~~0000726865us-gaap:ForeignGovernmentDebtSecuritiesMemberus-gaap:FixedMaturitiesMember2021-01-012021-09-30~~0000726865srt:MaximumMembercik0000726865:HybridAndRedeemablePreferredSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FixedMaturitiesMembercik0000726865:MeasurementInputLiquidityDurationAdjustmentMemberus-gaap:IncomeApproachValuationTechniqueMember2022-06-30

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 ~~September~~June 30, ~~2021~~2022

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

For the transition period from ____________ to____________

Commission File 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.)

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

(260) 455-2000

(Registrant’s telephone number, including area code)

~~1300 South Clinton Street,Fort Wayne, Indiana, 46802~~

~~(Former name, former address and former ﬁscal year, if changed since last report)~~

_________________

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 every Interactive Data File required to be submitted 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 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.


Large Accelerated Filer		Accelerated Filer	
Non-accelerated Filer		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 ~~November~~August 8, ~~2021,~~2022, 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
53
Forward-Looking Statements – Cautionary Language
53
Introduction
54
Critical Accounting Policies and Estimates
55
Acquisitions and Dispositions
56
Results of Consolidated Operations
57
Results of Annuities
58
Results of Retirement Plan Services
59
Results of Life Insurance
61
Results of Group Protection
62
Results of Other Operations
63
Realized Gain (Loss)
64
Review of Consolidated Financial Condition
65
Liquidity and Capital Resources
65
3.
Quantitative and Qualitative Disclosures About Market Risk
67
4.
Controls and Procedures
67
PART II
1.
Legal Proceedings
68
1A.
Risk Factors
68
2.
Unregistered Sales of Equity Securities and Use of Proceeds
68
6.
Exhibits
68

Exhibit Index for the Report on Form 10-Q
69
Signatures
70


		Page
PART I
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	1
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended
	June 30, 2022 and 2021	2
	Unaudited Consolidated Statements of Stockholder’s Equity for the three and six months ended
	June 30, 2022 and 2021	3
	Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	4
	Notes to Unaudited Consolidated Financial Statements:
	Note 1 – Nature of Operations and Basis of Presentation	5
	Note 2 – New Accounting Standards	6
	Note 3 – Variable Interest Entities	8
	Note 4 – Investments	9
	Note 5 – Derivatives	19
	Note 6 – Federal Income Taxes	29
	Note 7 – Guaranteed Benefit Features	30
	Note 8 – Liability for Unpaid Claims	31
	Note 9 – Contingencies and Commitments	31
	Note 10 – Shares and Stockholder’s Equity	34
	Note 11 – Realized Gain (Loss)	36
	Note 12 – Fair Value of Financial Instruments	37
	Note 13 – Segment Information	51
Item 2.	Management’s Narrative Analysis of the Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67
Item 4.	Controls and Procedures	67

PART II
Item 1.	Legal Proceedings	68
Item 1A.	Risk Factors	68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 6.	Exhibits	68
	Exhibit Index for the Report on Form 10-Q	69
	Signatures	70

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
	September 30,			December 31,			June 30,				December 31,
		2021			2020			2022				2021
	(Unaudited)						(Unaudited)
ASSETS
Investments:
Fixed maturity available-for-sale securities, at fair value
(amortized cost: 2021 - $106,752; 2020 - $103,021; allowance for credit losses: 2021 - $17; 2020 - $13)		$	120,794		$	121,111
(amortized cost: 2022 - $109,019; 2021 - $104,526; allowance for credit losses: 2022 - $12; 2021 - $19)								$	103,002			$	117,511
Trading securities			4,135			4,442			3,778				4,427
Equity securities			239			127			345				314
Mortgage loans on real estate, net of allowance for credit losses
(portion at fair value: 2021 - $792; 2020 - $832)			17,633			16,681
(portion at fair value: 2022 - $528; 2021 - $739)									17,830				17,893
Policy loans			2,364			2,411			2,355				2,349
Derivative investments			4,828			3,109			3,370				5,437
Other investments			3,305			3,025			3,758				3,449
Total investments			153,298			150,906			134,438				151,380
Cash and invested cash			2,194			1,462			1,277				2,331
Deferred acquisition costs and value of business acquired			5,917			5,824			11,832				5,985
Premiums and fees receivable			583			484			651				580
Accrued investment income			1,251			1,217			1,196				1,157
Reinsurance recoverables, net of allowance for credit losses			18,207			18,752			23,554				22,755
Funds withheld reinsurance assets			526			530			506				517
Goodwill			1,778			1,778			1,778				1,778
Other assets			22,455			19,401			19,412				22,949
Separate account assets			175,667			167,965			145,791				182,583
Total assets		$	381,876		$	368,319		$	340,435			$	392,015

LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Future contract benefits		$	40,016		$	40,146		$	38,735			$	40,416
Other contract holder funds			108,762			104,858			114,634				111,174
Short-term debt			483			497			698				1,084
Long-term debt			2,333			2,412			2,267				2,334
Reinsurance related embedded derivatives			692			540
Reinsurance-related embedded derