilities

776

2,423

3,199

Gross amounts not offset:

Cash collateral

(506
)

-

(506
)
Net amount

$
270

$
2,423

$
2,693


	As of		As of
	June 30,		December 31,
	2023		2022
DFEL
UL and Other	$	5,139	$	4,735
Variable Annuities		305		310
Total DFEL	$	5,444	$	5,045

The following tables summarize the changes in DAC (in millions):

~~7. Federal~~



	For the Six Months Ended June 30, 2023
																Retirement
	Traditional			UL and			Variable			Fixed			Group			Plan
	Life			Other			Annuities			Annuities			Protection			Services

Balance as of beginning-of-year	$	1,286		$	5,518		$	3,880		$	439		$	141		$	241
Deferrals		105			239			176			23			53			10
Amortization		(71	)		(144	)		(187	)		(34	)		(49	)		(9	)
Balance as of end-of-period	$	1,320		$	5,613		$	3,869		$	428		$	145		$	242



	For the Year Ended December 31, 2022
																Retirement
	Traditional			UL and			Variable			Fixed			Group			Plan
	Life			Other			Annuities			Annuities			Protection			Services

Balance as of beginning-of-year	$	1,146		$	5,269		$	3,860		$	448		$	140		$	239
Deferrals		266			537			390			60			98			21
Amortization		(126	)		(288	)		(370	)		(69	)		(97	)		(19	)
Balance as of end-of-year	$	1,286		$	5,518		$	3,880		$	439		$	141		$	241

DAC amortization expense of $248 million and $494 million was recorded in commissions and other expenses on the Consolidated Statements of Comprehensive Income ~~Taxes~~

~~The effective tax rate is the ratio of tax expense over pre-tax income (loss). The effective tax rate was 16% and zero~~(Loss) for the three and six months ended ~~March 31, 2018~~June 30, 2023, respectively, and ~~2017, respectively.~~ $242 million and $483 million for the corresponding periods in 2022.

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The ~~effective tax rate~~following tables summarize the changes in VOBA (in millions):



	For the Six Months Ended June 30, 2023
	Traditional			UL and			Fixed
	Life			Other			Annuities

Balance as of beginning-of-year	$	50		$	454		$	17
Deferrals		-			1			-
Amortization		(4	)		(23	)		(1	)
Balance as of end-of-period	$	46		$	432		$	16



	For the Year Ended December 31, 2022
	Traditional			UL and			Fixed
	Life			Other			Annuities

Balance as of beginning-of-year	$	59		$	499		$	20
Deferrals		-			2			-
Amortization		(9	)		(47	)		(3	)
Balance as of end-of-year	$	50		$	454		$	17

VOBA amortization expense of $14 million and $28 million was recorded in commissions and other expenses on ~~pre-tax~~the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023, respectively, and $15 million and $30 million for the corresponding periods in 2022. No additions or write-offs were recorded for each respective year.

The following tables summarize the changes in DSI (in millions):



	For the Six Months Ended June 30, 2023
										Retirement
	UL and			Variable			Fixed			Plan
	Other			Annuities			Annuities			Services

Balance as of beginning-of-year	$	30		$	167		$	23		$	17
Deferrals		-			2			-			2
Amortization		(1	)		(8	)		(2	)		-
Balance as of end-of-period	$	29		$	161		$	21		$	19



	For the Year Ended December 31, 2022
										Retirement
	UL and			Variable			Fixed			Plan
	Other			Annuities			Annuities			Services

Balance as of beginning-of-year	$	31		$	181		$	27		$	14
Deferrals		1			2			-			4
Amortization		(2	)		(16	)		(4	)		(1	)
Balance as of end-of-year	$	30		$	167		$	23		$	17

DSI amortization expense of $5 million and $11 million was recorded in interest credited on the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023, respectively, and $6 million and $12 million for the corresponding periods in 2022.

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The following tables summarize the changes in DFEL (in millions):


	For the Six Months Ended						For the Year Ended
	June 30, 2023						December 31, 2022
	UL and			Variable			UL and			Variable
	Other			Annuities			Other			Annuities

Balance as of beginning-of-year	$	4,735		$	310		$	3,902		$	318
Deferrals		529			10			1,060			22
Amortization		(125	)		(15	)		(227	)		(30	)
Balance as of end-of-period	$	5,139		$	305		$	4,735		$	310

DFEL amortization of $71 million and $140 million was recorded in fee income ~~was lower~~on the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023, respectively, and $63 million and $128 million for the corresponding periods in 2022.

8. Reinsurance

On May 2, 2023, LNL and its affiliate entered into a reinsurance agreement with Fortitude Re. Pursuant to the agreement, we will cede approximately $28 billion of in-force UL with secondary guarantees (“ULSG”), MoneyGuard® and fixed annuity statutory reserves to Fortitude Re.

The transaction is structured as a coinsurance treaty between us and Fortitude Re for the ULSG and fixed annuities blocks, and as coinsurance with funds withheld for the MoneyGuard block, with counterparty protections including a comfort trust established by Fortitude Re subject to investment guidelines to meet our risk management objectives. Fortitude Re is an authorized Bermuda reinsurer with reciprocal jurisdiction reinsurer status in Indiana. Under the terms of the reinsurance agreement, we will retain account administration and recordkeeping of the policies including claims management.

This transaction is subject to customary closing conditions, including regulatory approvals. The transaction is expected to reduce balance sheet risk, strengthen our capital position and improve free cash flow.

‎

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9. MRBs

The following table reconciles MRBs (in millions) to MRB assets and MRB liabilities on the Consolidated Balance Sheets:



	As of June 30, 2023							As of December 31, 2022
					Net							Net
					(Assets)							(Assets)
	Assets		Liabilities		Liabilities			Assets		Liabilities		Liabilities
Variable Annuities	$	3,756	$	1,460	$	(2,296	)	$	2,666	$	2,004	$	(662	)
Fixed Annuities		116		82		(34	)		117		72		(45	)
Retirement Plan Services		34		6		(28	)		24		2		(22	)
Total MRBs	$	3,906	$	1,548	$	(2,358	)	$	2,807	$	2,078	$	(729	)

The following table summarizes the balances of and changes in net MRB (assets) liabilities (in millions):



	As of or For the Six Months Ended									As of or For the Year Ended
	June 30, 2023									December 31, 2022
							Retirement									Retirement
	Variable			Fixed			Plan			Variable			Fixed			Plan
	Annuities			Annuities			Services			Annuities			Annuities			Services
Balance as of beginning-of-year	$	(662	)	$	(45	)	$	(22	)	$	2,398		$	114		$	(1	)
Less: Effect of cumulative changes in
non-performance risk		(2,173	)		(40	)		(2	)		(2,425	)		(44	)		(13	)
Balance as of beginning-of-year, before the effect
of changes in non-performance risk		1,511			(5	)		(20	)		4,823			158			12
Issuances		3			-			-			12			-			(3	)
Attributed fees collected		755			17			3			1,571			32			6
Benefit payments		(35	)		-			-			(63	)		-			-
Effect of changes in interest rates		215			3			10			(9,346	)		(232	)		(55	)
Effect of changes in equity markets		(2,205	)		(6	)		(9	)		4,293			12			18
Effect of changes in equity index volatility		(372	)		2			(3	)		(225	)		14			(1	)
In-force updates and other changes in MRBs ⁽¹⁾		120			2			-			661			10			3
Effect of changes in future expected
policyholder behavior		-			-			-			(158	)		1			-
Effect of changes in other future expected
assumptions ⁽²⁾		-			-			-			(57	)		-			-
Balance as of end-of-period, before the effect of
changes in non-performance risk		(8	)		13			(19	)		1,511			(5	)		(20	)
Effect of cumulative changes in
non-performance risk		(2,288	)		(47	)		(9	)		(2,173	)		(40	)		(2	)
Balance as of end-of-period		(2,296	)		(34	)		(28	)		(662	)		(45	)		(22	)
Less: ceded MRB assets (liabilities)		(1,035	)		-			(4	)		294			-			-
Balance as of end-of-period, net of reinsurance	$	(1,261	)	$	(34	)	$	(24	)	$	(956	)	$	(45	)	$	(22	)

Weighted-average age of policyholders (years)		72			68			63			71			68			63
Net amount at risk ⁽³⁾		4,783			213			6			7,974			171			15

⁽¹⁾Consists primarily of changes in MRB assets and liabilities related to differences between separate account fund performance and modeled indices and other changes such as actual to expected policyholder behavior.

⁽²⁾Consists primarily of the update of fund mapping, volatility and other capital market assumptions.

⁽³⁾Net amount at risk (“NAR”) is the current guaranteed minimum benefit in excess of the current account balance as of the balance sheet date. For GLBs, the guaranteed minimum benefit is calculated based on the present value of GLB payments. Our variable annuity products may offer more than one type of guaranteed benefit rider to a policyholder. In instances where more than one guaranteed benefit feature exists in a contract, the ~~prevailing corporate federal income tax rate. Differences~~guaranteed benefit rider that provides the highest NAR is used in the ~~effective~~calculation.

For the year ended December 31, 2022, Variable Annuities had a favorable impact from updates to policyholder benefit utilization behavior and fund mapping and volatility assumptions. Fixed Annuities and Retirement Plan Services did not have any significant assumption updates.

See “MRBs” in Note 1 and Note 13 for details related to our fair value judgments, assumptions, inputs and valuation methodology.

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10. Separate Accounts

The following table presents the fair value of separate account assets (in millions) reported on the Consolidated Balance Sheets by major investment category:


	As of			As of
	June 30,		December 31,
	2023			2022
Mutual funds and collective investment trusts	$	152,584		$	142,892
Exchange-traded funds		364			258
Fixed maturity AFS securities		169			169
Cash and invested cash		3			98
Other investments		126			119
Total	$	153,246		$	143,536

The following table reconciles separate account liabilities (in millions) to the Consolidated Balance Sheets:


	As of			As of
	June 30,		December 31,
	2023			2022
UL and Other	$	23,409		$	20,920
Variable Annuities		110,998			105,573
Retirement Plan Services		18,789			16,996
Other Operations ⁽¹⁾		50			47
Total separate account liabilities	$	153,246		$	143,536

⁽¹⁾Represents separate account liabilities reported in Other Operations primarily attributable to the indemnity reinsurance agreements with Protective ($45 million and $42 million as of June 30, 2023, and December 31, 2022, respectively) that are excluded from the following tables.

The following table summarizes the balances of and changes in separate account liabilities (in millions):


	As of or For the Six Months Ended									As of or For the Year Ended
	June 30, 2023									December 31, 2022
							Retirement									Retirement
	UL and			Variable			Plan			UL and			Variable			Plan
	Other			Annuities			Services			Other			Annuities			Services
Balance as of beginning-of-year	$	20,920		$	105,573		$	16,996		$	24,785		$	136,665		$	21,068
Gross deposits		821			1,367			1,078			1,900			3,371			2,378
Withdrawals		(154	)		(4,915	)		(1,123	)		(454	)		(9,238	)		(2,378	)
Policyholder assessments		(476	)		(1,251	)		(79	)		(938	)		(2,603	)		(164	)
Change in market performance		2,374			9,950			1,953			(4,371	)		(23,194	)		(3,710	)
Net transfers from (to) general account		(76	)		274			(36	)		(2	)		572			(198	)
Balance as of end-of-period	$	23,409		$	110,998		$	18,789		$	20,920		$	105,573		$	16,996

Cash surrender value	$	21,080		$	109,501		$	18,774		$	18,666		$	103,987		$	16,982

‎

Table of Contents

11. Policyholder Account Balances

The following table reconciles policyholder account balances (in millions) to the Consolidated Balance Sheets:


	As of		As of
	June 30,		December 31,
	2023		2022
UL and Other	$	37,042	$	37,258
Variable Annuities		26,257		22,184
Fixed Annuities		23,786		23,338
Retirement Plan Services		24,430		25,138
Other ⁽¹⁾		5,641		6,054
Total policyholder account balances	$	117,156	$	113,972

⁽¹⁾Represents policyholder account balances reported primarily in Other Operations attributable to the indemnity reinsurance agreements with Protective ($5.2 billion and $5.7 billion as of June 30, 2023, and December 31, 2022, respectively) that are excluded from the following tables.

The following table summarizes the balances and changes in policyholder account balances (in millions):



	As of or For the Six Months Ended June 30, 2023
										Retirement
	UL and			Variable			Fixed			Plan
	Other			Annuities			Annuities			Services
Balance as of beginning-of-year	$	37,258		$	22,184		$	23,338		$	25,138
Gross deposits		1,826			2,437			1,919			1,317
Withdrawals		(705	)		(328	)		(1,920	)		(2,094	)
Policyholder assessments		(2,224	)		(1	)		(28	)		(7	)
Net transfers from (to) separate account		76			(198	)		-			(259	)
Interest credited		735			240			312			335
Change in fair value of embedded derivative
instruments		76			1,923			165			-
Balance as of end-of-period	$	37,042		$	26,257		$	23,786		$	24,430

Weighted-average crediting rate		4.0%			2.0%			2.6%			2.7%
Net amount at risk ⁽¹⁾⁽²⁾	$	301,018		$	4,783		$	213		$	6
Cash surrender value		32,822			25,146			22,889			24,425



	As of or For the Year Ended December 31, 2022
										Retirement
	UL and			Variable			Fixed			Plan
	Other			Annuities			Annuities			Services
Balance as of beginning-of-year	$	37,719		$	19,148		$	22,522		$	23,579
Gross deposits		3,905			5,178			3,284			4,012
Withdrawals		(1,215	)		(417	)		(2,511	)		(3,579	)
Policyholder assessments		(4,446	)		(2	)		(51	)		(13	)
Net transfers from (to) separate account		2			(492	)		-			510
Interest credited		1,476			287			532			629
Change in fair value of embedded derivative
instruments		(183	)		(1,518	)		(438	)		-
Balance as of end-of-year	$	37,258		$	22,184		$	23,338		$	25,138

Weighted-average crediting rate		3.9%			1.4%			2.4%			2.6%
Net amount at risk ⁽¹⁾⁽²⁾	$	302,481		$	7,974		$	171		$	15
Cash surrender value		33,130			21,147			22,502			25,133

Table of Contents

⁽¹⁾NAR is the current guaranteed minimum benefit in excess of the current account balance as of the balance sheet date. For GLBs, the guaranteed minimum benefit is calculated based on the present value of GLB payments. Our variable annuity products may offer more than one type of guaranteed benefit rider to a policyholder. In instances where more than one guaranteed benefit rider exists in a contract, the guaranteed benefit rider that provides the highest NAR is used in the calculation.

⁽²⁾Calculation is based on total account balances and includes both policyholder account balances and separate account balances.

The following table presents policyholder account balances (in millions) by range of guaranteed minimum crediting rates and the ~~U.S. statutory rates~~related range of ~~21%~~difference, in basis points, between the interest being credited to policyholders and ~~35% for~~ the ~~three months ended March 31, 2018~~respective guaranteed contract minimums:



	As of June 30, 2023
									Greater
			1-50		51-100		101-150		Than 150
	At		Basis		Basis		Basis		Basis
Range of Guaranteed	Guaranteed		Points		Points		Points		Points
Minimum Crediting Rate	Minimum		Above		Above		Above		Above		Total
UL and Other
Up to 1.00%	$	302	$	-	$	206	$	46	$	505	$	1,059
1.01% - 2.00%		557		-		6		-		3,142		3,705
2.01% - 3.00%		7,217		10		139		-		-		7,366
3.01% - 4.00%		15,269		-		1		-		-		15,270
4.01% and above		3,807		-		-		-		-		3,807
Other ⁽¹⁾		-		-		-		-		-		5,835
Total	$	27,152	$	10	$	352	$	46	$	3,647	$	37,042

Variable Annuities
Up to 1.00%	$	-	$	-	$	-	$	-	$	-	$	-
1.01% - 2.00%		4		-		-		-		8		12
2.01% - 3.00%		619		-		-		-		-		619
3.01% - 4.00%		1,470		-		-		-		-		1,470
4.01% and above		10		-		-		-		-		10
Other ⁽¹⁾		-		-		-		-		-		24,146
Total	$	2,103	$	-	$	-	$	-	$	8	$	26,257

Fixed Annuities
Up to 1.00%	$	756	$	414	$	515	$	467	$	2,296	$	4,448
1.01% - 2.00%		577		133		194		498		1,083		2,485
2.01% - 3.00%		1,746		3		6		-		-		1,755
3.01% - 4.00%		1,171		-		-		-		-		1,171
4.01% and above		184		-		-		-		-		184
Other ⁽¹⁾		-		-		-		-		-		13,743
Total	$	4,434	$	550	$	715	$	965	$	3,379	$	23,786

Retirement Plan Services
Up to 1.00%	$	601	$	746	$	3,092	$	2,693	$	2,422	$	9,554
1.01% - 2.00%		637		2,880		1,184		531		-		5,232
2.01% - 3.00%		2,647		1		-		-		-		2,648
3.01% - 4.00%		5,349		1		-		-		-		5,350
4.01% and above		1,646		-		-		-		-		1,646
Total	$	10,880	$	3,628	$	4,276	$	3,224	$	2,422	$	24,430

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	As of December 31, 2022
									Greater
			1-50		51-100		101-150		Than 150
	At		Basis		Basis		Basis		Basis
Range of Guaranteed	Guaranteed		Points		Points		Points		Points
Minimum Crediting Rate	Minimum		Above		Above		Above		Above		Total
UL and Other
Up to 1.00%	$	318	$	-	$	194	$	29	$	292	$	833
1.01% - 2.00%		558		-		-		-		3,282		3,840
2.01% - 3.00%		7,218		156		-		-		-		7,374
3.01% - 4.00%		15,858		-		1		-		-		15,859
4.01% and above		3,824		-		-		-		-		3,824
Other ⁽¹⁾		-		-		-		-		-		5,528
Total	$	27,776	$	156	$	195	$	29	$	3,574	$	37,258

Variable Annuities
Up to 1.00%	$	-	$	-	$	-	$	-	$	-	$	-
1.01% - 2.00%		4		-		-		8		-		12
2.01% - 3.00%		658		-		-		-		-		658
3.01% - 4.00%		1,545		-		-		-		-		1,545
4.01% and above		11		-		-		-		-		11
Other ⁽¹⁾		-		-		-		-		-		19,958
Total	$	2,218	$	-	$	-	$	8	$	-	$	22,184

Fixed Annuities
Up to 1.00%	$	891	$	497	$	589	$	563	$	1,329	$	3,869
1.01% - 2.00%		544		144		179		492		1,057		2,416
2.01% - 3.00%		1,973		5		1		-		-		1,979
3.01% - 4.00%		1,326		-		-		-		-		1,326
4.01% and above		193		-		-		-		-		193
Other ⁽¹⁾		-		-		-		-		-		13,555
Total	$	4,927	$	646	$	769	$	1,055	$	2,386	$	23,338

Retirement Plan Services
Up to 1.00%	$	961	$	1,001	$	4,304	$	1,703	$	1,908	$	9,877
1.01% - 2.00%		1,774		2,197		982		462		-		5,415
2.01% - 3.00%		2,711		1		-		-		-		2,712
3.01% - 4.00%		5,622		1		-		-		-		5,623
4.01% and above		1,511		-		-		-		-		1,511
Total	$	12,579	$	3,200	$	5,286	$	2,165	$	1,908	$	25,138

⁽¹⁾Consists of indexed account balances that include the fair value of embedded derivative instruments, payout annuity account balances, short-term dollar cost averaging annuities business and ~~2017, respectively, were the result~~policy loans.

‎

Table of ~~the separate account dividends-received deduction, certain tax preferred investment income, foreign tax credits and other tax preference items.~~ Contents

12. Future Contract Benefits

The ~~SEC previously issued rules that allow for a one year measurement period after the enactment of the Tax Act to finalize calculations and recording of the related tax impacts. Subsequent~~following table reconciles future contract benefits (in millions) to the ~~Tax Act, we have continued~~Consolidated Balance Sheets:



	As of		As of
	June 30,		December 31,
	2023		2022
Traditional Life ⁽¹⁾	$	3,372	$	3,190
Payout Annuities ⁽¹⁾		2,047		2,003
Group Protection⁽²⁾		5,493		5,462
UL and Other ⁽³⁾		14,126		14,777
Other Operations ⁽⁴⁾		9,578		9,651
Other ⁽⁵⁾		3,239		3,219
Total future contract benefits	$	37,855	$	38,302

⁽¹⁾See “LFPB” below for further information.

⁽²⁾See “Liability for Future Claims” below for further information.

⁽³⁾See “Additional Liabilities for Other Insurance Benefits” below for further information.

⁽⁴⁾Represents future contract benefits reported in Other Operations primarily attributable to ~~review~~the indemnity reinsurance agreements with Protective ($5.5 billion and ~~analyze~~$5.4 billion as of June 30, 2023, and December 31, 2022, respectively) and Swiss Re ($2.1 billion and $2.2 billion as of June 30, 2023, and December 31, 2022, respectively) that are excluded from the ~~provisions~~following tables.

⁽⁵⁾Represents other miscellaneous reserves outside the scope of ASU 2018-12 that are excluded from the Tax Act, including the actual and potential impact of the reduction in the U.S. federal corporate income tax rate and the impact of specific life insurance provisions on our financial statements. While we do not anticipate any significant changes to amounts currently recorded, any additional adjustments to amounts recorded as a result of the Tax Act will be made during 2018. following tables.

~~8. Guaranteed Benefit Features~~
‎

~~Information on the guaranteed death benefit (“GDB”) features outstanding (dollars in millions) was as follows:~~

As of
As of

March 31,
December 31,

2018 (1)

2017 (1)

Return of Net Deposits

Total account value

$
95,959

$
96,941

Net amount at risk (2)

119

81

Average attained age of contract holders

64 years

64 years

Minimum Return

Total account value

$
104

$
108

Net amount at risk (2)

17

18

Average attained age of contract holders

76 years

76 years

Guaranteed minimum return

5%

5%

Anniversary Contract Value

Total account value

$
26,071

$
26,596

Net amount at risk (2)

543

417

Average attained age of contract holders

70 years

70 years

⁽¹⁾

~~Our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive.~~

⁽²⁾

~~Represents the amount of death benefit in excess of the account balance that is subject to market fluctuations.~~

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The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience.

LFPB

The following table summarizes the balances of and changes in the present values of expected net premiums and LFPB (in millions, except years):



	As of or For the						As of or For the
	Six Months Ended						Year Ended
	June 30, 2023						December 31, 2022
	Traditional			Payout			Traditional			Payout
	Life			Annuities			Life			Annuities
Present Value of Expected Net Premiums
Balance as of beginning-of-year	$	5,896		$	-		$	6,610		$	-
Less: Effect of cumulative changes in discount
rate assumptions		(584	)		-			843			-
Beginning balance at original discount rate		6,480			-			5,767			-
Effect of changes in cash flow assumptions		-			-			(382	)		-
Effect of actual variances from expected
experience		(257	)		-			(21	)		-
Adjusted balance as of beginning-of-year		6,223			-			5,364			-
Issuances		330			-			1,655			-
Interest accrual		116			-			209			-
Net premiums collected		(395	)		-			(742	)		-
Flooring impact of LFPB		3			-			(6	)		-
Ending balance at original discount rate		6,277			-			6,480			-
Effect of cumulative changes in discount
rate assumptions		(329	)		-			(584	)		-
Balance as of end-of-period	$	5,948		$	-		$	5,896		$	-

Present Value of Expected LFPB
Balance as of beginning-of-year	$	9,086		$	2,003		$	10,353		$	2,511
Less: Effect of cumulative changes in discount
rate assumptions		(793	)		(263	)		1,460			266
Beginning balance at original discount rate ⁽¹⁾		9,879			2,266			8,893			2,245
Effect of changes in cash flow assumptions		-			-			(321	)		-
Effect of actual variances from expected
experience		(280	)		(2	)		(5	)		3
Adjusted balance as of beginning-of-year		9,599			2,264			8,567			2,248
Issuances		330			69			1,655			122
Interest accrual		179			43			326			84
Benefit payments		(309	)		(93	)		(669	)		(188	)
Ending balance at original discount rate ⁽¹⁾		9,799			2,283			9,879			2,266
Effect of cumulative changes in discount
rate assumptions		(479	)		(236	)		(793	)		(263	)
Balance as of end-of-period	$	9,320		$	2,047		$	9,086		$	2,003

Net balance as of end-of-period	$	3,372		$	2,047		$	3,190		$	2,003
Less: reinsurance recoverables		263			10			270			10
Net balance as of end-of-period, net of reinsurance	$	3,109		$	2,037		$	2,920		$	1,993

Weighted-average duration of future policyholder
benefit liability (years)		10			9			11			9

⁽¹⁾Includes DPL within Payout Annuities of $53 million, $38 million and $22 million as of June 30, 2023, December 31, 2022 and December 31, 2021, respectively.

For the six months ended June 30, 2023, Traditional Life and Payout Annuities did not have any significantly different actual experience compared to expected.

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For the year ended December 31, 2022, Traditional Life had updates to the mortality and lapse assumptions resulting in lower projected premiums and benefits, and a corresponding increase in reserves. Payout Annuities did not have any significant assumption updates. For the year ended December 31, 2022, Traditional Life and Payout Annuities did not have any significantly different actual experience compared to expected.

The following table summarizes the discounted and undiscounted expected future gross premiums and expected future benefit payments (in millions):



	As of June 30, 2023				As of December 31, 2022
	Undiscounted		Discounted		Undiscounted		Discounted
Traditional Life
Expected future gross premiums	$	13,309	$	9,050	$	13,166	$	8,887
Expected future benefit payments		13,280		9,320		13,026		9,086
Payout Annuities
Expected future gross premiums		-		-		-		-
Expected future benefit payments		3,500		2,047		3,471		2,003

The following table summarizes the gross premiums and interest accretion (in millions) recognized in insurance premiums and benefits, respectively, on the Consolidated Statements of Comprehensive Income (Loss):



	For the Three				For the Six
	Months Ended				Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Traditional Life
Gross premiums	$	297	$	283	$	592	$	556
Interest accretion		32		29		63		57
Payout Annuities
Gross premiums		44		21		71		43
Interest accretion		21		21		43		42

The following table summarizes the weighted-average interest rates:



	For the Six
	Months		For the Year
	Ended		Ended
	June 30,		December 31,
	2023		2022
Traditional Life
Interest accretion rate		5.0%		5.0%
Current discount rate		5.1%		5.1%
Payout Annuities
Interest accretion rate		3.9%		3.9%
Current discount rate		5.2%		5.3%

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Liability for Future Claims

The following table summarizes the balances of and changes in liability for future claims (in millions, except years):



	Group Protection
	As of or For
	the Six			As of or For
	Months			the Year
	Ended			Ended
	June 30,			December 31,
	2023			2022
Balance as of beginning-of-year	$	5,462		$	5,936
Less: Effect of cumulative changes in discount
rate assumptions		(597	)		262
Beginning balance at original discount rate		6,059			5,674
Effect of changes in cash flow assumptions		-			15
Effect of actual variances from expected
experience		(220	)		(117	)
Adjusted beginning-of-year balance		5,839			5,572
New incidence		882			1,777
Interest		83			141
Benefit payments		(734	)		(1,431	)
Ending balance at original discount rate		6,070			6,059
Effect of cumulative changes in discount
rate assumptions		(577	)		(597	)
Balance as of end-of-period		5,493			5,462
Less: reinsurance recoverables		121			127
Balance as of end-of-period, net of reinsurance	$	5,372		$	5,335

Weighted-average duration of liability for future
claims (years)		4			4

For the six months ended June 30, 2023, we experienced more favorable reported incidence and claim terminations than assumed.

For the year ended December 31, 2022, we had an unfavorable impact from updates to the long-term disability incidence and severity assumptions, partially offset by favorable impacts from updates to the life waiver termination rate assumptions. For the year ended December 31, 2022, we experienced more favorable claim terminations than assumed.

The following table summarizes the discounted and undiscounted expected future benefit payments (in millions):



	As of June 30, 2023				As of December 31, 2022
	Undiscounted		Discounted		Undiscounted		Discounted
Group Protection
Expected future benefit payments	$	7,111	$	6,070	$	7,063	$	6,059



	For the Three				For the Six
	Months Ended				Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Group Protection
Gross premiums	$	885	$	841	$	1,770	$	1,671
Interest accretion		41		36		83		78

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The following table summarizes the weighted-average interest rates:

For the Six

Months

For the Year

Ended

June 30,

December 31,

2023

2022

Group Protection

Interest accretion rate

2.9%

2.8%

Current discount rate

5.1%

Additional Liabilities for Other Insurance Benefits

The following table summarizes the balances of and changes in additional liabilities for ~~GDBs~~other insurance benefits (in ~~millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:~~millions, except years):



							UL and Other
							As of or For
							the Six			As of or For
	For the Three						Months			the Year
	Months Ended						Ended			Ended
	March 31,						June 30,			December 31,
	2018			2017			2023			2022
Balance as of beginning-of-year	$	100		$	110		$	14,777		$	12,513
Changes in reserves		11			(5	)
Benefits paid		(3	)		(6	)
Less: Effect of cumulative changes in shadow
balance in AOCI								(905	)		1,113
Balance as of beginning-of-year, excluding
shadow balance in AOCI								15,682			11,400
Effect of changes in cash flow assumptions								-			3,108
Effect of actual variances from expected
experience								6			195
Adjusted beginning-of-year balance								15,688			14,703
Issuances								-			7
Interest accrual								377			626
Net assessments collected								190			974
Benefit payments								(360	)		(628	)
Balance as of end-of-period, excluding
shadow balance in AOCI								15,895			15,682
Effect of cumulative changes in shadow
balance in AOCI								(1,769	)		(905	)
Balance as of end-of-period	$	108		$	99			14,126			14,777
Less: reinsurance recoverables								2,041			1,975
Balance as of end-of-period, net of reinsurance							$	12,085		$	12,802

Weighted-average duration of additional liabilities
for other insurance benefits (years)								18			17

~~Variable Annuity Contracts~~

For the six months ended June 30, 2023, we did not have any significantly different actual experience compared to expected.

~~Account balances of variable annuity contracts, including those with guarantees, (in millions) were invested in separate account investment options as follows:~~

As of

As of

March 31,

December 31,

2018

2017

Asset Type

Domestic equity

$
58,549

$
59,647

International equity

20,609

20,837

Fixed income

40,443

40,626

Total

$
119,601

$
121,110

Percent of total variable annuity

separate account values

99%

99%

~~Secondary Guarantee Products~~

~~Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment. These~~For the year ended December 31, 2022, we had an unfavorable impact primarily from updates to policyholder lapse behavior assumptions related to UL ~~and VUL~~ products with secondary guarantees ~~represented 32%~~in the amount of ~~total life~~$1.7 billion, net of reinsurance, after-tax, and to a lesser extent mortality and morbidity assumptions. We had unfavorable actual mortality experience compared to expected due to ongoing effects of the COVID-19 pandemic.

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The following table summarizes the gross assessments and interest accretion (in millions) recognized in insurance ~~in-force reserves~~premiums and benefits, respectively, on the Consolidated Statements of Comprehensive Income (Loss):



	For the Three				For the Six
	Months Ended				Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
UL and Other
Gross assessments	$	542	$	680	$	1,457	$	1,407
Interest accretion		190		137		377		270

The following table summarizes the weighted-average interest rates:


	For the Six
	Months		For the Year
	Ended		Ended
	June 30,		December 31,
	2023		2022
UL and Other
Interest accretion rate		4.9%		5.0%

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13. Fair Value of Financial Instruments

The carrying values and estimated fair values of our financial instruments (in millions) were as follows:



	As of June 30, 2023						As of December 31, 2022
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	103,119		$	103,119		$	99,465		$	99,465
Trading securities		2,895			2,895			3,446			3,446
Equity securities		403			403			427			427
Mortgage loans on real estate		18,371			16,734			18,211			16,477
Derivative investments		5,065			5,065			3,519			3,519
Other investments		4,035			4,035			3,577			3,577
Cash and invested cash		2,883			2,883			2,499			2,499
MRB assets		3,906			3,906			2,807			2,807
Other assets:
Ceded MRBs		401			401			540			540
Reinsurance-related embedded derivatives		690			690			681			681
Indexed annuity ceded embedded derivatives		603			603			525			525
LPR ceded derivative		202			202			212			212
Separate account assets		153,246			153,246			143,536			143,536

Liabilities
Policyholder account balances:
Account balances of certain investment contracts		(43,430	)		(32,084	)		(43,550	)		(34,251	)
Indexed annuity and IUL contracts embedded derivatives		(7,510	)		(7,510	)		(4,783	)		(4,783	)
MRB liabilities		(1,548	)		(1,548	)		(2,078	)		(2,078	)
Short-term debt		(273	)		(273	)		(562	)		(562	)
Long-term debt		(2,243	)		(2,099	)		(2,269	)		(2,166	)
Other liabilities:
Ceded MRBs		(1,440	)		(1,440	)		(246	)		(246	)
Derivative liabilities		(415	)		(415	)		(254	)		(254	)
Remaining guaranteed interest and similar contracts		(482	)		(482	)		(574	)		(574	)

Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value

The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on the Consolidated Balance Sheets. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.

Mortgage Loans on Real Estate

The fair value of mortgage loans on real estate, excluding mortgage loans accounted for using the fair value option, is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent. The inputs used to measure the fair value of our mortgage loans on real estate, excluding mortgage loans accounted for using the fair value option, are classified as Level 2 within the fair value hierarchy.

Other Investments

The carrying value of our assets classified as other investments, excluding short-term investments, approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. Other investments also includes FHLB stock carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. The inputs used to measure the fair value of our LPs, other privately held investments and FHLB stock are classified as Level 3 within the fair value hierarchy. The remaining assets in

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other investments include cash collateral receivables and securities that are not LPs or other privately held investments. The inputs used to measure the fair value of these assets are classified as Level 2 within the fair value hierarchy.

Separate Account Assets

Separate account assets are primarily carried at fair value. A portion of our separate account assets includes LPs, which are accounted for using the equity method of accounting. The carrying value is based on our proportional share of the net assets of the LPs and approximates fair value. The inputs used to measure the fair value of the separate account asset LPs are classified as Level 3 within the fair value hierarchy.

Policyholder Account Balances

Policyholder account balances include account balances of certain investment contracts. The fair value of the account balances of certain investment contracts is based on their approximate surrender value as of ~~March 31, 2018~~the balance sheet date. The inputs used to measure the fair value of these policyholder account balances are classified as Level 3 within the fair value hierarchy.

Other Liabilities

Other liabilities include remaining guaranteed interest and similar contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of June 30, 2023, and December 31, ~~2017. UL~~2022, the remaining guaranteed interest and ~~VUL products~~similar contracts carrying value approximated fair value. The inputs used to measure the fair value of these other liabilities are classified as Level 3 within the fair value hierarchy.

Short-Term and Long-Term Debt

The fair value of short-term and long-term debt is based on quoted market prices. The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy.

Fair Value Option

Mortgage loans on real estate, net of allowance for credit losses, as reported on the Consolidated Balance Sheets, includes mortgage loans on real estate for which the fair value option was elected. The fair value option allows us to elect fair value as an alternative measurement for mortgage loans not otherwise reported at fair value. We have made these elections for certain mortgage loans associated with ~~secondary guarantees represented 35%~~modified coinsurance agreements to help mitigate the inconsistency in earnings that would otherwise result from the use of embedded derivatives included with these loans. Changes in fair value are reflected in realized gain (loss) on the Consolidated Statement of Comprehensive Income (Loss). Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and ~~26% of total sales~~quality ratings for the period reported. Mortgage loans on real estate for which the fair value option was elected are valued using third-party pricing services. We have procedures in place to review the valuations each quarter to ensure they are reasonable, including utilizing a separate third party to reperform the valuation for a selection of mortgage loans on an annual basis. Due to lack of observable inputs, mortgage loans electing the fair value option are classified as Level 3 within the fair value hierarchy.

The fair value and aggregate contractual principal for mortgage loans on real estate where the fair value option was elected (in millions) were as follows:



	As of		As of
	June 30,		December 31,
	2023		2022
Fair value	$	404	$	487
Aggregate contractual principal		432		514

As of June 30, 2023, and December 31, 2022, no loans for which the fair value option was elected were in non-accrual status, and none were more than 90 days past due and still accruing interest.

Financial Instruments Carried at Fair Value

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2023, or December 31, 2022.

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The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels:



		As of June 30, 2023
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	-		$	75,552			$	6,177		$	81,729
U.S. government bonds			348			22				-			370
State and municipal bonds			-			4,926				36			4,962
Foreign government bonds			-			277				-			277
RMBS			-			1,947				6			1,953
CMBS			-			1,684				-			1,684
ABS			-			10,580				1,208			11,788
Hybrid and redeemable preferred securities			44			252				60			356
Trading securities			-			2,544				351			2,895
Equity securities			1			277				125			403
Mortgage loans on real estate			-			-				404			404
Derivative investments ⁽¹⁾			-			9,356				591			9,947
Other investments – short-term investments			-			95				-			95
Cash and invested cash			-			2,883				-			2,883
MRB assets			-			-				3,906			3,906
Other assets:
Ceded MRBs			-			-				401			401
Reinsurance-related embedded derivatives			-			690				-			690
Indexed annuity ceded embedded derivatives			-			-				603			603
LPR ceded derivative			-			-				202			202
Separate account assets			417			152,829				-			153,246
Total assets		$	810		$	263,914			$	14,070		$	278,794

Liabilities
Policyholder account balances – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(7,510	)	$	(7,510	)
MRB liabilities			-			-				(1,548	)		(1,548	)
Other liabilities:
Ceded MRBs			-			-				(1,440	)		(1,440	)
Derivative liabilities ⁽¹⁾			-			(4,737	)			(560	)		(5,297	)
Total liabilities		$	-		$	(4,737	)		$	(11,058	)	$	(15,795	)

‎

Table of Contents



		As of December 31, 2022
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	-		$	73,980			$	5,186		$	79,166
U.S. government bonds			332			19				-			351
State and municipal bonds			-			4,850				35			4,885
Foreign government bonds			-			311				-			311
RMBS			-			1,835				1			1,836
CMBS			-			1,667				-			1,667
ABS			-			9,782				1,117			10,899
Hybrid and redeemable preferred securities			40			261				49			350
Trading securities			-			2,865				581			3,446
Equity securities			-			274				153			427
Mortgage loans on real estate			-			-				487			487
Derivative investments ⁽¹⁾			-			5,929				605			6,534
Other investments – short-term investments			-			30				-			30
Cash and invested cash			-			2,499				-			2,499
MRB assets			-			-				2,807			2,807
Other assets:
Ceded MRBs			-			-				540			540
Reinsurance-related embedded derivatives			-			681				-			681
Indexed annuity ceded embedded derivatives			-			-				525			525
LPR ceded derivative			-			-				212			212
Separate account assets			412			143,124				-			143,536
Total assets		$	784		$	248,107			$	12,298		$	261,189

Liabilities
Policyholder account balances – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(4,783	)	$	(4,783	)
MRB liabilities			-			-				(2,078	)		(2,078	)
Other liabilities:
Ceded MRBs			-			-				(246	)		(246	)
Derivative liabilities ⁽¹⁾			-			(2,666	)			(603	)		(3,269	)
Total liabilities		$	-		$	(2,666	)		$	(7,710	)	$	(10,376	)

⁽¹⁾Derivative investment assets and liabilities are presented within the fair value hierarchy on a gross basis by derivative type and not on a master netting basis by counterparty.

‎

Table of Contents

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology. The summary schedule excludes changes to MRB assets and MRB liabilities as these balances are rolled forward in Note 9.



	For the Three Months Ended June 30, 2023
							Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	6,219		$	(12	)	$	3		$	(57	)	$	24		$	6,177
State and municipal bonds		36			(2	)		3			(1	)		-			36
RMBS		1			-			-			5			-			6
CMBS		-			-			-			(4	)		4			-
ABS		1,100			-			(6	)		152			(38	)		1,208
Hybrid and redeemable preferred
securities		59			-			(3	)		-			4			60
Trading securities		458			(2	)		-			(105	)		-			351
Equity securities		137			(13	)		-			1			-			125
Mortgage loans on real estate		490			(4	)		2			(84	)		-			404
Derivative investments		1			(1	)		-			-			31			31
Other assets:
Ceded MRBs ⁽³⁾		699			(298	)		-			-			-			401
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		565			4			-			34			-			603
LPR ceded derivative ⁽⁵⁾		199			3			-			-			-			202
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(5,796	)		(1,558	)		-			(156	)		-			(7,510	)
Other liabilities – ceded MRBs ⁽³⁾		(909	)		(531	)		-			-			-			(1,440	)
Total, net	$	3,259		$	(2,414	)	$	(1	)	$	(215	)	$	25		$	654

‎

Table of Contents



	For the Three Months Ended June 30, 2022
							Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	8,948		$	-		$	(651	)	$	254		$	(20	)	$	8,531
Foreign government bonds		40			-			(3	)		-			-			37
RMBS		13			-			-			-			(12	)		1
CMBS		17			-			-			-			(17	)		-
ABS		988			-			(33	)		266			(68	)		1,153
Hybrid and redeemable preferred
securities		94			-			5			-			-			99
Trading securities		797			(29	)		-			(148	)		-			620
Equity securities		98			15			-			32			-			145
Mortgage loans on real estate		537			(12	)		(5	)		8			-			528
Derivative investments		3			-			-			-			-			3
Other assets:
Ceded MRBs ⁽³⁾		2,570			(233	)		-			-			-			2,337
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		493			(113	)		-			60			-			440
LPR ceded derivative ⁽⁵⁾		266			(51	)		-			-			-			215
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(5,574	)		2,290			-			(82	)		-			(3,366	)
Other liabilities – ceded MRBs ⁽³⁾		(51	)		(64	)		-			-			-			(115	)
Total, net	$	9,239		$	1,803		$	(687	)	$	390		$	(117	)	$	10,628

Table of Contents



	For the Six Months Ended June 30, 2023
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,186		$	(12	)	$	15		$	949		$	39		$	6,177
State and municipal bonds		35			(2	)		4			(1	)		-			36
RMBS		1			-			-			5			-			6
CMBS		-			-			-			(4	)		4			-
ABS		1,117			-			2			320			(231	)		1,208
Hybrid and redeemable preferred
securities		49			-			(3	)		(2	)		16			60
Trading securities		581			2			-			(232	)		-			351
Equity securities		153			(29	)		-			1			-			125
Mortgage loans on real estate		487			(2	)		5			(86	)		-			404
Derivative investments		2			(2	)		-			-			31			31
Other assets:
Ceded MRBs ⁽³⁾		540			(139	)		-			-			-			401
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		525			11			-			67			-			603
LPR ceded derivative ⁽⁵⁾		212			(10	)		-			-			-			202
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(4,783	)		(2,277	)		-			(450	)		-			(7,510	)
Other liabilities – ceded MRBs ⁽³⁾		(246	)		(1,194	)		-			-			-			(1,440	)
Total, net	$	3,859		$	(3,654	)	$	23		$	567		$	(141	)	$	654

Table of Contents



	For the Six Months Ended June 30, 2022
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	8,801		$	1		$	(1,002	)	$	617		$	114		$	8,531
Foreign government bonds		41			-			(4	)		-			-			37
RMBS		3			-			-			12			(14	)		1
CMBS		-			-			-			17			(17	)		-
ABS		870			-			(60	)		453			(110	)		1,153
Hybrid and redeemable preferred
securities		90			-			9			-			-			99
Trading securities		828			(58	)		-			(146	)		(4	)		620
Equity securities		91			30			-			24			-			145
Mortgage loans on real estate		739			(15	)		(6	)		(190	)		-			528
Derivative investments		21			3			(6	)		-			(15	)		3
Other assets:
Ceded MRBs ⁽³⁾		4,113			(1,776	)		-			-			-			2,337
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		528			(166	)		-			78			-			440
LPR ceded derivative ⁽⁵⁾		318			(103	)		-			-			-			215
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(6,131	)		2,849			-			(84	)		-			(3,366	)
Other liabilities – ceded MRBs ⁽³⁾		(17	)		(98	)		-			-			-			(115	)
Total, net	$	10,295		$	667		$	(1,069	)	$	781		$	(46	)	$	10,628

⁽¹⁾The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).

⁽²⁾Amortization and accretion of premiums and discounts are included in net investment income on the Consolidated Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and credit loss expense are included in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽³⁾Gains (losses) from the changes in fair value are included in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽⁴⁾Gains (losses) from the changes in fair value are included in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽⁵⁾Gains (losses) from the changes in fair value are included in benefits on the Consolidated Statements of Comprehensive Income (Loss).

‎

Table of Contents

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, (in millions) as reported above:



	For the Three Months Ended June 30, 2023
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	253		$	(62	)	$	(26	)	$	(211	)	$	(11	)	$	(57	)
State and municipal bonds		-			(1	)		-			-			-			(1	)
RMBS		5			-			-			-			-			5
CMBS		-			-			-			(4	)		-			(4	)
ABS		216			-			-			(64	)		-			152
Trading securities		-			(102	)		-			(3	)		-			(105	)
Equity securities		1			-			-			-			-			1
Mortgage loans on real estate		3			-			-			(87	)		-			(84	)
Other assets – indexed annuity ceded
embedded derivatives		34			-			-			-			-			34
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(316	)		-			-			160			-			(156	)
Total, net	$	196		$	(165	)	$	(26	)	$	(209	)	$	(11	)	$	(215	)



	For the Three Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	443		$	(74	)	$	(4	)	$	(85	)	$	(26	)	$	254
ABS		305			-			-			(39	)		-			266
Trading securities		92			(88	)		-			(152	)		-			(148	)
Equity securities		32			-			-			-			-			32
Mortgage loans on real estate		9			-			-			(1	)		-			8
Other assets – indexed annuity ceded
embedded derivatives		20			-			-			40			-			60
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(100	)		-			-			18			-			(82	)
Total, net	$	801		$	(162	)	$	(4	)	$	(219	)	$	(26	)	$	390

Table of Contents



	For the Six Months Ended June 30, 2023
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,390		$	(117	)	$	(34	)	$	(279	)	$	(11	)	$	949
State and municipal bonds		-			(1	)		-			-			-			(1	)
RMBS		5			-			-			-			-			5
CMBS		-			-			-			(4	)		-			(4	)
ABS		457			(2	)		-			(135	)		-			320
Hybrid and redeemable preferred
securities		-			-			-			-			(2	)		(2	)
Trading securities		-			(155	)		-			(77	)		-			(232	)
Equity securities		1			-			-			-			-			1
Mortgage loans on real estate		4			-			-			(90	)		-			(86	)
Other assets – indexed annuity ceded
embedded derivatives		84			-			-			(17	)		-			67
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(615	)		-			-			165			-			(450	)
Total, net	$	1,326		$	(275	)	$	(34	)	$	(437	)	$	(13	)	$	567



	For the Six Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	898		$	(98	)	$	(24	)	$	(128	)	$	(31	)	$	617
RMBS		12			-			-			-			-			12
CMBS		17			-			-			-			-			17
ABS		555			-			-			(95	)		(7	)		453
Trading securities		271			(220	)		-			(197	)		-			(146	)
Equity securities		32			(8	)		-			-			-			24
Mortgage loans on real estate		12			-			-			(202	)		-			(190	)
Other assets – indexed annuity ceded
embedded derivatives		38			-			-			40			-			78
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(228	)		-			-			144			-			(84	)
Total, net	$	1,607		$	(326	)	$	(24	)	$	(438	)	$	(38	)	$	781

Table of Contents

The following summarizes changes in unrealized gains (losses) included in net income related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Trading securities ⁽¹⁾	$	(5	)	$	(28	)	$	1		$	(58	)
Equity securities ⁽¹⁾		(13	)		14			(29	)		32
Mortgage loans on real estate ⁽¹⁾		(5	)		(12	)		(3	)		(15	)
Derivative investments ⁽¹⁾		-			1			(2	)		3
MRBs ⁽²⁾		1,222			(731	)		133			(852	)
Other assets – LPR ceded derivative ⁽³⁾		3			(51	)		(10	)		(103	)
Embedded derivatives – indexed annuity
and IUL contracts ⁽¹⁾		(55	)		(26	)		(208	)		58
Total, net	$	1,147		$	(833	)	$	(118	)	$	(935	)

⁽¹⁾Included in realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽²⁾Included in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

⁽³⁾Included in benefits on the Consolidated Statements of Comprehensive Income (Loss).

The following summarizes changes in unrealized gains (losses) included in OCI, net of tax, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Fixed maturity AFS securities:
Corporate bonds	$	-		$	(651	)	$	12		$	(1,005	)
State and municipal bonds		3			-			3			-
Foreign government bonds		-			(3	)		-			(5	)
ABS		(7	)		(34	)		1			(62	)
Hybrid and redeemable preferred
securities		(2	)		5			(2	)		10
Mortgage loans on real estate		2			(5	)		4			(6	)
Total, net	$	(4	)	$	(688	)	$	18		$	(1,068	)

Table of Contents

The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:



	For the Three								For the Three
	Months Ended								Months Ended
	June 30, 2023								June 30, 2022
	Transfers		Transfers						Transfers		Transfers
	Into		Out of						Into		Out of
	Level 3		Level 3			Total			Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	100	$	(76	)	$	24		$	32	$	(52	)	$	(20	)
RMBS		-		-			-			-		(12	)		(12	)
CMBS		4		-			4			-		(17	)		(17	)
ABS		2		(40	)		(38	)		1		(69	)		(68	)
Hybrid and redeemable preferred
securities		4		-			4			-		-			-
Derivative investments		31		-			31			-		-			-
Total, net	$	141	$	(116	)	$	25		$	33	$	(150	)	$	(117	)


1
	For the Six								For the Six
	Months Ended								Months Ended
	June 30, 2023								June 30, 2022
	Transfers		Transfers						Transfers		Transfers
	Into		Out of						Into		Out of
	Level 3		Level 3			Total			Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	158	$	(119	)	$	39		$	228	$	(114	)	$	114
RMBS		-		-			-			-		(14	)		(14	)
CMBS		4		-			4			-		(17	)		(17	)
ABS		2		(233	)		(231	)		1		(111	)		(110	)
Hybrid and redeemable preferred
securities		16		-			16			-		-			-
Trading securities		-		-			-			-		(4	)		(4	)
Derivative investments		31		-			31			-		(15	)		(15	)
Total, net	$	211	$	(352	)	$	(141	)	$	229	$	(275	)	$	(46	)

Transfers into and out of Level 3 are generally the result of observable market information on financial instruments no longer being available or becoming available to our pricing vendors. For the three and six months ended ~~March~~June 30, 2023 and 2022, transfers in and out of Level 3 were attributable primarily to the financial instruments’ observable market information no longer being available or becoming available.

Table of Contents

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of June 30, 2023:



											Weighted
											Average
	Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	229		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	(0.2)	%	-	3.7	%	2.1	%
State and municipal
bonds		36		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.5	%	-	1.9	%	1.9	%
ABS		13		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.9	%	-	1.9	%	1.9	%
Hybrid and redeemable
preferred securities		7		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.3	%	-	1.5	%	1.4	%
Equity securities		4		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	4.5	%	4.5	%

MRB assets		3,906
Other assets – ceded MRBs		401		Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.69	%	-	2.82	%	2.27	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.82	%

Other assets – indexed
annuity ceded embedded
derivatives		603		Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

Other assets – LPR ceded
derivative		202		Discounted cash flow	Lapse ⁽³⁾	0	%	-	1.55	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.69	%	-	2.82	%	1.98	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

Liabilities
Policyholder account
balances – indexed annuity
contracts embedded
derivatives	$	(7,451	)	Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

MRB liabilities		(1,548	)
Other liabilities – ceded
MRBs		(1,440	)	Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.69	%	-	2.82	%	2.27	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.82	%

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The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of December 31, ~~2018~~2022:



											Weighted
											Average
	Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	201		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	(0.2)	%	-	4.2	%	2.1	%
State and municipal
bonds		35		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.2	%	-	2.4	%	2.3	%
ABS		15		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.4	%	-	1.4	%	1.4	%
Hybrid and redeemable
preferred securities		3		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.5	%	-	1.5	%	1.5	%
Equity securities		4		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	4.5	%	4.5	%

MRB assets		2,807
Other assets – ceded MRBs		540		Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.35	%	-	2.41	%	1.73	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.47	%

Other assets – indexed
annuity ceded embedded
derivatives		525		Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

Other assets – LPR ceded
derivative		212		Discounted cash flow	Lapse ⁽³⁾	0	%	-	1.55	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.35	%	-	2.41	%	1.75	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

Liabilities
Policyholder account
balances – indexed annuity
contracts embedded
derivatives	$	(4,845	)	Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

MRB liabilities		(2,078	)
Other liabilities – ceded
MRBs		(246	)	Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.35	%	-	2.41	%	1.73	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.47	%

⁽¹⁾Unobservable inputs were weighted by the relative fair value of the instruments, unless otherwise noted.

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⁽²⁾The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and ~~2017, respectively.~~credit quality that would be applied to the market observable information of an investment.

⁽³⁾The lapse input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity contracts represents the lapses during the surrender charge period.

9.⁽⁴⁾The utilization of GLB withdrawals input represents the estimated percentage of policyholders that utilize the GLB withdrawal riders.

⁽⁵⁾The utilization factors are applied to the present value of claims or premiums, as appropriate, in the MRB calculation to estimate the impact of inefficient GLB withdrawal behavior, including taking less than or more than the maximum GLB withdrawal.

⁽⁶⁾The non-performance risk input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract. The non-performance risk input was weighted by the absolute value of the sensitivity of the reserve to the non-performance risk assumption. The non-performance risk input for LPR ceded derivative was weighted using a simple average.

⁽⁷⁾The mortality input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die.

⁽⁸⁾The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets. Volatility assumptions vary by fund due to the benchmarking of different indices. The volatility input was weighted by the relative account value assigned to each index.

⁽⁹⁾The mortality is based on a combination of company and industry experience, adjusted for improvement factors.

⁽¹⁰⁾A weighted average input range is not a meaningful measurement for lapse, utilization factors or mortality.

From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources. We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us. Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants. The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability. Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement.

Changes in any of the significant inputs presented in the table above would have resulted in a significant change in the fair value measurement of the asset or liability as follows:

Investments – An increase in the liquidity/duration adjustment input would have resulted in a decrease in the fair value measurement.

Indexed annuity contracts embedded derivatives – For direct embedded derivatives, an increase in the lapse or mortality inputs would have resulted in a decrease in the fair value measurement.

LPR ceded derivative – Assuming our LPR ceded derivative is in an asset position: an increase in our lapse, non-performance risk or mortality inputs would have resulted in an increase in the fair value measurement.

MRBs – Assuming our market risk benefits are in a liability position: an increase in our lapse, non-performance risk or mortality inputs would have resulted in a decrease in the fair value measurement except for policies with GDB riders only, an increase in mortality would have resulted in an increase in the fair value measurement.

For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input would not have affected the other inputs.

As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary.

14. Contingencies and Commitments

Contingencies

Reinsurance Disputes

Certain reinsurers have sought rate increases on certain yearly renewable term agreements. We are disputing the requested rate increases under these agreements. We may initiate legal proceedings, as necessary, under these agreements in order to protect our contractual rights. Additionally, reinsurers have initiated, and may in the future initiate, legal proceedings against us. While this may impact the Life Insurance segment, we believe it is unlikely the outcome of these disputes would have a material impact on the consolidated financial statements.

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Regulatory and Litigation Matters

Regulatory bodies, such as state insurance departments, the SEC, Financial Industry Regulatory Authority and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers, registered investment ~~advisors~~advisers and unclaimed property laws.

LNL and its affiliates are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding verdicts obtained in the jurisdiction for similar matters. This variability in pleadings, together with the actual experiences of LNL in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.

Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.

We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of ~~March 31, 2018. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on~~June 30, 2023.

~~information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LNL’s financial condition.~~

For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Accordingly, the estimate contained in this paragraph reflects two types of matters. For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued. In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount. For other matters included within this estimation, no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable. In these cases, the estimate reflects the reasonably possible loss or range of loss. As of ~~March 31, 2018,~~June 30, 2023, we estimate the aggregate range of reasonably possible losses, including amounts in excess of amounts accrued for these matters as of such date, to be up to approximately ~~$50million.~~ $190 million, after-tax. Any estimate is not an indication of expected loss, if any, or of the Company’s maximum possible loss exposure on such matters.

For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such ~~reviews~~.reviews.

~~Certain reinsurers have sought rate increases on certain yearly renewable term treaties. We~~Among other matters, we are ~~disputing the requested rate increases under these treaties. We have initiated~~presently engaged in litigation, including relating to cost of insurance rates (“Cost of Insurance and ~~will initiate arbitration proceedings,~~Other Litigation”), as ~~necessary, under these treaties in order to protect our contractual rights. Additionally, reinsurers may initiate arbitration proceedings against us. We believe it is unlikely the outcome~~described below. No accrual has been made for some of these ~~disputes will~~matters. Although a loss is believed to be reasonably possible for these matters, for some of these matters, we are not able to estimate a reasonably possible amount or range of potential liability. An adverse outcome in one or more of these matters may have a material ~~adverse effect~~impact on ~~our~~the consolidated financial ~~condition. For more~~statements, but, based on information ~~about reinsurance, see Note 9~~ ~~in our 2017 Form 10-K~~.currently known, management does not believe those cases are likely to have such an impact.

Cost of Insurance and Other Litigation

Cost of Insurance Litigation

~~Tutor~~ Gloverv. ~~Lincoln National Corporation~~Connecticut General Life Insurance Company and The Lincoln National Life Insurance Company, filed in the U.S. District Court for the District of Connecticut, No. ~~2:17-cv-04150,~~3:16-cv-00827, is a putative class action that was served on LNL on June 8, 2016. Plaintiff is the owner of a universal life insurance policy who alleges that LNL charged more for non-guaranteed cost of insurance than permitted by the policy. Plaintiff seeks to represent all universal life and variable universal life policyholders who owned policies containing non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policy and seeks damages on behalf of all such policyholders. On January 11, 2019, the court dismissed Plaintiff’s complaint in its entirety. In response, Plaintiff filed a motion for leave to amend the complaint, which we have opposed.

EFG Bank AG, Cayman Branch, et al. v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:17-cv-02592, is a civil action filed on February 1, 2017. Plaintiffs own universal life insurance policies

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originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL breached the terms of policyholders’ contracts when it increased non-guaranteed cost of insurance rates beginning in 2016. We are vigorously defending this matter.

In re: Lincoln National COI Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:16-cv-06605-GJP, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 20, 2017. Plaintiffs purport to own certain universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2016. Plaintiffs sought to represent classes of policyowners and sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. The parties participated in a mediation on December 13, 2022, and subsequently reached a settlement. On January 26, 2023, the parties informed the presiding judge of a class settlement in this action, subject to final documentation and court approval. On March 24, 2023, plaintiffs filed ~~on September 18, 2017. In March 2018,~~a motion for preliminary approval of the ~~Tutor~~ ~~case was consolidated with a newly-filed matter captioned~~ ~~Trinchero, et al. v. Lincoln National Corporation~~class settlement. The provisional settlement, which is subject to both preliminary and ~~The Lincoln National Life Insurance Company, filed~~final approval of the court, consists of $117.75 million in pre-tax cash (in the ~~same court, No. 18-cv-00765. The consolidated case is captioned~~ aggregate for both this litigation and the In re: Lincoln National 2017 COI Rate Litigation matter discussed immediately below) and a five-year cost of insurance rate freeze, among other terms. The court granted preliminary approval of the settlement on June 14, 2023, and a hearing is scheduled on October 4, 2023, to determine whether final court approval of the settlement will be granted.

In re: Lincoln National 2017 COI Rate Litigation, ~~Master File~~pending in the U.S. District Court for the Eastern District of Pennsylvania, Case No. ~~17-cv-04150.~~2:17-cv-04150, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 28, 2018. Plaintiffs purport to own certain universal life insurance policies originally issued by ~~former~~ Jefferson-Pilot (now LNL). ~~Plaintiffs~~Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2017. Plaintiffs ~~seek~~sought to represent classes of policyholders and ~~seek~~sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. The parties participated in a mediation on December 13, 2022, and subsequently reached a settlement. On January 26, 2023, the parties informed the presiding judge of a class settlement in this action, subject to final documentation and court approval. On March 24, 2023, plaintiffs filed a motion for preliminary approval of the class settlement. The provisional settlement, which is subject to both preliminary and final approval of the court, consists of $117.75 million in pre-tax cash (in the aggregate for both this litigation and the In re: Lincoln National COI Litigation matter discussed immediately above) and a five-year cost of insurance rate freeze, among other terms. The court granted preliminary approval of the settlement on June 14, 2023, and a hearing is scheduled on October 4, 2023, to determine whether final court approval of the settlement will be granted.

TVPX ARS INC., as Securities Intermediary for Consolidated Wealth Management, LTD. v. The Lincoln National Life Insurance Company, filed in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:18-cv-02989, is a putative class action that was filed on July 17, 2018. Plaintiff alleges that LNL charged more for non-guaranteed cost of insurance than permitted by the policy. Plaintiff seeks to represent all universal life and variable universal life policyholders who own policies issued by LNL or its predecessors containing non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policy and seeks damages on behalf of all such policyholders. We are vigorously defending this matter.

~~See Note~~LSH Co. and Wells Fargo Bank, National Association, as securities intermediary for LSH Co. v. Lincoln National Corporation and The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:18-cv-05529, is a civil action filed on December 21, 2018. Plaintiffs own universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts when LNL increased non-guaranteed cost of insurance rates in 2016 and 2017. We are vigorously defending this matter.

Vida Longevity Fund, LP v. Lincoln Life & Annuity Company of New York, pending in the U.S. District Court for the Southern District of New York, No. 1:19-cv-06004, is a putative class action that was filed on June 27, 2019. Plaintiff alleges that LLANY charged more for non-guaranteed cost of insurance than was permitted by the policies. On March 31, 2022, the court issued an order granting plaintiff’s motion for class certification and certified a class of all current or former owners of six universal life insurance products issued by LLANY that were assessed a cost of insurance charge any time on or after June 27, 2013. Plaintiff seeks damages on behalf of the class. On April 19, 2023, LLANY filed a motion for summary judgment, which remains pending. We are vigorously defending this matter.

Angus v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:22-cv-01878, is a putative class action filed on May 13, 2022. Plaintiff alleges that defendant LNL breached the terms of her life insurance policy by deducting non-guaranteed cost of insurance charges in ~~our 2017 Form 10-K~~excess of what is permitted by the policies. Plaintiff seeks to represent all owners of universal life insurance policies issued or insured by LNL or its predecessors containing non-guaranteed cost of insurance provisions that are similar to those of plaintiff’s policy and seeks damages on their behalf. Breach of contract is the only cause of action asserted. On August 26, 2022, LNL filed a motion to dismiss. We are vigorously defending this matter.

Brighton Trustees, LLC, et al. v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for ~~additional discussion~~the Eastern District of ~~commitments~~Pennsylvania, Case No. 2:23-cv-02251, is a civil action filed on April 20, 2023. On June 12, 2023, the U.S. District Court for the Northern District of Indiana granted a motion filed by LNL to transfer the case to the U.S. District Court for the Eastern District of Pennsylvania. Plaintiffs purport to own universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL breached the terms of policyholders’ contracts and ~~contingencies, which information is incorporated herein by reference.~~converted property when it increased non-guaranteed cost of insurance rates beginning in 2016. We are vigorously defending this matter.

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~~10.~~Other Litigation

Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York, pending in the U.S. District Court for the Southern District of New York, No. 1:20-cv-06805, is a putative class action that was filed on August 24, 2020. Plaintiff Andrew Nitkewicz, as trustee of the Joan C. Lupe Trust, seeks to represent all current and former owners of universal life (including variable universal life) policies who own or owned policies issued by LLANY and its predecessors in interest that were in force at any time on or after June 27, 2013, and for which planned annual, semi-annual, or quarterly premiums were paid for any period beyond the end of the policy month of the insured’s death. Plaintiff alleges LLANY failed to refund unearned premium in violation of New York Insurance Law Section 3203(a)(2) in connection with the payment of death benefit claims for certain insurance policies. Plaintiff seeks compensatory damages and pre-judgment interest on behalf of the various classes and sub-class. On July 2, 2021, the court granted, with prejudice, LLANY’s November 2020 motion to dismiss this matter. Plaintiff filed a notice of appeal on July 28, 2021, and on September 26, 2022, the U.S. Court of Appeals for the Second Circuit reserved its decision and certified a question to the New York Court of Appeals. On October 20, 2022, the New York Court of Appeals accepted the question, and briefing is complete. Oral argument is scheduled for September 12, 2023.

Henry Morgan et al. v. Lincoln National Corporation d/b/a Lincoln Financial Group, et al, filed in the District Court of the 14^th Judicial District of Dallas County, Texas, No. DC-23-02492, is a putative class action that was filed on February 22, 2023.Plaintiffs Henry Morgan, Susan Smith, Charles Smith, Laura Seale, Terri Cogburn, Laura Baesel, Kathleen Walton, Terry Warner, and Toni Hale (“Plaintiffs”) allege on behalf of a putative class that Lincoln National Corporation d/b/a Lincoln Financial Group, LNL and LLANY (together, “Lincoln”), FMR, LLC, and Fidelity Product Services, LLC (“Fidelity”) created and marketed misleading and deceptive insurance products with attributes of investment products. The putative class comprises all individuals and entities who purchased Lincoln OptiBlend products that allocated account monies to the 1-Year Fidelity AIM Dividend Participation Account, between January 1, 2020, to December 31, 2022. Plaintiffs assert the following claims individually and on behalf of the class, (1) violations of the Texas Deceptive Trade Practices Act against Lincoln; (2) common-law fraud against Lincoln; (3) negligent misrepresentation against Lincoln and Fidelity; and (4) aiding and abetting fraud against Fidelity. Plaintiffs allege they suffered damages from “a missed investment return of approximately 5-6%” and mitigation damages. They seek actual, consequential and punitive damages, as well as pre-judgment and post-judgment interest, attorney’s fees, and litigation costs. On March 31, 2023, the Lincoln defendants filed a notice of removal removing the action from the 14^th Judicial District of Dallas County, Texas, to the United States District Court for the Northern District of Texas, Dallas Division. On May 8, 2023, the Lincoln defendants and the Fidelity defendants filed motions to dismiss, which remain pending. We are vigorously defending this matter.

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15. Shares and ~~Stockholder’s~~Stockholder’s Equity

All authorized and issued shares of LNL are owned by LNC.

AOCI

The following summarizes the components and changes in AOCI (in millions):


	For the Three						For the Six
	Months Ended						Months Ended
	March 31,						June 30,
	2018			2017			2023			2022
Unrealized Gain (Loss) on AFS Securities
Unrealized Gain (Loss) on Fixed Maturity AFS Securities and Certain Other
Investments
Balance as of beginning-of-year	$	3,283		$	1,687		$	(8,526	)	$	9,153
Cumulative effect from adoption of new accounting standards		634			-
Unrealized holding gains (losses) arising during the period		(2,924	)		505			1,199			(19,005	)
Change in foreign currency exchange rate adjustment		53			21			119			(370	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		957			(119	)
Change in future contract benefits and policyholder account balances								856			1,751
Income tax benefit (expense)		403			(144	)		(478	)		3,764
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(19	)		(3	)		(2,722	)		(4	)
Associated amortization of DAC, VOBA, DSI and DFEL		(4	)		(5	)
Income tax benefit (expense)		5			3
Balance as of end-of-period	$	2,424		$	1,955
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	39		$	22
(Increases) attributable to:
Cumulative effect from adoption of new accounting standards		9			-
Gross OTTI recognized in OCI during the period		-			-
Change in DAC, VOBA, DSI and DFEL		-			-
Income tax benefit (expense)		(1	)		-
Decreases attributable to:
Changes in fair value, sales, maturities or other settlements of AFS securities		(9	)		7
Change in DAC, VOBA, DSI and DFEL		(10	)		(1	)
Income tax benefit (expense)		4			(2	)		572			1
Balance as of end-of-period	$	32		$	26		$	(4,680	)	$	(4,704	)
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	27		$	93		$	301		$	258
Cumulative effect from adoption of new accounting standard		6			-
Unrealized holding gains (losses) arising during the period		(83	)		3			204			(288	)
Change in foreign currency exchange rate adjustment		(50	)		(20	)		(110	)		373
Change in DAC, VOBA, DSI and DFEL		4			(4	)
Income tax benefit (expense)		28			7			(20	)		(18	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		6			11			30			35
Associated amortization of DAC, VOBA, DSI and DFEL		(1	)		(2	)
Income tax benefit (expense)		(1	)		(3	)		(6	)		(7	)
Balance as of end-of-period							$	351		$	297
Market Risk Benefit Non-Performance Risk Gain (Loss)
Balance as of beginning-of-year							$	1,739		$	1,951
Adjustment arising during the period								129			476
Income tax benefit (expense)								(27	)		(102	)
Balance as of end-of-period							$	1,841		$	2,325
Policyholder Liability Discount Rate Remeasurement Gain (Loss)
Balance as of beginning-of-year							$	790		$	(1,101	)
Adjustment arising during the period								(114	)		1,813
Income tax benefit (expense)								26			(387	)
Balance as of end-of-period							$	702		$	325
Foreign Currency Translation Adjustment
Balance as of beginning-of-year							$	-		$	-
Foreign currency translation adjustment arising during the period								(1	)		-
Balance as of end-of-period	$	(72	)	$	73		$	(1	)	$	-
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(22	)	$	(20	)	$	(17	)	$	(11	)
Cumulative effect from adoption of new accounting standard		(5	)		-
Balance as of end-of-period	$	(27	)	$	(20	)	$	(17	)	$	(11	)

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The following summarizes the reclassifications out of AOCI (in millions) and the associated line item inon the Consolidated Statements of Comprehensive Income (Loss):



	For the Three							For the Six
	Months Ended							Months Ended
	March 31,							June 30,
	2018			2017				2023			2022

Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(19	)	$	(3	)	Total realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(4	)		(5	)	Total realized gain (loss)
Reclassification before income							Income (loss) from continuing
tax benefit (expense)		(23	)		(8	)	operations before taxes
Income tax benefit (expense)		5			3		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(18	)	$	(5	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	-		$	-		Total realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		-			-		Total realized gain (loss)
Unrealized Gain (Loss) on Fixed Maturity AFS
Securities and Certain Other Investments
Gross reclassifications:
Net unrealized investment gains (losses)								$	(3,140	)	$	(4	)	Realized gain (loss)
Associated change in future contract benefits									418			-		Benefits
Reclassification before income							Income (loss) from continuing
tax benefit (expense)		-			-		operations before taxes		(2,722	)		(4	)	Income (loss) before taxes
Income tax benefit (expense)		-			-		Federal income tax expense (benefit)		572			1		Federal income tax expense (benefit)
Reclassification, net of income tax	$	-		$	-		Net income (loss)	$	(2,150	)	$	(3	)	Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments	Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	1		$	2		Net investment income	$	-		$	1		Net investment income
Foreign currency contracts		5			4		Net investment income		27			30		Net investment income
Foreign currency contracts		-			5		Total realized gain (loss)		3			4		Realized gain (loss)
Total gross reclassifications		6			11				30			35
Associated amortization of DAC,
VOBA, DSI and DFEL		(1	)		(2	)	Commissions and other expenses
Reclassifications before income							Income (loss) from continuing
tax benefit (expense)		5			9		operations before taxes		30			35		Income (loss) before taxes
Income tax benefit (expense)		(1	)		(3	)	Federal income tax expense (benefit)		(6	)		(7	)	Federal income tax expense (benefit)
Reclassifications, net of income tax	$	4		$	6		Net income (loss)	$	24		$	28		Net income (loss)

2880

~~11. Realized Gain (Loss)~~

~~Details underlying realized gain (loss) (in millions) reported on our Consolidated Statements~~Table of ~~Comprehensive Income (Loss) were as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Total realized gain (loss) related to certain investments (1)
$
(25
)
$
(14
)
Realized gain (loss) on the mark-to-market on certain instruments (2)

105

(14
)
Indexed annuity and IUL contracts net derivatives results: (3)

Gross gain (loss)

(1
)

(9
)
Associated amortization of DAC, VOBA, DSI and DFEL

-

(2
)
GLB fees ceded to LNBAR and attributed fees:

Gross gain (loss)

(49
)

(42
)
Associated amortization of DAC, VOBA, DSI and DFEL

(8
)

(8
)
Total realized gain (loss)
$
22

$
(89
)

⁽¹⁾

~~See “Realized Gain (Loss) Related to Certain Investments” section in Note 5.~~

⁽²⁾

Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts net derivatives results), reinsurance related embedded derivatives and trading securities.

⁽³⁾

~~Represents the net difference between the change in the fair value of the S&P~~ ~~500 Index ®~~ call options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity and IUL contracts along with changes in the fair value of embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.

Contents

~~12. Fair Value of Financial Instruments~~

~~The carrying values and estimated fair values of our financial instruments (in millions) were as follows:~~16. Segment Information

As of March 31, 2018

As of December 31, 2017

Carrying

Fair

Carrying

Fair

Value

Value

Value

Value

Assets

AFS securities:

Fixed maturity securities
$
90,709

$
90,709

$
93,340

$
93,340

Equity securities

-

-

246

246

Trading securities

1,468

1,468

1,533

1,533

Equity securities

112

112

-

-

Mortgage loans on real estate

10,954

10,900

10,662

10,773

Derivative investments (1)

725

725

845

845

Other investments

1,807

1,807

2,006

2,006

Cash and invested cash

1,239

1,239

947

947

Reinsurance related embedded derivatives

58

58

-

-

Other assets:

GLB direct embedded derivatives

1,110

1,110

903

903

GLB ceded embedded derivatives

45

45

51

51

Indexed annuity ceded embedded derivatives

17

17

11

11

Separate account assets

142,761

142,761

144,219

144,219

Liabilities

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives

(1,346
)

(1,346
)

(1,418
)

(1,418
)
Other contract holder funds:

Remaining guaranteed interest and similar contracts

(580
)

(580
)

(592
)

(592
)
Account values of certain investment contracts

(31,172
)

(33,549
)

(32,332
)

(36,161
)
Short-term debt

(39
)

(39
)

(10
)

(10
)
Long-term debt

(2,363
)

(2,815
)

(2,374
)

(2,677
)
Reinsurance related embedded derivatives

-

-

(51
)

(51
)
Other liabilities:

Derivative liabilities (1)

(359
)

(359
)

(455
)

(455
)
GLB ceded embedded derivatives

(1,155
)

(1,155
)

(954
)

(954
)

⁽¹⁾

~~We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty.~~

~~Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value~~

The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.

~~Mortgage Loans on Real Estate~~

The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy.

~~Other Investments~~

The carrying value of our assets classified as other investments approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. Other investments also include FHLB stock carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. The inputs used to measure the fair value of our LPs, other privately held investments and FHLB stock are classified as Level 3 within the fair value hierarchy. The remaining assets in other investments include cash collateral receivables and securities that are not LPs or other privately held investments. The inputs used to measure the fair value of these assets are classified as Level 1 within the fair value hierarchy.

~~Other Contract Holder Funds~~

Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of March 31, 2018, and December 31, 2017, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.

~~Short-Term and Long-Term Debt~~

~~Financial Instruments Carried at Fair Value~~

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2018, or December 31, 2017, and we noted no changes in our valuation methodologies between these periods.

The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described in “Summary of Significant Accounting Policies” in Note 1 of our ~~2017~~ ~~Form 10-K:~~

As of March 31, 2018

Quoted

Prices

in Active

Markets for
Significant
Significant

Identical

Observable
Unobservable

Total

Assets

Inputs

Inputs

Fair

(Level 1)

(Level 2)

(Level 3)

Value

Assets

Investments:

Fixed maturity AFS securities:

Corporate bonds

$
-

$
73,354

$
5,485

$
78,839

ABS

-

875

26

901

U.S. government bonds

360

4

5

369

Foreign government bonds

-

327

108

435

RMBS

-

3,173

-

3,173

CMBS

-

635

27

662

CLOs

-

873

2

875

State and municipal bonds

-

4,844

-

4,844

Hybrid and redeemable preferred securities

69

465

77

611

Trading securities

72

1,349

47

1,468

Equity securities

29

56

27

112

Derivative investments (1)

-

533

689

1,222

Cash and invested cash

-

1,239

-

1,239

Reinsurance related embedded derivatives

-

58

-

58

Other assets:

GLB direct embedded derivatives

-

-

1,110

1,110

GLB ceded embedded derivatives

-

-

45

45

Indexed annuity ceded embedded derivatives

-

-

17

17

Separate account assets

966

141,795

-

142,761

Total assets

$
1,496

$
229,580

$
7,665

$
238,741

Liabilities

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives

$
-

$
-

$
(1,346
)

$
(1,346
)
Other liabilities:

Derivative liabilities (1)

-

(446
)

(410
)

(856
)
GLB ceded embedded derivatives

-

-

(1,155
)

(1,155
)
Total liabilities

$
-

$
(446
)

$
(2,911
)

$
(3,357
)

As of December 31, 2017

Quoted

Prices

in Active

Markets for
Significant
Significant

Identical

Observable
Unobservable

Total

Assets

Inputs

Inputs

Fair

(Level 1)

(Level 2)

(Level 3)

Value

Assets

Investments:

Fixed maturity AFS securities:

Corporate bonds

$
-

$
75,810

$
5,350

$
81,160

ABS

-

927

26

953

U.S. government bonds

522

6

5

533

Foreign government bonds

-

336

110

446

RMBS

-

3,246

12

3,258

CMBS

-

593

6

599

CLOs

-

717

91

808

State and municipal bonds

-

4,959

-

4,959

Hybrid and redeemable preferred securities

70

478

76

624

Equity AFS securities

28

57

161

246

Trading securities

73

1,411

49

1,533

Derivative investments (1)

-

740

603

1,343

Cash and invested cash

-

947

-

947

Other assets:

GLB direct embedded derivatives

-

-

903

903

GLB ceded embedded derivatives

-

-

51

51

Indexed annuity ceded embedded derivatives

-

-

11

11

Separate account assets

814

143,405

-

144,219

Total assets

$
1,507

$
233,632

$
7,454

$
242,593

Liabilities

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives

$
-

$
-

$
(1,418
)

$
(1,418
)
Reinsurance related embedded derivatives

-

(51
)

-

(51
)
Other liabilities:

Derivative liabilities (1)

-

(380
)

(573
)

(953
)
GLB ceded embedded derivatives

-

-

(954
)

(954
)
Total liabilities

$
-

$
(431
)

$
(2,945
)

$
(3,376
)

⁽¹⁾

~~Derivative investment assets and liabilities presented within the fair value hierarchy are presented on a gross basis by derivative type and not on a master netting basis by counterparty.~~

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”). The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.

For the Three Months Ended March 31, 2018

Gains
Issuances,
Transfers

Items

(Losses)

Sales,

Into or

Included

in
Maturities,
Out

Beginning

in

OCI
Settlements,
of

Ending

Fair

Net

and

Calls,

Level 3,

Fair

Value

Income

Other (1)

Net

Net (2)(3)

Value

Investments: (4)

Fixed maturity AFS securities:

Corporate bonds
$
5,350

$
3

$
18

$
97

$
17

$
5,485

ABS

26

-

-

-

-

26

U.S. government bonds

5

-

-

-

-

5

Foreign government bonds

110

-

(2
)

-

-

108

RMBS

12

-

-

-

(12
)

-

CMBS

6

1

-

20

-

27

CLOs

91

-

-

2

(91
)

2

Hybrid and redeemable

preferred securities

76

-

1

-

-

77

Equity AFS securities

161

-

-

-

(161
)

-

Trading securities

49

(2
)

-

-

-

47

Equity securities

-

-

-

1

26

27

Derivative investments

30

330

(25
)

(56
)

-

279

Other assets: (5)

GLB direct embedded derivatives

903

207

-

-

-

1,110

GLB ceded embedded derivatives

51

(6
)

-

-

-

45

Indexed annuity ceded embedded

derivatives

11

-

-

6

-

17

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives (5)

(1,418
)

52

-

20

-

(1,346
)
Other liabilities – GLB ceded embedded

derivatives (5)

(954
)

(201
)

-

-

-

(1,155
)
Total, net
$
4,509

$
384

$
(8
)
$
90

$
(221
)
$
4,754

For the Three Months Ended March 31, 2017

Gains
Issuances,
Transfers

Items

(Losses)

Sales

Into or

Included

in
Maturities,
Out

Beginning

in

OCI
Settlements,
of

Ending

Fair

Net

and

Calls,

Level 3,

Fair

Value

Income

Other (1)

Net

Net (2)

Value

Investments: (4)

Fixed maturity AFS securities:

Corporate bonds
$
4,809

$
5

$
65

$
(200
)
$
131

$
4,810

ABS

33

-

1

-

(6
)

28

U.S. government bonds

-

-

-

-

5

5

Foreign government bonds

111

-

(1
)

-

-

110

RMBS

3

-

-

4

-

7

CMBS

7

-

-

41

(4
)

44

CLOs

68

-

-

5

15

88

State and municipal bonds

-

(1
)

-

-

2

1

Hybrid and redeemable

preferred securities

76

-

3

-

-

79

Equity AFS securities

177

1

(1
)

5

-

182

Trading securities

65

1

7

(16
)

3

60

Derivative investments

(93
)

(69
)

23

251

-

112

Other assets: (5)

GLB direct embedded derivatives

-

226

-

-

-

226

GLB ceded embedded derivatives

371

(254
)

-

-

-

117

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives (5)

(1,139
)

(120
)

-

21

-

(1,238
)
Other liabilities: (5)

GLB direct embedded derivatives

(371
)

371

-

-

-

-

GLB ceded embedded derivatives

-

(342
)

-

-

-

(342
)
Total, net
$
4,117

$
(182
)
$
97

$
111

$
146

$
4,289

⁽¹⁾

~~The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).~~

⁽²⁾

Transfers into or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-year. For AFS and trading securities, the difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in the prior period.

⁽³⁾

~~Transfers into or out of Level 3 for FHLB stock between equity securities and other investments at cost on our Consolidated Balance Sheets.~~

⁽⁴⁾

Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁵⁾

~~Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).~~

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above:

For the Three Months Ended March 31, 2018

Issuances

Sales

Maturities
Settlements
Calls

Total

Investments:

Fixed maturity AFS securities:

Corporate bonds
$
248

$
(57
)
$
(2
)
$
(92
)
$
-

$
97

CMBS

21

-

-

(1
)

-

20

CLOs

2

-

-

-

-

2

Equity securities

1

-

-

-

-

1

Derivative investments

67

(6
)

(117
)

-

-

(56
)
Other assets – indexed annuity ceded

embedded derivatives

6

-

-

-

-

6

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives

(27
)

-

-

47

-

20

Total, net
$
318

$
(63
)
$
(119
)
$
(46
)
$
-

$
90

For the Three Months Ended March 31, 2017

Issuances

Sales

Maturities
Settlements
Calls

Total

Investments:

Fixed maturity AFS securities:

Corporate bonds
$
41

$
(62
)
$
(22
)
$
(62
)
$
(95
)
$
(200
)
RMBS

4

-

-

-

-

4

CMBS

41

-

-

-

-

41

CLOs

5

-

-

-

-

5

Equity AFS securities

7

(2
)

-

-

-

5

Trading securities

1

(17
)

-

-

-

(16
)
Derivative investments

47

294

(90
)

-

-

251

Future contract benefits – indexed annuity

and IUL contracts embedded derivatives

(18
)

-

-

39

-

21

Total, net
$
128

$
213

$
(112
)
$
(23
)
$
(95
)
$
111

The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):

For the Three

Months Ended

March 31,

2018

2017

Derivative investments
$
281

$
(74
)

Embedded derivatives:

Indexed annuity and IUL contracts

(4
)

(14
)

Other assets – GLB direct and ceded

376

747

Other liabilities – GLB ceded

(376
)

(747
)

Total, net (1)
$
277

$
(88
)

⁽¹⁾

~~Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).~~

~~The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:~~

For the Three

For the Three

Months Ended

Months Ended

March 31, 2018

March 31, 2017

Transfers

Transfers

Transfers

Transfers

Into

Out of

Into

Out of

Level 3

Level 3

Total

Level 3

Level 3

Total

Investments:

Fixed maturity AFS securities:

Corporate bonds
$
40

$
(23
)
$
17

$
160

$
(29
)
$
131

ABS

-

-

-

-

(6
)

(6
)
U.S. government bonds

-

-

-

5

-

5

RMBS

-

(12
)

(12
)

-

-

-

CMBS

-

-

-

-

(4
)

(4
)
CLOs

-

(91
)

(91
)

30

(15
)

15

State and municipal bonds

-

-

-

2

-

2

Equity AFS securities

-

(161
)

(161
)

-

-

-

Trading securities

-

-

-

3

-

3

Equity securities

26

-

26

-

-

-

Total, net
$
66

$
(287
)
$
(221
)
$
200

$
(54
)
$
146

Transfers into and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors. For the three months ended March 31, 2018 and 2017, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available. In 2018, transfers into or out of Level 3 include FHLB stock between equity securities and other investments at cost on our Consolidated Balance Sheets. Transfers into and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period. When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result. When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result. For the three months ended March 31, 2018 and 2017, the transfers between Levels 1 and 2 of the fair value hierarchy were less than $1 million for our financial instruments carried at fair value.

~~The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of March 31, 2018:~~

Fair

Valuation

Significant

Assumption or

Value

Technique

Unobservable Inputs

Input Ranges

Assets

Investments:

Fixed maturity AFS and trading

securities:

Corporate bonds
$
2,570

Discounted cash flow

Liquidity/duration adjustment (1)

0.5
%

-
22.2
%

ABS

23

Discounted cash flow

Liquidity/duration adjustment (1)

3.0
%

-
3.0
%

Foreign government bonds

78

Discounted cash flow

Liquidity/duration adjustment (1)

1.6
%

-
3.1
%

Hybrid and redeemable

preferred securities

4

Discounted cash flow

Liquidity/duration adjustment (1)

1.8
%

-
1.8
%

Equity securities

21

Discounted cash flow

Liquidity/duration adjustment (1)

4.5
%

-
5.0
%

Other assets:

GLB direct and ceded

embedded derivatives

1,155

Discounted cash flow

Long-term lapse rate (2)

1
%

-
30
%

Utilization of guaranteed withdrawals (3)
85
%

-
100
%

Claims utilization factor (4)

60
%

-
100
%

Premiums utilization factor (4)

80
%

-
115
%

NPR (5)

0.02
%

-
0.30
%

Mortality rate (6)

(8)

Volatility (7)

1
%

-
29
%

Indexed annuity ceded

embedded derivatives

17

Discounted cash flow

Lapse rate (2)

1
%

-
9
%

Mortality rate (6)

(8)

Liabilities

Future contract benefits – indexed

annuity and IUL contracts

embedded derivatives
$
(1,346
)
Discounted cash flow

Lapse rate (2)

1
%

-
9
%

Mortality rate (6)

(8)

Other liabilities – GLB ceded

embedded derivatives

(1,155
)
Discounted cash flow

Long-term lapse rate (2)

1
%

-
30
%

Utilization of guaranteed withdrawals (3)
85
%

-
100
%

Claims utilization factor (4)

60
%

-
100
%

Premiums utilization factor (4)

80
%

-
115
%

NPR (5)

0.02
%

-
0.30
%

Mortality rate (6)

(8)

Volatility (7)

1
%

-
29
%

⁽¹⁾

The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.

⁽²⁾

The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity and IUL contracts represents the lapse rates during the surrender charge period.

⁽³⁾

~~The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.~~

⁽⁴⁾

The utilization factors are applied to the present value of claims or premiums, as appropriate, in the GLB reserve calculation to estimate the impact of inefficient withdrawal behavior, including taking less than or more than the maximum guaranteed withdrawal.

⁽⁵⁾

~~The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.~~

⁽⁶⁾

~~The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die.~~

⁽⁷⁾

The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation.

⁽⁸⁾

~~The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.~~

~~Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:~~

~~Investments~~ ~~– An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement.~~

~~Indexed annuity and IUL contracts embedded derivatives~~ ~~– For direct embedded derivatives, an increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement.~~

~~GLB embedded derivatives~~ – Assuming our GLB direct embedded derivatives are in a liability position: an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs would result in an increase in the fair value measurement.

~~For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs.~~

As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary. For more information, see “Summary of Significant Accounting Policies” in Note 1 of our 2017 Form 10-K.

~~13. Segment Information~~

We provide products and services and report results through our Life Insurance, Annuities, Group Protection and Retirement Plan Services ~~Life Insurance and Group Protection~~ segments. We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business. ~~See Note 21 of our 2017 Form 10-K for a brief description~~A discussion of these segments and Other ~~Operations.~~Operations is found in Note 21 in our 2022 Form 10-K, as updated by Note 20 in the May 2023 Form 8-K.

Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments. Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable:

~~Realized gains and losses associated with the following (“excluded realized gain (loss)”):~~

~~Sales or disposals and impairments of securities;~~

~~Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities;~~

~~GLB rider fees ceded to Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”);~~

~~The net valuation premium of the GLB attributed rider fees;~~

Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value; and

~~Changes in the fair value of equity securities;~~

~~Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;~~

~~Gains (losses) on early extinguishment of debt;~~

~~Losses from the impairment of intangible assets;~~

~~Income (loss) from discontinued operations;~~

~~Acquisition and integration costs related to mergers and acquisitions; and~~

~~Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act.~~

Changes in MRBs, including gains and losses and benefit payments (“MRB-related impacts”);

Investment and reinsurance-related realized gain (loss):

Changes in the carrying value of mortgage loans on real estate attributable to current expected credit losses (“CECL”) (“changes in CECL reserve for mortgage loans on real estate”);

Changes in the carrying value of reinsurance-related assets attributable to CECL (“changes in CECL reserve for reinsurance-related assets”);

Changes in the carrying value of fixed maturity AFS securities attributable to the estimation of credit losses (“changes in the credit loss allowance for fixed maturity AFS securities”); and

Changes in the fair value of investments, including trading securities, equity securities, certain derivatives, and mortgage loans on real estate electing the fair value option, and of embedded derivatives within certain reinsurance arrangements, as well as sales or disposals of investments (“changes in investments and reinsurance-related embedded derivatives”);

GLB rider fees ceded to LNBAR;

Fee income allocated to support the cost of hedging GLB and GDB riders (“GLB and GDB hedge allowance”);

Changes in the fair value of the embedded derivative liabilities of our indexed annuity and IUL contracts and the associated index options we hold to hedge them, including collateral expense associated with hedge programs; (“indexed product net derivative results”);

Changes in reserves resulting from benefit ratio unlocking (“benefit ratio unlocking”);

Income (loss) from the initial adoption of new accounting standards, regulations and policy changes;

Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;

Transaction and integration costs related to mergers and acquisitions including the acquisition or divestiture, through reinsurance or other means, of businesses or blocks of business;

Gains (losses) on modification or early extinguishment of debt;

Losses from the impairment of intangible assets and gains (losses) on other non-financial assets; and

Income (loss) from discontinued operations.

Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:

Investment and reinsurance-related realized gain (loss);

GLB rider fees ceded to LNBAR;

Fee income allocated to support the cost of hedging GLB and GDB riders (“GLB and GDB hedge allowance”);

Indexed product net derivative results;

Revenue adjustments from the initial adoption of new accounting standards; and

Amortization of deferred gains arising from reserve changes on business sold through reinsurance.

‎

~~Excluded realized gain (loss);~~

~~Revenue adjustments from the initial adoption of new accounting standards;~~

~~Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and~~

~~Amortization of deferred gains arising from reserve changes on business sold through reinsurance.~~

3981

Table of Contents

~~We use~~The tables below reconcile our ~~prevailing corporate federal income tax rates~~segment measures of 21% and 35%, where applicable, while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our non-GAAP measuresperformance to ~~the most comparable GAAP measure. Operating revenues and income (loss) from operations do not replace revenues and net income as~~ the GAAP measures ~~of our consolidated results of operations.~~

~~Segment information (in millions) was as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Revenues

Operating revenues:

Annuities
$
984

$
978

Retirement Plan Services

288

279

Life Insurance

1,549

1,483

Group Protection

552

541

Other Operations

58

78

Excluded realized gain (loss), pre-tax

(27
)

(131
)
Amortization of deferred gain arising

from reserve changes on business

sold through reinsurance, pre-tax

-

1

Total revenues
$
3,404

$
3,229

For the Three

Months Ended

March 31,

2018

2017

Net Income (Loss)

Income (loss) from operations:

Annuities
$
272

$
278

Retirement Plan Services

40

35

Life Insurance

122

114

Group Protection

29

7

Other Operations

(18
)

-

Excluded realized gain (loss), after-tax

(22
)

(85
)
Net impact from the Tax Cuts and Jobs Act

(12
)

-

Acquisition and integration costs related to

mergers and acquisitions, after-tax

(4
)

-

Net income (loss)
$
407

$
349

~~Revenue from Contracts with Customers~~

~~As discussed~~presented in Note 2, we adopted ASU 2014-09, Revenue from Contracts with Customers, as of January 1, 2018, that applies primarily to commissions and advisory fees earned by our broker dealer operation. The following table illustrates the ~~revenue recognized from contracts with customers reported within fee income and other revenues on our~~ Consolidated Statements of Comprehensive Income (Loss) ~~and timing of revenue recognition by segment~~ (in millions):

For the Three Months Ended March 31, 2018

Retirement

Plan

Life

Group

Other

Annuities

Services

Insurance

Protection

Operations

Total

Revenue from Contracts with Customers

Fee income
$
133

$
42

$
5

$
-

$
-

$
180

Other revenues

93

4

3

5

-

105

Total revenue from contracts

with customers
$
226

$
46

$
8

$
5

$
-

$
285

Timing of Revenue Recognition

Satisfaction of performance obligation:

Transferred at a point in time
$
2

$
1

$
2

$
-

$
-

$
5

Transferred over time

224

45

6

5

-

280

Total revenue from contracts

with customers
$
226

$
46

$
8

$
5

$
-

$
285



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenues
Operating revenues:
Life Insurance	$	1,656		$	1,602		$	3,294		$	3,220
Annuities		1,097			1,003			2,140			2,048
Group Protection		1,400			1,323			2,787			2,626
Retirement Plan Services		328			310			650			624
Other Operations		36			28			75			65
Investment and reinsurance-related realized gain (loss)		(3,175	)		159			(3,388	)		444
GLB rider fees ceded to LNBAR		(232	)		(233	)		(465	)		(471	)
GLB and GDB hedge allowance		204			193			409			396
Indexed product net derivative results		(67	)		29			(238	)		138
Total revenues	$	1,247		$	4,414		$	5,264		$	9,090

~~Revenue recognized~~



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Net Income (Loss)
Income (loss) from operations:
Life Insurance	$	32		$	11		$	-		$	-
Annuities		218			242			435			502
Group Protection		109			49			179			3
Retirement Plan Services		43			52			81			106
Other Operations		(75	)		(66	)		(127	)		(126	)
MRB-related impacts, after-tax		977			(570	)		129			(661	)
Investment and reinsurance-related realized gain (loss), after-tax ⁽¹⁾		(2,509	)		126			(2,676	)		351
GLB rider fees ceded to LNBAR, after-tax		(184	)		(184	)		(367	)		(372	)
GLB and GDB hedge allowance, after-tax		160			151			323			312
Indexed product net derivative results, after-tax		(53	)		23			(188	)		109
Benefit ratio unlocking, after-tax ⁽²⁾		333			(6	)		334			(6	)
Transaction and integration costs related to mergers,
acquisitions and divestitures, after-tax ⁽³⁾		(7	)		-			(7	)		-
Net income (loss)	$	(956	)	$	(172	)	$	(1,884	)	$	218

⁽¹⁾Includes a $2.4 billion after-tax impairment of fixed maturity AFS securities in an unrealized loss position for the three and six months ended June 30, 2023, resulting from ~~contracts with customers included~~the Company’s intent to sell these securities as part of the previously announced Fortitude Re reinsurance transaction. Within the investment portfolio anticipated to be sold in ~~fee income consists primarily~~the transaction, there are additional fixed maturity AFS securities in an unrealized gain position of ~~wholesaling-related 12b-1 fees~~approximately $377 million after-tax as of June 30, 2023. Pursuant to the applicable accounting guidance, the Company impaired the securities in a loss position down to fair market value upon entry into the agreement in the second quarter and ~~net investment advisory fees. The 12b-1 fees are received from separate account fund sponsors as compensation~~will recognize a gain for ~~servicing~~any securities in an unrealized gain position at the ~~underlying mutual funds. The net investment advisory fees are~~time when the transaction closes. For more information, see Notes 4 and 8.

⁽²⁾Includes $330 million after-tax related to ~~asset management~~the Fortitude Re reinsurance transaction.

⁽³⁾Includes costs pertaining to the Fortitude Re reinsurance transaction. For more information, see Note 8.

Table of ~~certain separate account funds. Such revenues are recorded based~~Contents

Other segment information (in millions) was as follows:


	As of			As of
	June 30,		December 31,
	2023			2022
Assets
Life Insurance	$	100,129		$	97,412
Annuities		179,000			165,711
Group Protection		9,570			9,828
Retirement Plan Services		43,086			42,117
Other Operations		20,988			20,595
Total assets	$	352,773		$	335,663

17. Realized Gain (Loss)

Realized gain (loss) on ~~a contractual percentage~~the Consolidated Statements of ~~the market value of mutual fund assets over the period shares are owned by customers,~~Comprehensive Income (Loss) includes realized gains and ~~on a contractual percentage of the customer’s managed assets over the period advisory services are provided, respectively.~~

~~Revenue recognized~~losses from ~~contracts with customers included in other revenues relates to our retail sales network and consists primarily of commission revenue for~~ the sale of ~~non-affiliated~~investments, write-downs for impairments of investments and changes in the allowance for credit losses for financial assets, changes in fair value for mortgage loans on real estate accounted for under the fair value option, changes in fair value of equity securities, ~~recorded~~VUL derivative and embedded derivative gains and losses, gains and losses on the sale of subsidiaries and businesses and net gains and losses on reinsurance-related embedded derivatives and trading securities. Realized gains and losses on the sale of investments are determined using the specific identification method. Realized gain (loss) is also net of allocations of investment gains and losses to certain policyholders, certain funds withheld on reinsurance arrangements and certain modified coinsurance arrangements for which we have a ~~trade-date basis~~contractual obligation. Details underlying realized gain (loss) (in millions) were as follows:



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Fixed maturity AFS securities:
Gross gains	$	8		$	2		$	33		$	4
Gross losses		(48	)		(4	)		(111	)		(8	)
Credit loss benefit (expense) ⁽¹⁾		1			(4	)		(15	)		(5	)
Intent to sell impairments ⁽²⁾		(3,062	)		-			(3,062	)		-
Realized gain (loss) on equity securities⁽³⁾		(13	)		(22	)		(27	)		(21	)
Credit loss benefit (expense) on mortgage loans on real estate		(3	)		(4	)		(7	)		14
Credit loss benefit (expense) on reinsurance-related assets		(3	)		4			(4	)		3
Realized gain (loss) on the mark-to-market on certain instruments ⁽⁴⁾⁽⁵⁾		(80	)		188			(207	)		463
Indexed product derivative results ⁽⁶⁾		(49	)		29			(203	)		138
GLB rider fees ceded to LNBAR and attributed fees		(232	)		(233	)		(466	)		(470	)
GLB and GDB hedge allowance		204			193			409			396
Other realized gain (loss)		25			(1	)		14			(6	)
Total realized gain (loss)	$	(3,252	)	$	148		$	(3,646	)	$	508

Table of Contents

⁽¹⁾Includes changes in the allowance for credit losses as well as direct write-downs to amortized cost as a result of negative credit events.

⁽²⁾Includes impairments of certain fixed maturity AFS securities in an unrealized loss position, resulting from the Company’s intent to sell these securities as part of the Fortitude Re reinsurance transaction. Within the investment portfolio anticipated to be sold in the transaction, there are additional fixed maturity AFS securities in an unrealized gain position of approximately $477 million pre-tax as of June 30, 2023. Pursuant to the applicable accounting guidance, the Company impaired the securities in a loss position down to fair market value upon entry into the agreement in the second quarter and ~~advisory fee income. Advisory fee~~will recognize a gain for any securities in an unrealized gain position at the time when the transaction closes. See Notes 4 and 8 for additional information.

⁽³⁾Includes mark-to-market adjustments on equity securities still held of $(13) million and $(19) million for the three months ended June 30, 2023 and 2022, respectively, and $(27) million and $(16) million for the six months ended June 30, 2023 and 2022, respectively.

⁽⁴⁾Represents changes in the fair values of VUL derivatives, reinsurance-related embedded derivatives and trading securities.

⁽⁵⁾Includes gains and losses from fair value changes on mortgage loans on real estate accounted for under the fair value option of $(3) million and $(14) million for the three months ended June 30, 2023 and 2022, respectively, and $(1) million and $(17) million for the six months ended June 30, 2023 and 2022, respectively.

⁽⁶⁾Represents the change in fair value of the index options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity contracts, IUL contracts and index options we may purchase or sell in the future to hedge policyholder index allocations applicable to future reset periods for our indexed annuity products.

18. Federal Income Taxes

The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss). The effective tax rate was 24% for the three and six months ended June 30, 2023, compared to 31% and (6)%, respectively, for the corresponding periods in 2022. The effective tax rate on pre-tax income is ~~asset-based revenues recorded as earned based~~typically lower than the prevailing corporate federal income tax rate of 21% due to benefits from preferential tax items including the separate accounts dividends-received deduction and tax credits.

For the three and six months ended June 30, 2023, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to a tax benefit at 21% from pre-tax losses in addition to the effects of preferential tax items.

For the three months ended June 30, 2022, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to a tax benefit at 21% from pre-tax losses in addition to the effects of the preferential tax items. For the six months ended June 30, 2022, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to the effects of preferential tax items exceeding the tax expense at 21% on ~~a contractual percentage~~pre-tax income.

‎

Table of ~~customer account values.~~Contents

~~14. Subsequent Events~~

~~On April 25, 2018, LNL received a capital contribution in the amount of $500 million from LNC. Management identified no additional items or events required for disclosure.~~

Item 2. Management’s Narrative Analysis of the Results of Operations

Index to Management’s Narrative Analysis of the Results of Operations


	Page
Forward-Looking Statements – Cautionary Language	86
Critical Accounting Policies and Estimates	87
Results of Consolidated Operations	92
Results of Life Insurance	93
Results of Annuities	94
Results of Group Protection	95
Results of Retirement Plan Services	96
Results of Other Operations	97
Liquidity and Capital Resources	98

‎

Table of Contents

The following Management’s Narrative Analysis (“MNA”) of the results of operations is intended to help the reader understand the financial condition as of June 30, 2023, compared with December 31, 2022, and the results of operations for the three and six months ended June 30, 2023, compared with the corresponding periods in 2022 of The Lincoln National Life Insurance Company (“LNL”) and its ~~subsidiaries are referred to collectively in this Form 10-Q as~~consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, “LNL,” “Company,” “we,” “our” or “us” refers to The Lincoln National Life Insurance Company and ~~“us.”~~its consolidated subsidiaries. LNL is a wholly-owned subsidiary of Lincoln National Corporation (“LNC”). ~~Management’s narrative analysis (“MNA”) of the results of operations for the three months ended March 31, 2018, compared with the corresponding period in 2017 of LNL~~The MNA is provided as a supplement to, and ~~its consolidated subsidiaries~~ should be read in conjunction with, ~~our~~the consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements,” as well as “Forward-Looking Statements – Cautionary Language,” “Part II – Item 1A. Risk Factors,” the Company’s consolidated financial statements included elsewhere herein andStatements”; our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2022, as amended by Amendment No. 1 thereto (“~~2017~~2022 Form 10-K”), ~~including~~as updated by our Current Report on Form 8-K filed with the ~~sections entitled~~Securities and Exchange Commission (“SEC”) on May 23, 2023 (the “May 2023 Form 8-K”); and other reports filed with the SEC.

MNA is presented pursuant to General Instructions H(2)(a) of Form 10-Q in lieu of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See “Part I – Item ~~1A. Risk Factors,” “Part II – Item 7. Management’s Narrative Analysis~~1. Business” in our 2022 Form 10-K and Note 1 herein for a description of the ~~Results of Operations,” “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Part II – Item 8. Financial Statements and Supplementary Data.”~~business.

In this report, in addition to providing consolidated revenues and net income (loss) ~~that are United States of America generally accepted accounting principles (“GAAP”) financial measures,~~, we also provide ~~certain non-GAAP financial measures as~~segment operating revenues and income (loss) from operations because we believe they are meaningful ~~to evaluate~~measures of revenues and ~~assess~~ the ~~results~~profitability of our operating segments. Operating revenues and income (loss) from operations are the ~~primary non-GAAP~~ financial performance measures we use to evaluate and assess the results of our segments. Accordingly, we define and report operating revenues and income (loss) from operations by segment in Note 16. Our management believes that operating revenues and income (loss) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses. ~~We have~~Certain items are excluded ~~certain GAAP items that~~from operating revenue and income (loss) from operations because they are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in many instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. In addition, we believe that our definitions of operating revenues and income (loss) from operations will provide ~~investors~~readers with a more valuable measure of our performance because it better reveals trends in our business. ~~These non-GAAP financial measures should not be viewed as~~

On January 1, 2023, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments (“ASU 2018-12”) with a ~~substitute~~transition date of January 1, 2021. ASU 2018-12 updated accounting and reporting requirements for ~~GAAP financial measures.~~long-duration contracts and certain investment contracts issued by insurance entities. We adopted ASU 2018-12 under the modified retrospective approach, except for market risk benefits (“MRBs”) for which we applied the full retrospective approach. For ~~additional~~more information, see Note ~~13.~~3.

~~Management’s narrative analysis is presented pursuant~~On May 2, 2023, we entered into a reinsurance agreement with Fortitude Reinsurance Company Ltd. (“Fortitude Re”) expected to ~~General Instructions I(2) (a) of Form 10-K in lieu of Management’s Discussion~~reduce balance sheet risk, strengthen our capital position and ~~Analysis of Financial Condition and Results of Operations.~~improve free cash flow. For more information, see Note 8.

~~See “Part I – Item 1. Business” and Note 1 in our 2017 Form 10-K for a description of the business.~~

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

~~This Quarterly Report~~Certain statements made in this report and in other written or oral statements made by us or on ~~Form 10-Q, including “Risk Factors” and “Management’s Narrative Analysis of the Results of Operations,” contains~~our behalf are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or ~~achievements, and~~achievements. Forward-looking statements may contain words like: “anticipate,” “believe,” ~~“anticipate,~~“estimate,” “expect,” ~~“estimate,”~~ “project,” ~~“will,~~“shall,” ~~“shall”~~“will” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Forward-looking statements ~~involve~~are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:

Weak general economic and business conditions that may affect demand for our products, account balances, investment results, guaranteed benefit liabilities, premium levels and claims experience;

Adverse global capital and credit market conditions that may affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition;

Legislative, regulatory or tax changes that affect the cost of, or demand for, our products, the required amount of reserves and/or surplus, our ability to conduct business or restrictions on the payment of revenue sharing and 12b-1 distribution fees;

The impact of U.S. federal tax reform legislation on our business, earnings and capital;

The impact of regulations adopted by the SEC, the Department of Labor or other federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers that could affect our distribution model;

The impact of new and emerging privacy regulations that may lead to increased compliance costs and reputation risk;

Table of Contents

Increasing scrutiny and evolving expectations and regulations regarding environmental, social and governance (“ESG”) matters that may adversely affect our reputation and our investment portfolio;

Actions taken by reinsurers to raise rates on in-force business;

Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses and demand for our products;

Rapidly increasing interest rates causing policyholders to surrender life insurance and annuity policies, thereby causing realized investment losses;

The impact of the implementation of the provisions of the European Market Infrastructure Regulation relating to the regulation of derivatives transactions;

The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;

A decline or continued volatility in the equity markets causing a reduction in the sales of our products; a reduction of asset-based fees that we charge on various investment and insurance products; and an increase in liabilities related to guaranteed benefit riders, which are accounted for as MRBs, of our variable annuity products;

Ineffectiveness of our risk management policies and procedures;

A deviation in actual experience regarding future policyholder behavior, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our products and in establishing related insurance reserves, which may reduce future earnings;

Changes in accounting principles that may affect our consolidated financial statements;

Lowering of one or more of our financial strength ratings;

Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on financial assets;

Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems, including from cyberattacks or other breaches of our data security systems;

The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items;

The inability to realize or sustain the benefits we expect from, greater than expected investments in, and the potential impact of efforts related to, our strategic initiatives, including the Spark Initiative;

The adequacy and collectability of reinsurance that we have obtained;

Pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely impact liabilities for policyholder claims, affect our businesses and increase the cost and availability of reinsurance;

Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that we can charge for our products;

The unknown effect on our businesses resulting from evolving market preferences and the changing demographics of our client base; and

The unanticipated loss of key management, financial planners or wholesalers.

The risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others:

~~Deterioration in general economic and business conditions that may affect account values, investment results and claims experience;~~

~~Adverse capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments;~~

Legislative, regulatory or tax changes that affect: the cost of, or demand for, our products; our ability to conduct business; the impact of recently enacted U.S. federal tax reform legislation on our business, earnings and capital; and the effect of the Fifth Circuit Court of Appeal’s decision vacating the Department of Labor’s fiduciary regulation as well as any “best interest” standards of care adopted by the Securities and Exchange Commission (“SEC”) or other state regulators;

~~Actions taken by reinsurers to raise rates on in-force business;~~

~~Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, and demand for our products;~~

Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities;

The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;

A decline in the equity markets causing a reduction in the sales of our products; a reduction of asset-based fees that we charge on various investment and insurance products; and an increase in liabilities related to guaranteed benefit features of our variable annuity products;

~~Changes in our assumptions related deferred acquisition costs (“DAC”) or value of business acquired (“VOBA”);~~

~~Ineffectiveness of our risk management policies and procedures;~~

~~A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our products;~~

~~Changes in accounting principles, practices or policies;~~

~~Lowering of one or more of our financial strength ratings;~~

~~Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;~~

Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems;

~~The adequacy and collectability of reinsurance that we have purchased;~~

~~Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;~~

Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;

~~The unknown effect on our businesses resulting from evolving market preferences and the changing demographics of our client base;~~

~~Possible difficulties in executing, integrating and realizing projected results of acquisitions, divestitures and restructurings; and~~

~~The unanticipated loss of key management, financial planners or wholesalers.~~

~~The risks~~ included here are not exhaustive. Our ~~annual report on~~2022 Form 10-K ~~and~~as well as other ~~documents filed~~reports that we file with the SEC include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

We do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See ~~“Risk Factors” included in~~ “Part I – Item 1A. Risk Factors” in our ~~2017~~2022 Form 10-K ~~as updated in this Quarterly Report on Form 10-Q~~ for a discussion of certain risks relating to our business segments and ~~investment~~products.

Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition. In applying these critical accounting policies in preparing our ~~securities.~~

~~CRITICAL~~ ~~ACCOUNTING POLICIES AND ESTIMATES~~

~~The MNA included in~~financial statements, management must use critical assumptions, estimates and judgments concerning future results or other developments, including the likelihood, timing or amount of one or more future events. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our ~~2017 Form 10-K contains~~assumptions, estimates and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances. For a detailed discussion of ~~our critical~~other significant accounting policies, ~~and estimates.~~see Note 1. The following information updates the “Critical Accounting Policies and Estimates” provided in our ~~2017~~2022 Form 10-K, as updated by the May 2023 Form 8-K, and therefore, should be read in conjunction with that disclosure.

DAC, VOBA, DSI and DFEL

~~Reversion~~Deferrals

Qualifying deferrable acquisition expenses are recorded as an asset on the Consolidated Balance Sheets as deferred acquisition costs (“DAC”) for products we sold during a period or value of business acquired (“VOBA”) for books of business we acquired during a

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period. DAC and VOBA when amortized increase commissions and other expenses on the Consolidated Statements of Comprehensive Income (Loss). In addition, we defer costs associated with deferred sales inducements (“DSI”) and revenues associated with deferred front-end loads (“DFEL”). DSI is an asset on the Consolidated Balance Sheets, and when amortized, increases interest credited on the Consolidated Statements of Comprehensive Income (Loss). DFEL is a liability on the Consolidated Balance Sheets, and when amortized, increases fee income on the Consolidated Statements of Comprehensive Income (Loss).

We incur certain costs that can be capitalized in the acquisition of insurance contracts. Only those costs incurred that result directly from and are essential to the ~~Mean~~successful acquisition of new or renewal insurance contracts may be capitalized as deferrable acquisition costs in the period they are incurred. This determination of deferability must be made on a contract-level basis. Some examples of acquisition costs that are subject to deferral include the following:

~~As variable fund returns do not move~~Employee, agent or broker commissions;

Wholesaler production bonuses;

Renewal commissions and bonuses to agents or brokers;

Medical and inspection fees;

Premium-related taxes and assessments; and

A portion of the salaries and benefits of certain employees involved in the underwriting, contract issuance and processing, medical and inspection and sales force contract selling functions.

All other acquisition-related costs, including costs incurred by the insurer for soliciting potential customers, market research, training, administration, management of distribution and underwriting functions, unsuccessful acquisition or renewal efforts and product development, are considered non-deferrable acquisition costs and must be expensed in the period incurred.

In addition, the following indirect costs are considered non-deferrable acquisition costs and must be charged to expense in the period incurred:

Administrative costs;

Rent;

Depreciation;

Occupancy costs;

Equipment costs (including data processing equipment dedicated to acquiring insurance contracts);

Trail commissions; and

Other general overhead.

Amortization

The amortization of DAC, VOBA, DSI and DFEL, associated with our long-duration insurance contracts and certain investment contracts, is based on assumptions consistent with those used in the development of the underlying contract reserves adjusted for emerging experience and expected trends. The amortization basis results in a ~~systematic manner,~~constant level amortization pattern for the expected term of the related contracts by each reportable segment. When identifying the amortization basis we ~~reset~~consider actuarial assumptions that are inputs to the ~~baseline~~models for establishing the expected term, including but not limited to, mortality, morbidity, lapse and surrenders. During the third quarter of ~~account values from which estimated gross profits~~each year, we conduct our comprehensive review of these actuarial assumptions and update these actuarial assumptions as needed. We may update these actuarial assumptions in other quarters as we become aware of information that warrants updating outside of our annual comprehensive review. Any updates are ~~projected,~~applied prospectively.

For a discussion of the amortization basis and periods over which we ~~refer to as~~amortize our ~~reversion to the mean (“RTM”) process, as discussed~~DAC, VOBA, DSI and DFEL, see “DAC, VOBA, DSI and DFEL” in our 2017 Form 10-K. If we had unlocked our RTM assumption as of March 31, 2018, we would have recorded a favorable unlocking of approximately $205 million, pre-tax, for Annuities, approximately $55 million, pre-tax, for Life Insurance and approximately $25 million, pre-tax, for Retirement Plan Services. Note 1.

Investments

Investment Valuation

For more information about the valuation of our financial instruments carried at fair value, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Critical Accounting Policies and Estimates – Investments – Investment Valuation” in our ~~2017~~2022 Form 10-K as updated by the May 2023 Form 8-K and Note 1213 herein.

Derivatives

~~Our accounting policies~~Derivatives are primarily used for hedging purposes. We hedge certain portions of our exposure to interest rate risk, default risk, basis risk, equity market risk, credit risk and foreign currency exchange risk by entering into derivative transactions. We also purchase and issue financial instruments that contain embedded derivative instruments. See “Policyholder Account Balances” below for information on embedded derivatives. Assessing the effectiveness of hedging and evaluating the carrying values of the related derivatives often involve a variety of assumptions and estimates.

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We carry our derivative instruments at fair value, which we determine through valuation techniques or models that use market data inputs or independent broker quotations. The fair values fluctuate from period to period due to the ~~potential~~volatility of the valuation inputs, including but not limited to swap interest rates, interest and equity volatility and equity index levels, foreign currency forward and spot rates, credit spreads and correlations, some of which are significantly affected by economic conditions. The effect to revenue is reported in realized gain (loss) and such amount along with the associated federal income taxes is excluded from income (loss) from operations of our segments.

For more information on ~~interest spreads in a falling rate environment are discussed in Note 6 of this report~~derivatives, see Notes 1 and 6. For more information on market exposures associated with our derivatives, including sensitivities, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our ~~2017~~2022 Form ~~10-K.~~10-K, as updated by the May 2023 Form 8-K.

~~Guaranteed Living~~Future Contract Benefits

Future contract benefits represent liability reserves that we have established and carry based on estimates of how much we will need to pay for future benefits and claims.

Liability for Future Policy Benefits

Liability for future policy benefits (“LFPB”) represents the reserve amounts associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts that are calculated to meet the various policy and contract obligations as they mature. Establishing adequate reserves for our obligations to policyholders requires assumptions to be made that are intended to represent an estimation of experience for the period that policy benefits are payable. If actual experience is better than or equal to the assumptions, then reserves should be adequate to provide for future benefits and expenses. If experience is worse than the assumptions, additional reserves may be required. Significant assumptions include mortality rates, morbidity and policyholder behavior (e.g., persistency) and withdrawals. During the third quarter of each year, we conduct our comprehensive review of the actuarial assumptions to best estimate future premium and benefit cash flows (“cash flow assumptions”) and projection models used in estimating these liabilities and update these assumptions as needed (excluding the claims settlement expense assumption that is locked-in at inception) in the calculation of the net premium ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. In measuring our LFPB, we establish cohorts, which are groupings of long-duration contracts. On a quarterly basis, we retrospectively update the net premium ratio at the cohort level for actual experience. For all contract cohorts issued after January 1, 2021, interest is accrued on LFPB at the single-A interest rate on the contract cohort inception date. For contract cohorts issued prior to January 1, 2021, interest remains accruing at the original discount rate in effect on the contract cohort inception date due to the modified retrospective transition method. We also remeasure the LFPB using the single-A interest rate as of the end of each reporting period.

Liability for Future Claims

Future contract benefits include reserves for long-term life and disability claims associated with our Group Protection segment. These reserves use actuarial assumptions primarily based on claim termination rates, offsets for other insurance including social security and long-term disability incidence and severity assumptions. Such cash flow assumptions are subject to the comprehensive review process discussed above. We remeasure the liability for future claims using a single-A interest rate as of the end of each reporting period.

Universal Life Insurance Products with Secondary Guarantees

We issue UL-type contracts where we provide a secondary guarantee to the policyholder. The policy can remain in force, even if the base policy account balance is zero, as long as contractual secondary guarantee requirements have been met. These guaranteed benefits require an additional liability that is calculated based on the application of a benefit ratio (calculated as the present value of total expected benefit payments over the life of the contract from inception divided by the present value of total expected assessments over the life of the contract). These secondary guarantees are reported within future contract benefits on the Consolidated Balance Sheets. The level and direction of the change in reserves will vary over time based on the emergence of the benefit ratio and the level of assessments associated with the contracts. Cash flow assumptions incorporated in a benefit ratio in measuring these additional liabilities for other insurance benefits include mortality rates, morbidity, policyholder behavior (e.g., persistency) and withdrawals based principally on generally accepted actuarial methods and assumptions. During the third quarter of each year, we conduct our comprehensive review of the cash flow assumptions and projection models used in estimating these liabilities and update these assumptions in the calculation of the benefit ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update.

For additional information on future contract benefits, see Note 12.

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Market Risk Benefits

Market risk benefits (“MRBs”) are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose us to other-than-nominal capital market risk upon the occurrence of a specific event or circumstance, such as death, annuitization or period withdrawal. An MRB can be in either an asset or a liability position. Our MRB assets and MRB liabilities are reported at fair value separately on the Consolidated Balance Sheet.

We issue variable and fixed annuity contracts that may include various types of GLB and GDB riders that we have accounted for as MRBs. For contracts that contain multiple riders that qualify as MRBs, the MRBs are valued on a combined basis using an integrated model. We have entered into reinsurance agreements to cede certain GLB and GDB riders where the reinsurance agreements themselves are accounted for as MRBs or contain MRBs. We therefore record ceded MRB assets and ceded MRB liabilities associated with these reinsurance agreements. We report ceded MRBs associated with these reinsurance agreements in other assets or other liabilities on the Consolidated Balance Sheets.

Change in the fair value of MRB assets and liabilities is reported in market risk benefit gain (loss) in the Consolidated Statements of Comprehensive Income (Loss), except for the portion attributable to the change in non-performance risk, which is recognized in OCI. Change in the fair value of ceded MRB assets and liabilities, including the changes in our counterparties’ non-performance risks is reported in market risk benefit gain (loss) in the Consolidated Statements of Comprehensive Income (Loss).

MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our non-performance risk. Ceded MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our counterparties’ non-performance risk. The scenario assumptions, at each valuation date, are those we view to be appropriate for a hypothetical market participant and include assumptions for capital markets, lapse, benefit utilization, mortality, risk margin and administrative expenses. These assumptions are based on a combination of historical data and actuarial judgments. The assumption for our own non-performance risk and our counterparties’ non-performance risk for MRBs and ceded MRBs, respectively, are determined at each valuation date and reflect our risk and our counterparties’ risks of not fulfilling the obligations of the underlying liability. The spread for the non-performance risk is added to the discount rates used in determining the fair value from the net cash flows. We believe these assumptions are consistent with those that would be used by a market participant; however, as the related markets develop, we will continue to reassess our assumptions. During the third quarter of each year, we conduct our comprehensive review of the assumptions used in calculating the fair value of these MRBs and update these assumptions on a prospective basis as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. For information on ~~our estimates~~fair value inputs, see Note 13.

We cede a portion of these GLB and GDB features to Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”) on a modified coinsurance basis. The modified coinsurance arrangement includes a hedging strategy designed to mitigate selected risk to LNBAR. Effective January 1, 2023, the hedge program was revised to continue to focus on generating sufficient assets to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. This hedging strategy utilizes options and total return swaps on U.S.-based equity indices, and futures on U.S.-based and international equity indices, as well as interest rate futures, interest rate swaps and currency futures.

As part of the ~~potential instantaneous effect~~hedge program, equity market and interest rate conditions are monitored on a daily basis. The hedge positions are rebalanced based upon changes in these factors as needed. While the hedge positions are actively managed, these positions may not completely offset changes in the fair value of the GLB and GDB riders caused by movements in these factors due to, ~~net income (loss) that could result from sudden~~among other things, differences in timing between when a market exposure changes ~~that may occur~~and corresponding changes to the hedge positions, extreme swings in the equity markets, interest rates and ~~implied~~market-implied volatilities, realized market ~~volatilities,~~volatility, policyholder behavior, divergence between the performance of the underlying funds and the hedging indices, divergence between the actual and expected performance of the hedge instruments or ability to purchase hedging instruments at prices consistent with the desired risk and return trade-off.

The hedging results do not impact LNL due to the modified coinsurance arrangement with LNBAR, as LNL cedes these derivative results to LNBAR. For additional information on MRBs, see Note 9.

Policyholder Account Balances

Policyholder account balances include the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability includes UL and VUL and investment-type annuity products where account balances are equal to deposits plus interest credited less withdrawals, surrender charges, asset-based fees and policyholder administration charges (collectively known as “policyholder assessments”), as well as amounts representing the fair value of embedded derivative instruments associated with our ~~discussion~~IUL and indexed annuity products. During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models underlying our reserves and embedded derivatives and update assumptions as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update.

Our indexed annuity and IUL contracts permit the holder to elect a fixed interest rate return or a return where interest credited to the contracts is linked to the performance of the S&P 500® Index or other indices. The value of the variable portion of the policyholder’s account balance varies with the performance of the underlying variable funds chosen by the policyholder. Policyholders may elect to

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rebalance among the various accounts within the product at renewal dates. At the end of each indexed term, which can be up to six years, we have the opportunity to re-price the indexed component by establishing different participation rates, caps, spreads or specified rates, subject to contractual guarantees. We purchase and sell index options that are highly correlated to the portfolio allocation decisions of our policyholders, such that we are economically hedged with respect to equity returns for the current reset period. The mark-to-market of the options held generally offsets the change in value of the embedded derivative within the contract, both of which are recorded as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). The Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC require that we calculate fair values of index options we may purchase or sell in the future to hedge policyholder index allocations in future reset periods. These fair values represent an estimate of the cost of the options we will purchase or sell in the future, discounted back to the date of the balance sheet, using current market indicators of volatility and interest rates. Changes in the fair values of these liabilities are included as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). For more information on indexed product net derivative results, see Note 16.

For additional information on the liability for policyholder account balances, see Note 11.

Annual Assumption Review

During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used in estimating DAC, VOBA, DSI, DFEL, MRBs, reserves and embedded derivatives. For more information on our comprehensive review, see Note 1.

Income Taxes

Management uses certain assumptions and estimates in determining the income taxes payable or refundable for the current year, the deferred income tax assets and liabilities for items recognized differently in its financial statements from amounts shown on its income tax returns and the federal income tax expense. Determining these amounts requires analysis and interpretation of current tax laws and regulations. Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax assets and liabilities. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change. Legislative changes to the Internal Revenue Code of 1986, as amended, modifications or new regulations, administrative rulings, or court decisions could increase or decrease our effective tax rate.

The application of GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to reduce our deferred tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of existing temporary differences; the length of time carryovers can be utilized; and any future prudent and feasible tax planning strategies.

As of June 30, 2023, we had an approximate $1.5 billion deferred tax asset related to net unrealized losses on fixed maturity available-for-sale (“AFS”) securities. In the assessment of the future realizability of this deferred tax asset, management concluded that its tax planning strategy to hold these securities to recovery was prudent and feasible as these unrealized losses were caused by factors other than credit loss, and we have the intent and ability to hold these securities to recovery and collect all of the contractual cash flows. As of June 30, 2023, we had an approximate $543 million deferred tax asset related to the portfolio of investments anticipated to be sold in the Fortitude Re reinsurance transaction. See “Results of Consolidated Operations – Additional Information” below and Notes 4 and 8 for additional information. In the assessment of the future realizability of this deferred tax asset, management considered future tax planning strategies, including sales of certain appreciated fixed maturity securities, sales of certain limited partnerships and sales of certain corporate assets. Such tax planning strategies are viewed by management as prudent and feasible, and one or a combination of these strategies may be implemented if necessary to realize the deferred tax asset.

We may experience an increased likelihood of recording a valuation allowance in the future based on the following factors:

Adverse global capital and credit market conditions that may impact the value of appreciated securities and the sale of certain corporate assets; and

Legislative, regulatory or tax changes that may impact the sale of certain corporate assets.

Additionally, as of June 30, 2023, we had a $350 million deferred tax asset related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. The net operating loss carryforwards do not expire and can be carried forward indefinitely.

Although realization is not assured, management believes it is more likely than not that the deferred tax assets, will be realized. For risks related to establishing a valuation allowance against our deferred tax assets, see “Part III – Item ~~7. Management’s Narrative Analysis of the Results of Operations~~1A. Risk Factors – ~~Critical Accounting Policies~~Assumptions and Estimates – ~~Derivatives – GLB”~~We may be required to recognize an impairment of our goodwill or to establish a valuation allowance against our deferred tax assets” in our ~~2017~~2022 Form 10-K. For additional information on income taxes, see Note 18.
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~~ACQUISITIONS AND DISPOSITIONS~~

~~For information about acquisitions and divestitures, see Notes 3 and 25 in our 2017 Form 10-K and Note 3 herein.~~

RESULTS OF CONSOLIDATED OPERATIONS

Details underlying the consolidated results (in millions) were as follows:



	For the Three						For the Three						For the Six
	Months Ended						Months Ended						Months Ended
	March 31,						June 30,						June 30,
	2018			2017			2023			2022			2023			2022
Net Income (Loss)
Income (loss) from operations:
Life Insurance							$	32		$	11		$	-		$	-
Annuities	$	272		$	278			218			242			435			502
Group Protection								109			49			179			3
Retirement Plan Services		40			35			43			52			81			106
Life Insurance		122			114
Group Protection		29			7
Other Operations		(18	)		-			(75	)		(66	)		(127	)		(126	)
Excluded realized gain (loss), after-tax		(22	)		(85	)
Net impact from the Tax Cuts and Jobs Act		(12	)		-
Acquisition and integration costs related to
mergers and acquisitions, after-tax		(4	)		-
MRB-related impacts, after-tax								977			(570	)		129			(661	)
Investment and reinsurance-related
realized gain (loss), after-tax								(2,509	)		126			(2,676	)		351
GLB rider fees ceded to LNBAR, after-tax								(184	)		(184	)		(367	)		(372	)
GLB and GDB hedge allowance, after-tax								160			151			323			312
Indexed product net derivative results, after-tax								(53	)		23			(188	)		109
Benefit ratio unlocking, after-tax								333			(6	)		334			(6	)
Transaction and integration costs related to mergers,
acquisitions and divestitures, after-tax								(7	)		-			(7	)		-
Net income (loss)	$	407		$	349		$	(956	)	$	(172	)	$	(1,884	)	$	218

Comparison of the Three and Six Months Ended ~~March 31, 2018~~June 30, 2023 to ~~2017~~2022

Net income ~~increased~~decreased due primarily to the following:

~~Realized gains in 2018 as compared to realized losses in 2017.~~

~~Growth in average account values and business in force.~~

~~More favorable total loss ratio experience in our Group Protection segment.~~

 Realized loss in 2023 compared to realized gain in 2022, driven primarily by the following:

Higher losses related to investments and reinsurance-related embedded derivatives driven by a $2.4 billion after-tax impairment on fixed maturity securities in an unrealized loss position, resulting from our intent to sell these securities as part of the Fortitude Re reinsurance transaction and mark-to-market losses in 2023 on the hedges associated with VUL products.

Unfavorable indexed product derivative results in 2023 compared to favorable results in 2022 driven by the impact of capital markets.

Higher compensation-related expenses.

Higher benefits driven by the run-rate impact from the third quarter 2022 annual assumption review in our Life Insurance segment.

The ~~increase~~decrease in net income was partially offset by the following:

~~Higher federal income tax benefits~~

Gains in MRB-related impacts in 2023 compared to losses in 2022 driven by favorable equity markets, partially offset by less favorable impacts from changes in 2017 driven by one-time and run-rate adjustments primarily associated with our separate account dividends-received deduction (“DRD”), partially offset by the lower marginal corporate income tax rate and tax law changes to the separate account DRD as a result of the Tax Cut and Jobs Act (“Tax Act”) and other items in 2018.

~~No amortization of deferred gain on business sold through reinsurance in 2018 as the gain was fully amortized during the second quarter of 2017.~~

~~Less favorable investment income on alternative investments.~~

~~Acquisition and integration costs incurred as part of our recent acquisition and higher strategic digitization expense.~~

~~Spread compression due to average new money rates trailing our current portfolio yields, partially offset by actions implemented to~~

~~reduce~~ interest ~~crediting~~ rates.

Favorable benefit ratio unlocking driven by the impacts from the Fortitude Re reinsurance transaction.

Lower total loss ratio in our Group Protection segment.

Additional Information

Within the investment portfolio anticipated to be sold in the Fortitude Re reinsurance transaction discussed above, there are additional fixed maturity AFS securities in an unrealized gain position of approximately $377 million after-tax as of June 30, 2023. Pursuant to the applicable accounting guidance, the Company impaired the securities in a loss position down to fair market value upon entry into the agreement in the second quarter and will recognize a gain for any securities in an unrealized gain position at the time when the transaction closes. For more information on the Fortitude Re reinsurance transaction, see Notes 4 and 8.

For additional information on realized gain (loss), see Note 17. We provide information about our segments’ and Other Operations’ operating revenue and expense line items, ~~and realized gain (loss),~~ key drivers of changes and historical details underlying the line items below. For factors that could cause actual results to differ materially from those set forth, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our ~~2017~~2022 Form 10-K.

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RESULTS OF LIFE INSURANCE

Details underlying the results for Life Insurance (in millions) were as follows:



	For the Three					For the Six
	Months Ended					Months Ended
	June 30,					June 30,
	2023		2022			2023			2022
Operating Revenues
Insurance premiums ⁽¹⁾	$	235	$	223		$	459		$	430
Fee income		742		742			1,506			1,492
Net investment income		673		632			1,311			1,289
Amortization of deferred gain (loss) on
business sold through reinsurance		3		3			6			6
Other revenues		3		2			12			3
Total operating revenues		1,656		1,602			3,294			3,220
Operating Expenses
Benefits		990		907			2,064			1,882
Interest credited		320		324			644			644
Policyholder liability remeasurement
(gain) loss		14		85			1			146
Commissions and other expenses		298		278			598			562
Total operating expenses		1,622		1,594			3,307			3,234
Income (loss) from operations before taxes		34		8			(13	)		(14	)
Federal income tax expense (benefit)		2		(3	)		(13	)		(14	)
Income (loss) from operations	$	32	$	11		$	-		$	-

⁽¹⁾Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves.

Comparison of the Three Months Ended June 30, 2023 to 2022

Income from operations for this segment increased due primarily to the following:

Higher net investment income, net of interest credited, driven by higher investment income on alternative investments and growth in investments, partially offset by lower prepayment and bond make-whole premiums.

Higher insurance premiums due to growth in business in force.

The increase in income from operations was partially offset by the following:

Higher commissions and other expenses due to higher compensation-related expenses.

Higher benefits, net of policyholder liability remeasurement (gain) loss, driven by the run-rate impact from the third quarter 2022 annual assumption review and higher mortality claims, partially offset by favorable reserve adjustments.

Comparison of the Six Months Ended June 30, 2023 to 2022

Income (loss) from operations for this segment remained flat when compared to the corresponding period due primarily to the following:

Higher insurance premiums due to growth in business in force.

Higher net investment income, net of interest credited, driven by growth in investments and higher investment income on alternative investments, partially offset by lower prepayment and bond make-whole premiums.

Higher fee income due to growth in business in force.

Higher benefits, net of policyholder liability remeasurement (gain) loss, driven by the run-rate impact from the third quarter 2022 annual assumption review, partially offset by favorable reserve adjustments and lower mortality claims.

Higher commissions and other expenses due to higher compensation expenses.

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Additional Information

We expect an ongoing reduction in income from operations in future quarters of approximately $40 to $45 million per quarter upon the closing of the reinsurance transaction announced in the second quarter of 2023. See Note 8 for more information on the transaction, which is expected to advance the Company’s enterprise strategic objectives by reducing balance sheet risk, strengthening our capital position and improving free cash flow.

Generally, we experience higher mortality in the first quarter of the year due to the seasonality of claims. We expect COVID-19-related mortality to continue to follow U.S. death trends.

Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest.

For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements” and “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our 2022 Form 10-K; and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K, as updated by ~~“Part II~~the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – ~~Item 1A. Risk Factors”~~Interest Rate Risk” below.

For information on ~~our strategic digitization initiative and~~ the ~~Tax Act,~~interest rate environment, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – ~~Results of Consolidated Operations”~~Introduction” in our ~~2017~~2022 Form ~~10-K.~~ 10-K, as updated by the May 2023 Form 8-K.

RESULTS OF ANNUITIES

Details underlying the results for Annuities (in millions) were as follows:



	For the Three					For the Three					For the Six
	Months Ended					Months Ended					Months Ended
	March 31,					June 30,					June 30,
	2018		2017			2023			2022		2023			2022
Operating Revenues
Insurance premiums (1)	$	70	$	125		$	54		$	25	$	92		$	55
Fee income		538		489			501			544		996			1,120
Net investment income		237		243			457			350		879			690
Operating realized gain (loss) (2)		48		44
Other revenues (3)		91		77
Amortization of deferred gain on
business sold through reinsurance							4			6		11			12
Other revenues ⁽²⁾							81			78		162			171
Total operating revenues		984		978			1,097			1,003		2,140			2,048
Operating Expenses
Benefits ⁽¹⁾							69			48		131			100
Interest credited		146		147			306			216		585			423
Benefits (1)		91		139
Policyholder liability remeasurement
(gain) loss							(1	)		1		(2	)		2
Commissions and other expenses		428		418			480			461		955			949
Total operating expenses		665		704			854			726		1,669			1,474
Income (loss) from operations before taxes		319		274			243			277		471			574
Federal income tax expense (benefit)		47		(4	)		25			35		36			72
Income (loss) from operations	$	272	$	278		$	218		$	242	$	435		$	502

⁽¹⁾

~~Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include changes in income annuity reserves driven by premiums.~~

⁽²⁾

~~See “Realized Gain (Loss)” below.~~

⁽³⁾

~~Consists primarily of revenues attributable to broker-dealer services that are subject to market volatility.~~

⁽¹⁾Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include primarily changes in income annuity reserves driven by insurance premiums.

⁽²⁾Consists primarily of revenues attributable to broker-dealer services, which are subject to market volatility and the net settlement related to certain reinsurance transactions, which has a corresponding offset in net investment income and interest credited.

Comparison of the Three and Six Months Ended ~~March 31, 2018~~June 30, 2023 to ~~2017~~2022

Income from operations for this segment decreased due primarily to the following:

Lower fee income driven by lower average daily variable account balances.

Higher commissions and other expenses driven by higher compensation-related expenses, partially offset by lower trail commissions resulting from lower average account balances.

~~Federal income tax expense in 2018 as compared to a federal income tax benefit in 2017 (see “Additional Information” below for more information).~~

~~Higher commissions and other expenses due to an increase in amortization expense as a result of higher actual gross profits.~~

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Lower net investment income, net of interest credited, driven by spread compression due to average new money rates trailing our current portfolio yields and less favorable investment income on alternative investments.

The decrease in income from operations was partially offset by higher ~~fee~~net investment income, ~~driven by~~net of interest credited, due to higher average ~~daily variable~~fixed account ~~values.~~balances and impacts to portfolio yields from the current interest rate environment, partially offset by lower prepayment and bond make-whole premiums.

~~Additional Information~~

~~In 2018,~~The decrease in income from operations for the six months ended June 30, 2023, was partially offset by lower federal income tax expense ~~was primarily impacted~~due to a more favorable tax return true-up driven by ~~the lower marginal corporate income tax rate and tax law changes to~~ the separate account ~~DRD as a result~~dividends-received deduction.

Additional Information

We expect an ongoing reduction in income from operations in future quarters of approximately $5 million per quarter upon the closing of the ~~Tax Act~~reinsurance transaction announced in the second quarter of 2023. See Note 8 for more information on the transaction, which is expected to advance the Company’s enterprise strategic objectives by reducing balance sheet risk, strengthening our capital position and ~~other items. The federal income tax benefit in 2017 was driven by one-time and run-rate adjustments primarily associated with our separate account DRD.~~improving free cash flow.

The other component of net flows relates to the retention of ~~the business.~~new business and account balances. An important measure of retention is the reduction in account ~~values~~balances caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average gross account ~~values~~balances were 9% for the three and six months ended ~~March 31, 2018~~June 30, 2023, and ~~2017.~~7% for the corresponding periods in 2022.Our outflow rate increase in 2023 is due primarily to an increase in full surrenders as a result of the increased interest rate environment.

Our fixed ~~annuity business includes products with~~and indexed variable annuities have discretionary fixed and indexed crediting rates that ~~are~~ reset on an annual or periodic basis and ~~are not~~may be subject to surrender charges. Our ability to retain ~~annual reset~~these annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows ~~into or out of our fixed accounts~~ or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see ~~“Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” and~~ “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and ~~changes~~make it more challenging to meet certain statutory requirements” and “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our ~~2017~~2022 Form ~~10-K.~~ 10-K; and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” below. For information on the interest rate environment, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Introduction” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K.

RESULTS OF GROUP PROTECTION

Details underlying the results for Group Protection (in millions) were as follows:



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Operating Revenues
Insurance premiums	$	1,263		$	1,187		$	2,514		$	2,356
Net investment income		85			86			169			171
Other revenues ⁽¹⁾		52			50			104			99
Total operating revenues		1,400			1,323			2,787			2,626
Operating Expenses
Benefits		1,019			950			2,057			2,011
Interest credited		1			2			2			3
Policyholder liability remeasurement
(gain) loss		(121	)		(11	)		(220	)		(32	)
Commissions and other expenses		363			320			722			640
Total operating expenses		1,262			1,261			2,561			2,622
Income (loss) from operations before taxes		138			62			226			4
Federal income tax expense (benefit)		29			13			47			1
Income (loss) from operations	$	109		$	49		$	179		$	3

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⁽¹⁾Consists of revenue from third parties for administrative services performed, which has a corresponding partial offset in commissions and other expenses.

Comparison of the Three and Six Months Ended June 30, 2023 to 2022

Income from operations for this segment increased due primarily to the following:

Higher insurance premiums due to growth in business in force and stable persistency.

Lower total benefits and policyholder liability remeasurement (gain) loss driven by more favorable discount rate impacts on new claims, lower disability and life incidence and favorable life waiver experience.

The increase in income from operations was partially offset by higher commissions and other expenses driven by higher compensation-related expenses and higher commissions due to growth in business in force.

Additional Information

Our total loss ratio for the three and six months ended June 30, 2023, was 71.3% and 73.1%, respectively, compared to 79.3% and 84.1% for the corresponding periods in 2022, respectively. Our disability results are benefiting from effective claims management as well as economic factors, including a favorable discount rate environment.

For information about the effect of the loss ratio sensitivity on our income (loss) from operations, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Results of Group Protection – Additional Information” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K.

Generally, we experience higher mortality in the first quarter of the year and higher disability claims in the fourth quarter of the year due to the seasonality of claims. We expect COVID-19-related mortality to continue to follow U.S. death trends.

For information on the effects of current interest rates on our long-term disability claim reserves, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” below. For information on the interest rate environment, see “Part II – Management’s Narrative Analysis of the Results of Operations – Introduction” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K.

RESULTS OF RETIREMENT PLAN SERVICES

Details underlying the results for Retirement Plan Services (in millions) were as follows:



	For the Three				For the Three				For the Six
	Months Ended				Months Ended				Months Ended
	March 31,				June 30,				June 30,
	2018		2017		2023		2022		2023		2022
Operating Revenues
Insurance premiums and fee income (1)	$	62	$	57
Fee income					$	63	$	63	$	125	$	131
Net investment income		220		217		255		238		507		474
Other revenues ~~(2)~~(1)		6		5		10		9		18		19
Total operating revenues		288		279		328		310		650		624
Operating Expenses
Interest credited		137		132		168		156		336		308
Commissions and other expenses		106		102		110		93		219		192
Total operating expenses		243		234		278		249		555		500
Income (loss) from operations before taxes		45		45		50		61		95		124
Federal income tax expense (benefit)		5		10		7		9		14		18
Income (loss) from operations	$	40	$	35	$	43	$	52	$	81	$	106

⁽¹⁾

~~Includes amounts ceded to Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”).~~

⁽²⁾

~~Consists primarily of mutual fund account program revenues from mid to large employers.~~

⁽¹⁾Consists primarily of mutual fund account program revenues from mid to large employers.

Comparison of the Three and Six Months Ended ~~March 31, 2018~~June 30, 2023 to ~~2017~~2022

Income from operations for this segment ~~increased~~decreased due primarily to ~~the following:~~

~~Lower federal income tax expense due to the change in the marginal corporate income tax rate as a result of the Tax Act.~~

~~Higher insurance premiums and fee income driven by higher average daily variable account values.~~

higher commissions and other expenses driven by higher compensation-related expenses. The ~~increase~~decrease in income from operations was partially offset by higher net investment income, net of interest credited, driven by impacts to portfolio yields from the ~~following:~~current interest rate environment and higher average fixed account balances, partially offset by lower investment income on prepayment and bond make-whole premiums.

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~~Higher commissions and other expenses due to higher average account values driving higher trail commissions.~~

~~Lower net investment income, net of interest credited, driven by spread compression due to average new money rates trailing our current portfolio yields.~~

The decrease in income from operations for the six months ended June 30, 2023, was also due to lower fee income driven by lower average account balances.

Additional Information

Net flows in this business fluctuate based on the timing of larger plans being implemented ~~on our platform~~ and terminating over the course of the year.

New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. The other component of net flows relates to the retention of the business. An important measure of retention is the reduction in account ~~values~~balances caused ~~primarily~~ by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account ~~values~~balances were 11% and ~~14%~~12% for the three and six months ended ~~March 31, 2018~~June 30, 2023, respectively, and ~~2017, respectively.~~ 10% and 11% for the corresponding periods in 2022.

Our net flows are negatively affected by the continued net outflows from our oldest blocks of annuities business, which are among our higher margin product lines in this segment, due to the fact that they are mature blocks with low distribution and servicing costs. The proportion of these products to our total account ~~values~~balances was ~~25%~~16% and ~~27%~~18% as of ~~March 31, 2018~~June 30, 2023 and ~~2017,~~2022, respectively. Due to this ~~expected~~ overall shift in business mix toward products with lower returns, new deposit production continues to be necessary to maintain earnings at current levels.

Our fixed annuity business includes products with discretionary and index-based crediting rates that are reset on either a quarterly or semi-annual basis. Our ability to retain quarterly or semi-annual reset annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see ~~“Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” and~~ “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and ~~changes~~make it more challenging to meet certain statutory requirements” and “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our ~~2017~~2022 Form ~~10-K.~~

~~RESULTS OF LIFE INSURANCE~~

~~Details underlying the results for Life Insurance (in millions) were as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Operating Revenues

Insurance premiums (1)
$
131

$
115

Fee income

791

745

Net investment income

625

619

Operating realized gain (loss) (2)

1

(2
)
Amortization of deferred gain on

business sold through reinsurance

(1
)

(1
)
Other revenues

2

7

Total operating revenues

1,549

1,483

Operating Expenses

Interest credited

346

342

Benefits

785

725

Commissions and other expenses

274

254

Total operating expenses

1,405

1,321

Income (loss) from operations before taxes

144

162

Federal income tax expense (benefit)

22

48

Income (loss) from operations
$
122

$
114

⁽¹⁾

~~Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves.~~

⁽²⁾

~~See “Realized Gain (Loss)” below.~~

~~Comparison of the Three Months Ended March 31, 2018 to 2017~~

~~Income from operations for this segment increased due primarily to the following:~~

~~Higher fee income due to growth in business in force.~~

~~Lower federal income tax expense due to the change in the marginal corporate income tax rate as a result of the Tax Act.~~

~~The increase in income from operations was partially offset by the following:~~

~~Higher benefits due to growth in business in force.~~

~~Higher commissions~~10-K; and ~~other expenses driven by growth in business in force and higher amortization rates.~~

~~Strategies to Address Statutory Reserve Strain~~

We and Lincoln Life & Annuity Company of New York (“LLANY”) have statutory surplus and risk-based capital levels above current regulatory required levels. Term products and UL products containing secondary guarantees require reserves calculated pursuant to the Valuation of Life Insurance Policies Model Regulation (“XXX”) and Actuarial Guideline 38 (“AG38”). For information on strategies we use to reduce the statutory reserve strain caused by XXX and AG38, see “Review of Consolidated Financial Condition – Liquidity and Capital Resources – Sources of Liquidity and Cash Flow – Statutory Capital and Surplus” below.

~~Additional Information~~

During the first quarter of 2018, we experienced modestly favorable mortality relative to our expectations for claims seasonality. Generally, we have higher mortality in the first quarter of the year due to the seasonality of claims.

~~Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest.~~

~~For information on interest rate spreads and interest rate risk, see~~ “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate ~~Risk~~Risk” below. For information on ~~Fixed Insurance Businesses – Falling Rates” and “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause~~the interest rate ~~spreads to decrease and changes in interest rates may also result in increased contract withdrawals” in our 2017 Form 10-K.~~

~~RESULTS OF GROUP PROTECTION~~

~~Income (Loss) from Operations~~

~~Details underlying the results for Group Protection (in millions) were as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Operating Revenues

Insurance premiums
$
508

$
495

Net investment income

40

43

Other revenues

5

3

Total operating revenues

553

541

Operating Expenses

Interest credited

1

-

Benefits

326

351

Commissions and other expenses

189

179

Total operating expenses

516

530

Income (loss) from operations before taxes

37

11

Federal income tax expense (benefit)

8

4

Income (loss) from operations
$
29

$
7

~~Comparison of the Three Months Ended March 31, 2018 to 2017~~

~~Income from operations for this segment increased due primarily to the following:~~

~~Lower benefits driven by favorable claims severity and life waiver experience in our life business, and lower incidence in our long-term disability business.~~

~~Higher insurance premiums due to growth in business and more favorable persistency experience.~~

~~Lower federal income tax expense due to the change in the marginal corporate income tax rate as a result of the Tax Act.~~

~~The increase in income from operations was partially offset by higher commissions and other expenses due to higher strategic investments to enhance our customer experience and improve efficiency.~~

~~Additional Information~~

~~While we experienced favorable mortality during the first quarter of 2018, mortality is generally higher in the first quarter of the year due to the seasonality of claims.~~

~~Generally, we have higher DAC and VOBA amortization in the first quarter of the year due to a significant number of policies renewing in the quarter.~~

~~For information about the effect of the loss ratio sensitivity on our income (loss) from operations,~~environment, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – ~~Results of Group Protection – Additional Information”~~Introduction” in our ~~2017 Form 10-K.~~

~~For more information about our recent acquisition, see Note 25 in our 2017~~2022 Form 10-K, ~~and Note 3 herein.~~ as updated by the May 2023 Form 8-K.

For information on the effects of current interest rates on our long-term disability claim reserves, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” in our 2017 Form 10-K.

RESULTS OF OTHER OPERATIONS

Details underlying the results for Other Operations (in millions) were as follows:



	For the Three						For the Three						For the Six
	Months Ended						Months Ended						Months Ended
	March 31,						June 30,						June 30,
	2018			2017			2023			2022			2023			2022
Operating Revenues
Insurance premiums ⁽¹⁾							$	-		$	1		$	3		$	1
Net investment income	$	54		$	54			25			32			54			67
Amortization of deferred gain on
business sold through reinsurance		-			18
Other revenues		3			6			11			(5	)		18			(3	)
Total operating revenues		57			78			36			28			75			65
Operating Expenses
Benefits								16			16			38			31
Interest credited		15			18			9			9			18			21
Benefits		17			22
Policyholder liability remeasurement
(gain) loss								1			2			-			2
Other expenses		7			11			19			1			23			21
Interest and debt expense		32			32			47			31			93			60
Strategic digitization expense		15			9
Spark program expense								41			44			64			75
Total operating expenses		86			92			133			103			236			210
Income (loss) from operations before taxes		(29	)		(14	)		(97	)		(75	)		(161	)		(145	)
Federal income tax expense (benefit)		(11	)		(14	)		(22	)		(9	)		(34	)		(19	)
Income (loss) from operations	$	(18	)	$	-		$	(75	)	$	(66	)	$	(127	)	$	(126	)

⁽¹⁾Includes our disability income business, which has a corresponding offset in benefits for changes in reserves.

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Comparison of the Three Months Ended ~~March 31, 2018~~June 30, 2023 to ~~2017~~2022

Loss from operations for Other Operations increased due primarily to the following:

~~No amortization of deferred gain on business sold through reinsurance in 2018 as the gain was fully amortized during the second quarter of 2017.~~

~~Less favorable federal income tax benefits due to the change in the marginal corporate income tax rate as a result of the Tax Act.~~

~~Higher strategic digitization expense as part of our strategic digitization initiative.~~

~~Additional Information~~

~~For information~~Higher other expenses due to the effect of changes in LNC’s stock price on our ~~strategic digitization initiative, see “Part II – Item 7. Management’s Narrative Analysis~~deferred compensation plans, as LNC’s stock price increased during the three months ended June 30, 2023, compared to a decrease during the corresponding period in 2022.

Higher interest and debt expense driven by an increase in average interest rates.

Lower net investment income, net of interest credited, related to lower allocated investments driven by a decrease in excess capital retained by Other Operations.

The increase in loss from operations was partially offset by the ~~Results~~following:

Higher other revenues due to the effect of ~~Operations – Results~~market fluctuations on assets held as part of ~~Consolidated Operations – Additional Information”~~certain compensation plans, which increased during the three months ended June 30, 2023, compared to a decrease during the corresponding period in ~~our 2017 Form 10-K.~~2022.

More favorable income tax benefit driven by favorable market impacts on tax preferred investment income.

RE~~ALIZED GAIN (LOSS)~~

De~~tails underlying realized gain (loss), after-DAC(1)~~ ~~(in millions) were as follows:~~

For the Three

Months Ended

March 31,

2018

2017

Components of Realized Gain (Loss), Pre-Tax

Total operating realized gain (loss)
$
49

$
42

Total excluded realized gain (loss)

(27
)

(131
)

Total realized gain (loss), pre-tax
$
22

$
(89
)

Components of Excluded Realized Gain (Loss),

After-Tax

Realized gain (loss) related to certain investments
$
(21
)
$
(9
)

Gain (loss) on the mark-to-market on certain instruments (2)

84

(9
)

GLB fees ceded to LNBAR and attributed fees

(82
)

(61
)

Indexed annuity forward-starting option

(3
)

(6
)

Total excluded realized gain (loss), after-tax
$
(22
)
$
(85
)

⁽¹⁾

DAC refers to the associated amortization of DAC, VOBA, deferred sales inducements and deferred front-end loads and changes in other contract holder funds and funds withheld reinsurance assets and liabilities.

⁽²⁾

~~Includes activity with LNBAR.~~

Comparison of the ~~Three~~Six Months Ended ~~March 31, 2018~~June 30, 2023 to ~~2017~~ 2022

~~We had lower realized losses~~Loss from operations for Other Operations increased due primarily to the following:

Gains on the mark-to-market on certain instruments due primarily to favorable mark-to-market changes between the investments supporting our Modco arrangements and the reinsurance related embedded derivatives and favorable mark-to-market changes on certain derivative instruments due to greater interest rate volatility.

~~For factors that could cause actual results~~Higher interest and debt expense driven by an increase in average interest rates.

Lower net investment income, net of interest credited, related to ~~differ materially from those set forth~~lower allocated investments driven by a decrease in ~~this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors”~~excess capital retained by Other Operations.

Higher benefits attributable to unfavorable experience in our ~~2017 Form 10-K~~run-off institutional pension business.

The increase in loss from operations was partially offset by the following:

Higher other revenues due to the effect of market fluctuations on assets held as ~~updated~~part of certain compensation plans, which increased during the six months ended June 30, 2023, compared to a decrease during the corresponding period in 2022.

More favorable income tax benefit driven by ~~“Part II – Item 1A. Risk Factors” below.~~favorable market impacts on tax preferred investment income.

~~Operating Realized Gain (Loss)~~

~~See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Operating Realized Gain (Loss)” in our 2017 Form 10-K for a discussion~~Lower Spark program expense as part of our ~~operating realized gain (loss).~~Spark Initiative.

~~Realized Gain (Loss) Related to Certain Investments~~

~~See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) –~~ ~~Realized Gain (Loss) Related to Certain Investments~~” in our 2017 Form 10-K for a discussion of our realized gain (loss) related to certain investments. In addition, we adopted Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, in 2018 that resulted in a new classification and measurement of our equity securities. See Note 2 for additional information.LIQUIDITY AND CAPITAL RESOURCES

~~Gain (Loss) on the Mark-to-Market on Certain Instruments~~Overview

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Gain (Loss) on the Mark-to-Market on Certain Instruments” in our 2017 Form 10-K for a discussion of the mark-to-market on certain instruments and Note 3 for information about consolidated variable interest entities (“VIEs”).

~~GLB Fees Ceded to LNBAR and Attributed Fees~~

~~See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) –~~ ~~GLB Fees Ceded to LNBAR and Attributed Fees” in our 2017 Form 10-K for a discussion of our~~ ~~GLB fees ceded to LNBAR and attributed fees.~~

~~Indexed Annuity Forward-Starting Option~~

~~See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) –~~ ~~Indexed Annuity Forward-Starting Option” in our 2017 Form 10-K for a discussion of our~~ ~~indexed annuity forward-starting option.~~

~~REVIEW OF CONSOLIDATED FINANCIAL CONDITION~~

~~Liquidity and Capital Resources~~

~~Sources of Liquidity and Cash Flow~~

Liquidity refers to ~~the~~our ability ~~of an enterprise~~ to generate adequate amounts of cash from ~~its~~our normal operations to meet cash requirements with a prudent margin of safety. Capital refers to our long-term financial resources to support the operations of our businesses, to fund long-term growth strategies and to support our operations during adverse conditions. Our ~~principal~~ability to generate and maintain sufficient liquidity and capital depends on the profitability of our businesses, general economic conditions and access to the capital markets and other sources of ~~cash flow from operating activities are insurance premiums~~liquidity and fees and investment income, while sources of cash flows from investing activities result from maturities and sales of invested assets. Our operating activities provided cash of $370 million and $116 million for the three months ended March 31, 2018 and 2017, respectively.capital as described below. When considering our liquidity, ~~and cash flow,~~ it is important to distinguish between our needs, the needs of LLANY and the needs of the holding company, LNC. As a holding company with no operations of its own, LNC derives its cash primarily from its operating subsidiaries. Disruptions, uncertainty or volatility in the capital and credit markets may materially affect our business operations and results of operations. These poor market conditions may reduce our or LLANY’s statutory surplus and risk-based capital (“RBC”).

Reductions to our or LLANY’s statutory surplus and RBC may cause us to retain more capital, which may pressure our ability to receive dividends from LLANY or pay dividends to LNC, which may lead us to take steps to preserve or raise additional capital. We believe we and LLANY have adequate capital to operate our business as we replenish statutory capital back to our targeted levels.

Sources and Uses of Liquidity and Capital

Our primary sources of liquidity and capital are insurance premiums and fees, investment income, maturities and sales of investments, issuance of debt or other types of securities and policyholder deposits. We also have access to alternative sources of liquidity as discussed below. Our primary uses are to pay policy claims and benefits, to fund commissions and other general operating expenses, to purchase investments, to fund policy surrenders and withdrawals, to pay dividends to LNC and to repay debt. Our operating activities provided (used) cash of $102 million and $2.8 billion for the six months ended June 30, 2023 and 2022, respectively. In addition, we received capital contributions from LNC of zero and $5 million during the three and six months ended June 30, 2023, respectively, compared to $65 million for the corresponding periods in 2022. We paid dividends to LNC of $155 million and $260 million during the three and six months ended June 30, 2023, respectively, compared to $280 million and $305 million for the corresponding periods in 2022. We also received dividends from our subsidiaries of $132 million and $265 million during the three and six months ended June 30, 2023, respectively, compared to $89 million and $195 million for the corresponding periods in 2022.

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Statutory Capital and Surplus

We must maintain certain regulatory capital levels. We utilize the RBC ratio as a primary measure of our capital adequacy. The RBC ratio is an important factor in the determination of our financial strength ratings, and a reduction in our or LLANY’s surplus will affect our RBC ratios and dividend-paying capacity. For additional information on RBC ratios, see “Part I – Item 1. Business – Regulatory – Insurance Regulation – Risk-Based Capital” in our 2022 Form 10-K.

Our regulatory capital levels are ~~also~~ affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. ~~Our~~For instance, our term products and UL products containing secondary guarantees require reserves calculated pursuant to ~~XXX and AG38, respectively. As discussed in “Part I – Item 1A Risk Factors – Legislative, Regulatory, and Tax – Attempts to mitigate~~ the ~~impact~~Valuation of Life Insurance Policies Model Regulation ~~XXX~~(“XXX”) and Actuarial Guideline ~~38 may fail in whole or in part resulting in an adverse effect on our financial condition and result of operations” in our 2017 Form 10-K, we~~XXXVIII (“AG38”), respectively. We employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the business to reinsurance captives. Our captive reinsurance subsidiaries and LNBAR provide a mechanism for financing a portion of the excess reserve amounts in a more efficient ~~manner.~~manner and free up capital we can use for any number of purposes, including paying dividends to LNC. We use long-dated letters of credit (“LOCs”) and debt financing as well as other financing strategies to finance those reserves. Included in the LOCs issued as of March 31, 2018, was approximately $2.3 billion of long-dated LOCs issued to support inter-company and affiliate reinsurance arrangements for UL products containing secondary guarantees ($350 million will expire in 2019 and $1.9 billion relates to arrangements that will expire by 2031). For information on the LOCs, see the credit facilities table in Note 12 in our ~~2017~~2022 Form ~~10-K.~~10-K, as updated by the May 2023 Form 8-K. Our captive reinsurance subsidiaries and LNBAR have also issued long-term notes ~~of $3.0 billion~~ to finance a portion of the excess ~~reserves as of March 31, 2018; of this amount, $579 million involve exposure to VIEs.~~reserves. For information on ~~these~~ long-term notes issued by our captive reinsurance ~~and reinsurance~~ subsidiaries, see Note 43 in our ~~2017~~2022 Form ~~10-K.~~10-K, as updated by the May 2023 Form 8-K. We have also used the proceeds from ~~LNC’s~~certain senior ~~note issuances of $875 million~~notes issued by LNC to execute long-term structured solutions primarily supporting reinsurance of UL products containing secondary guarantees. LOCs and related capital market solutions lower the capital effect of term products and UL products containing secondary guarantees. An inability to obtain appropriate capital market solutions could affect our returns on our in-force term products and UL products containing secondary guarantees. However, we believe that we have sufficient capital to support the increase in statutory reserves, based on our current reserve projections, if such structures were no longer available.

Our captive reinsurance subsidiaries and LNBAR free up capital we can use for any number of purposes, including paying dividends to LNC, our Parent Company. Actuarial Guideline 48 (“AG48”) regulates the terms of captive reinsurance arrangements that are entered into or amended in certain ways after December 31, 2014. AG48 imposes restrictions on the types of assets that can be used to support these arrangements. We have implemented and plan to continue to implement these arrangements in compliance with AG48. The National Association of Insurance Commissioners’ (“NAIC”) adoption of the new Valuation Manual that defines a principles-based reserving framework for newly issued life insurance policies was effective January 1, 2017. Principles-based reserving places a greater weight on our past experience and anticipated future experience as well as considers current economic conditions in calculating life insurance product reserves in accordance with statutory accounting principles. We adopted the new framework for our newly issued term business in 2017 and will phase in the framework prior to January 1, 2020, for all other newly issued life insurance products. We believe that these changes may reduce our future use of captive reinsurance subsidiaries and LNBAR for reserve financing transactions for our life insurance business. For more information on principles-based reserving, see “Part I – Item 1. Business – Regulatory – Insurance Regulation” in our 2017 Form 10-K.

Statutory reserves established for variable annuity ~~contracts and~~guaranteed benefit riders are sensitive to changes in the equity markets and interest rates and are affected by the level of account ~~values~~balances relative to the level of any guarantees, product design and reinsurance arrangements. As a result, the relationship between reserve changes and equity market performance is non-linear during any given reporting period. We cede a portion of the guaranteed benefit riders to LNBAR through a modified coinsurance agreement. The variable annuity hedge program mitigates the risk to LNBAR from guaranteed benefit riders and continues to focus on generating sufficient assets to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and derivative ~~assets~~instruments hedging these reserves.

Changes in equity markets may also affect our capital position. We ~~also utilize inter-company~~may decide to reallocate available capital among us and our insurance and captive reinsurance ~~arrangements to manage~~subsidiaries, which would result in different RBC ratios for us. In addition, changes in the equity markets can affect the value of our ~~hedge program for~~ variable annuity ~~guarantees. The NAIC through its various committees, task forces~~ and ~~working groups continues to evaluate~~VUL separate accounts. When the ~~adequacy~~market value of ~~existing NAIC model regulations with a focus on targeted improvements to~~our separate account assets increases, the statutory ~~reserving~~surplus within us and ~~accounting framework for variable annuities.~~LLANY also increases. Contrarily, when the market value of our separate account assets decreases, the statutory surplus within us and LLANY may also decrease, which will affect RBC ratios, and in the case of our separate account assets becoming less than the related product liabilities, we must allocate additional capital to fund the difference.

We continue to analyze the use of our existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and our ~~current~~ hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of LNL and LLANY. On May 2, 2023, we entered into a reinsurance agreement with Fortitude Re expected to reduce balance sheet risk, strengthen our capital position and improve free cash flow. For more information, see Note 8.

Debt

~~Financing Activities~~

For information about our short-term and long-term debt and our credit facilities, ~~and LOCs,~~ see Note 12 in our ~~2017 Form 10-K.~~

We have not accounted for repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets as sales. For information about our collateralized financing transactions on our investments, see “Payables for Collateral on Investments” in Note 5.

If current claims-paying ratings were downgraded in the future, terms in our derivative agreements may be triggered, which could negatively affect overall liquidity. For the majority of our counterparties, there is a termination event if our financial strength ratings drop below BBB-/Baa3 (Standard &Poor/Moody’s Investors Service). In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products. See “Part I – Item 1A. Risk Factors – Liquidity and Capital Position – A decrease in our capital and surplus may result in a downgrade to our insurer financial strength ratings” and “Part I – Item 1A. Risk Factors –Covenants and Ratings – A downgrade in our financial strength could limit our ability to market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors” in our 20172022 Form 10-K, ~~for more information. See “Part I – Item 1. Business – Financial Strength Ratings” in our 2017~~as updated by the May 2023 Form ~~10-K for additional information on our current financial strength ratings.~~8-K.

Alternative Sources of Liquidity

~~In order to manage our capital more efficiently,~~Inter-Company Cash Management Program

To promote effective short-term cash management strategies, we ~~have~~participate in an inter-company cash management program between LNC and its participating subsidiaries where ~~LNL, and certain of our subsidiaries,~~each entity can lend to or borrow from the holding company to meet short-term borrowing needs. The cash management program is essentially a series of demand loans between LNC and participating subsidiaries that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs. As of ~~March 31, 2018,~~June 30, 2023, we had ~~an average borrowing and lending~~a net receivable balance of ~~$137~~$446 million ~~comprised of a net outstanding receivable of $313 million and (payable) of ($40) million, respectively,~~due from ~~(to)~~ certain ~~subsidiaries and~~ affiliates ~~resulting from loans made by subsidiaries and affiliates in excess of amounts placed (borrowed) by the holding company and subsidiaries~~ in the inter-company cash management ~~account. Any change in holding company cash management program balances is offset by the immediate and equal change in holding company cash and invested cash.~~program. Loans under the cash management program are permitted under applicable insurance laws subject to certain restrictions. ~~Our~~LNL, domiciled in Indiana, is subject to a borrowing and lending limit isof, currently, 3% of the insurance company’s admitted assets as of its most recent year end. For our New York-domiciled insurance subsidiary, it may borrow from LNC less than 2% of its admitted assets as of ~~the last~~its most recent year end but may not lend any amounts to LNC.

Federal Home Loan Bank

LNL ~~and LLANY, by virtue of our general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. We are~~is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis (“FHLBI”). Membership allows usLNL access to the FHLBI’s financial services, including the ability to obtain loans and to issue funding agreements as an alternative source of liquidity that are collateralized by qualifying mortgage-related assets, agency securities or U.S. Treasury securities. ~~We had an estimated maximum borrowing capacity of $5.0 billion under the FHLBI facility as of March 31, 2018.~~ Borrowings under this facility are

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subject to the FHLBI’s discretion and require the availability of qualifying assets at LNL. As of ~~March 31, 2018,~~June 30, 2023, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of $5.4 billion. As of June 30, 2023, LNL had outstanding borrowings of $2.2 billion under this facility reported within payables for collateral on investments on the Consolidated Balance Sheets. LLANY is a member of the Federal Home Loan Bank of New York (“FHLBNY”) with an estimated maximum borrowing capacity of $750 million. Borrowings under this facility are subject to the FHLBNY’s discretion and require the availability of qualifying assets at LLANY. As of June 30, 2023, LLANY had no outstanding borrowings under this facility. For additional information, see “Payables for Collateral on Investments” in Note 4.

Securities Lending Programs and Repurchase Agreements

LNL and LLANY, by virtue of their general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. As of June 30, 2023, we had ~~investments~~securities pledged under securities lending agreements with a carrying value of ~~$3.6~~$290 million. In addition, LNL, LLANY and LNBAR had access to $2.25 billion ~~out on loan or subject to~~through committed repurchase ~~agreements.~~agreements, of which $25 million was utilized as of June 30, 2023. The cash received in our securities lending programs and repurchase agreements is typically invested in cash ~~equivalents, short-term investments~~and invested cash or fixed maturity AFS securities. For additional ~~details,~~information, see “Payables for Collateral on Investments” in Note 5.4.

~~Cash Flows from~~ Collateral on ~~Derivatives~~Derivative Contracts

Our cash flows associated with collateral received from counterparties (when we are in a net collateral payable position) and posted with counterparties (when we are in a net collateral receivable position) change as the market value of the underlying derivative contract changes. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. As ~~the value~~ of June 30, 2023, we were in a ~~derivative asset decreases (or increases), the~~net collateral ~~required~~payable position of $4.2 billion compared to ~~be posted by our counterparties would also decrease (or increase). Likewise, when the value~~$3.0 billion as of ~~a derivative liability decreases (or increases), the collateral we are required to post to our counterparties would also decrease (or increase).~~December 31, 2022. In the event of adverse changes in fair value of our derivative instruments, we may need to post collateral with a ~~counterparty if our net derivative liability position reaches certain contractual levels.~~counterparty. If we do not have sufficient ~~high quality~~high-quality securities or cash and invested cash to provide as collateral, we have committed liquidity sources asthrough facilities that can provide up to $1.25 billion of additional liquidity to help meet collateral needs. Access to such facilities is contingent upon interest rates having achieved certain threshold levels. In addition to these facilities, we have the FHLB facilities and the repurchase agreements discussed above as well as the five-year revolving credit facility discussed in Note 12 in our 2022 Form 10-K, as updated by the May 2023 Form 8-K, to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 6.5.

~~Uses~~Ratings

Financial Strength Ratings

See “Part I – Item 1. Business – Financial Strength Ratings” in our 2022 Form 10-K for information on our financial strength ratings.

If our current financial strength ratings were downgraded in the future, terms in our derivative agreements may be triggered, which could negatively affect overall liquidity. For the majority of ~~Capital~~our derivative counterparties, there is a termination event if our financial strength ratings drop below BBB-/Baa3 (S&P/Moody’s Investors Service). In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products.

~~Our principal uses~~See “Part I – Item 1A. Risk Factors –Covenants and Ratings – A downgrade in our financial strength ratings could limit our ability to market products, increase the number or value of cash are to pay policy claims and benefits, operating expenses, commissions and taxes, to purchase new investments, to purchase reinsurance, to fund policy surrenders and withdrawals, to pay dividends topolicies being surrendered and/or hurt our ~~Parent Company and to repay debt.~~ relationships with creditors” in our 2022 Form 10-K for more information.

~~We used cash on hand and other arrangements to fund our recent acquisition as described in Note 3.~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, in an integrated asset-liability management process that considers diversification. We have exposures to several market risks including interest rate risk, equity market risk, credit risk and, to a lesser extent, foreign currency exchange risk. ~~As of March 31, 2018, there have been no material changes~~The MNA included in our ~~economic exposure~~2022 Form 10-K, as updated by the May 2023 Form 8-K, contains a detailed discussion of our quantitative and qualitative disclosures about market risk. Set forth below are material updates to ~~these market risks since December 31, 2017. For information on these market risks, see “Item~~the disclosure contained in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our ~~2017~~2022 Form ~~10-K.~~10-K, as updated by the May 2023 Form 8-K, which should be read in conjunction with that disclosure.

Market Risk Related to Certain Variable Annuity and Fixed Indexed Annuity Products

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Our variable annuity and fixed indexed annuity contracts are exposed to market risks related to changes in the assumptions used in the original pricing of these products, including equity market, interest rate, and non-market actuarial assumptions. For additional information, see Note 9. We manage our exposure to market risks created by these fluctuations through a combination of product design elements and our hedge program. In addition, we utilize reinsurance to mitigate risk. For additional information, see Note 9 and “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reinsurance” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K. Certain variable annuity GLB and GDB riders are accounted for as MRBs and recorded at fair value. For more information on the market risk sensitivities associated with MRBs, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Market Risk Benefits.”

Interest Rate Risk

Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities due to movements in interest rates. We are exposed to interest rate risk arising from our fixed maturity securities and interest rate sensitive liabilities.

With respect to accumulation and investment-oriented products, we seek to earn a stable and profitable spread, or margin, between investment income we earn on our investments and interest credited to the account balances of our policyholders. If we have adverse experience on investments that cannot be passed on to customers, our spreads are reduced. The combination of a probable range of interest rate changes over the next 12 months, asset-liability management strategies, flexibility in adjusting policy crediting rate levels and protection afforded by policy surrender charges all work together to mitigate this risk. The interest rate scenarios of concern are those in which there is a substantial, relatively prolonged decrease in interest rates that is sustained over a long period or a rapid increase in interest rates. For additional information, see “Part II – Item 7A. Quantitative and Qualitive Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K, as updated by the May 2023 Form 8-K.

Effect of Interest Rate Sensitivity

The following table presents our estimate of the effect on income (loss) from operations by segment (in millions) for the next 12-month period if the level of interest rates were to instantaneously increase or decrease by 1% and remain at those levels immediately after June 30, 2023, relative to interest rates remaining flat.



	1%			1%
	Increase			Decrease
Life Insurance	$	8		$	(8	)
Annuities ⁽¹⁾		(21	)		21
Group Protection		4			(4	)
Retirement Plan Services		(1	)		(3	)
Other Operations		(7	)		7
Income (loss) from operations	$	(17	)	$	13

⁽¹⁾Includes the impact on bond funds in our separate accounts, which move in the opposite direction of interest rates.

We have updated estimated impacts to income (loss) from operations for changes primarily related to new money rates. For purposes of this estimate, we assumed asset purchases are made at prevailing new money rates and exclude the impact of new business, persistency, hedge program performance or customer behavior caused by the interest rate changes.

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Item 4.Controls and Procedures

Conclusions Regarding Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our President (the principal executive officer) and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period required by this report, we, under the supervision and with the participation of our President and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our President and Chief Financial Officer have concluded that our disclosure controls and procedures ~~are effective in timely alerting them to~~were ineffective as of June 30, 2023, as a result of the material ~~information relating to us and our consolidated subsidiaries required to be~~weakness disclosed in our ~~periodic reports under~~Annual Report on Form 10-K/A for the ~~Exchange Act.~~year ended December 31, 2022, filed on March 30, 2023.

Remediation Plan for Previously Reported Material Weakness

Since identifying the material weakness related to management’s review controls over significant reinsurance transactions, management has taken the following steps towards remediating the material weakness:

The formation of a technical review committee comprising cross-functional accounting, business, legal, and risk personnel that is in place and operating with a dedicated charter in overseeing the technical accounting and reporting implications of complex significant transactions;

The establishment of protocols that are in place and operating, enabling the involvement of external subject matter experts providing support and insights to management from third party firms;

Formalization of the documentation and review of key considerations and critical decision matters resulting from significant reinsurance transactions by the aforementioned technical review committee; and

Communication across the organization to reinforce the steps taken to strengthen the control environment related to significant reinsurance transactions.

Our management has monitored the effectiveness of these and other processes, procedures and controls and these controls have functioned or are functioning now as part of the reinsurance transaction with Fortitude Re described in Note 8 and announced on May 2, 2023. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are on track with our plan to complete our testing procedures and complete remediation of this material weakness prior to the end of 2023.

Changes in Internal Control Over Financial Reporting

~~There was no change~~Except for the implementation of the remediation steps described above, there have not been any material changes in ~~our~~the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) ~~that occurred~~ during the quarter ended ~~March 31, 2018,~~June 30, 2023, that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the ~~company~~Company have been detected. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~Information regarding reportable legal proceedings~~Reference is ~~contained~~made to In re: Lincoln National COI Litigation and In re: Lincoln National 2017 COI Rate Litigation,both previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as amended by Amendment No. 1 thereto (“2022 Form 10-K”) and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (“First Quarter 2023 Form 10-Q”). The court granted preliminary approval of the settlement on June 14, 2023, and a hearing is scheduled on October 4, 2023, to determine whether final court approval of the settlement will be granted.

Reference is made to Vida Longevity Fund, LP v. Lincoln Life & Annuity Company of New York, previously disclosed in our 2022 Form 10-K. On April 19, 2023, Lincoln Life & Annuity Company of New York (“LLANY”) filed a motion for summary judgment, which remains pending.

Reference is made to Brighton Trustees, LLC, et al. v. The Lincoln National Life Insurance Company, previously disclosed in our First Quarter 2023 Form 10-Q. On June 12, 2023, the U.S. District Court for the Northern District of Indiana granted a motion filed by The Lincoln National Life Insurance Company (“LNL”) to transfer the case to the U.S. District Court for the Eastern District of Pennsylvania.

Reference is made to Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York, previously disclosed in our 2022 Form 10-K. With respect to the question that has been certified to the New York Court of Appeals, briefing is complete and oral argument is scheduled for September 12, 2023.

Reference is made to Henry Morgan et al. v. Lincoln National Corporation d/b/a Lincoln Financial Group, et al, previously disclosed in our First Quarter 2023 Form 10-Q. On May 8, 2023, the Lincoln defendants (Lincoln National Corporation d/b/a Lincoln Financial Group, LNL and LLANY) and the Fidelity defendants (FMR, LLC, and Fidelity Product Services, LLC) filed motions to dismiss, which remain pending.

See Note 914 in “Part I – Item 1.” Financial Statements” for further discussion regarding these matters and other contingencies.

Item 1A. 1A. Risk Factors

~~Legislative, Regulatory and Tax~~

~~Federal Regulation~~

~~Standard of Conduct regulations could cause changes to the manner in which we deliver products and services as well as changes in nature and amount of compensation and fees.~~

In 2016, the Department of Labor (“DOL”) released the DOL Fiduciary Rule, which became effective on June 9, 2017, and substantially expanded the range of activities that are considered to be fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. The DOL Fiduciary Rule provided for a phased implementation of the provisions of the regulation, with the first part effective on June 9, 2017, and full implementation on January 1, 2018. The DOL Fiduciary Rule limited the investment-related information and support that our advisors and employees may provide to plan sponsors, participants and IRA holders on a non-fiduciary basis compared to what was previously allowed by regulation. As a result, we implemented changes to the methods that we use to (i) deliver products and services, and (ii) pay and receive compensation for our investment-related products and services, which may impact future sales or margins. In addition to the ~~extent that advisors with our affiliated retail broker-dealers (LFN) provide fiduciary investment advice as defined~~factors set forth in ~~the DOL Fiduciary Rule, it could expose those broker-dealers and their advisors to additional risk of legal liability in connection with that advice, which ultimately impacts us.~~

In early 2017, President Trump directed the DOL to prepare an updated economic and legal analysis on whether the DOL Fiduciary Rule (i) has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information or related advice, (ii) has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees and (iii) is likely to cause an increase in litigation and an increase in prices that investors or retirees must pay to gain access to retirement services. Subsequently, the DOL issued final rules delaying: (i) the applicability date“Part I – Item 2. Management’s Narrative Analysis of the ~~DOL Fiduciary Rule~~Results of Operations – Forward-Looking Statements – Cautionary Language,” you should carefully consider the risks described under “Part I – Item 1A. Risk Factors” in our 2022 Form 10-K. Such risks and ~~related exemptions from April 10, 2017,~~uncertainties are not the only ones facing our Company. Additional risks and uncertainties not presently known to ~~June 9, 2017;~~us or that we currently deem immaterial may also impair our business operations. If any of these risks actually occur, our business, financial condition and ~~(ii) full implementation from January 1, 2018, to July 1, 2019. The DOL also changed some requirements~~results of operations could be materially affected. In that case, the original rule release, including (i) extending the transition period from June 9, 2017, to July 1, 2019, for advisors relying on the Best Interest Contract Exemption to adhere to the Impartial Conduct Standards and (ii) extending the transition period to July 1, 2019, for advisors who seek to rely on Prohibited Transaction Exemption 84-24 for the sale of all annuities and insurance, provided they adhere to that exemption’s Impartial Conduct Standards.

~~On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) issued an opinion in the case~~ ~~Chamber of Commerce v. the U.S. Department of Labor~~ ~~vacating the DOL Fiduciary Rule and related applicable exemptions. The DOL and the Department of Justice did not seek an~~ ~~en banc~~ rehearing of the case, but may still decide to appeal the Fifth Circuit’s decision to the U.S. Supreme Court. It is expected that the Fifth Circuit will issue a mandate stating that the original definition of “fiduciary,” including the original five-part test, will apply going forward.

On April 18, 2018, the Securities and Exchange Commission (the “SEC”) proposed “Regulation Best Interest”, a new standard of conduct for broker-dealers under the Securities Exchange Act of 1934, which would require a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction, without putting its financial interests ahead of the interests of a retail customer. The proposed rule includes guidance on what constitutes a “recommendation” and a definition of who would be a “retail customer” in addition to provisions setting forth certain required disclosures, policies and procedures to identify conflicts of interest, and customer-specific best interest obligations.

In addition, the SEC proposed the use of a new disclosure document, the customer or client relationship summary, or Form CRS. Form CRS is intended to provide retail investors with information about the nature of their relationship with their investment professional, and would supplement other more detailed disclosures, including existing Form ADV for advisors and the new disclosures under Regulation Best Interest for broker dealers.

Finally, the SEC proposed interpretative guidance providing clarity on an investment adviser’s fiduciary obligation under the Advisers Act. The guidance indicates that investment advisers have a fiduciary duty to their clients that includes both duty of care and a duty of loyalty and provides additional clarification of an investment adviser’s responsibilities under these fiduciary duties. Investment advisers and broker-dealers would also need to disclose their registration status with the SEC in certain retail investor communications. The comment period on the proposals will extend for 90 days after the proposal is published in the Federal Register.

In addition to the SEC proposed rules, the NAIC and several states, including Connecticut, Nevada, New Jersey and New York have passed laws or proposed regulations requiring investment advisers, broker-dealers and/or agents to disclose conflicts of interest to clients

~~or to meet standards that their advice be in the customer’s best interest. These recent developments could result in additional requirements related to the sale~~value of our ~~products.~~securities could decline substantially.

It is uncertain at this point, as to whether the DOL or Department of Justice will seek to appeal the decision of the Fifth Circuit, particularly in light of the SEC’s recent regulatory proposals and interpretative guidance that address the fiduciary duties of investment advisers and broker dealers. It is also uncertain how the original DOL definition of “fiduciary” will work in conjunction with any final rules adopted by the SEC. While we continue to monitor and evaluate the various proposals, we cannot predict what other proposals may be made, what legislation or regulation may be introduced or become law. Therefore, until such time as final rules or laws are in place, the potential impact on our business is uncertain.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~Item 5.~~ ~~Other Information~~

As previously announced, on May 1, 2018, The Lincoln National Life Insurance Company (“LNL”) and Lincoln National Corporation (“LNC”) completed the previously disclosed acquisition of all of the issued and outstanding capital stock of Liberty Life Assurance Company of Boston (“Liberty Life”), which operated Liberty’s group benefits business (the “Liberty Group Business”) and individual life and individual and group annuity business (the “Liberty Life Business”).

The acquisition was completed pursuant to a Master Transaction Agreement (the “Master Transaction Agreement”) with Liberty Mutual Insurance Company (“LMIC”), Liberty Mutual Fire Insurance Company (together with LMIC, “Sellers”), for the limited purposes set forth therein, Liberty Mutual Group Inc. (“Liberty”), Protective Life Insurance Company (“Reinsurer”), and for the limited purposes set forth therein, Protective Life Corporation, which Master Transaction Agreement was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 23, 2018.

Item 6. Exhibits

The Exhibits included in this report are listed in the Exhibit Index beginning on page 56,104, which is incorporated herein by reference.

‎

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Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

Exhibit Index for the Report on Form 10-Q

For the Quarter Ended ~~March 31, 2018~~June 30, 2023



31.1	Certification of the President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance ~~Document.~~Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

‎

56104

Table of Contents

SIGNATURES

Pursuant to the requirements ~~of Section 12~~ of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

Dated: ~~May 9, 2018~~August 7, 2023	By:	/s/ ~~Christine A. Janofsky~~	Adam Cohen
		~~Christine A. Janofsky~~Adam Cohen
		Senior Vice President and ~~Controller~~Chief Accounting Officer
		(Authorized Signatory and Principal Accounting Officer)

57105


Item		Page
PART I

1.	Financial Statements	1

2.	Management’s Narrative Analysis of The Results of Operations	42
	Forward-Looking Statements – Cautionary Language	42
	Critical Accounting Policies and Estimates	43
	Results of Consolidated Operations	44
	Results of Annuities	45
	Results of Retirement Plan Services	46
	Results of Life Insurance	47
	Results of Group Protection	48
	Results of Other Operations	49
	Realized Gain (Loss)	50
	Review of Consolidated Financial Condition	51
	Liquidity and Capital Resources	51

3.	Quantitative and Qualitative Disclosures About Market Risk	53

4.	Controls and Procedures	53

PART II

1.	Legal Proceedings	54

1A.	Risk Factors	54

2.	Unregistered Sales of Equity Securities and Use of Proceeds	55

5.	Other Information	55

6.	Exhibits	55

	Exhibit Index for the Report on Form 10-Q	56

	Signatures	57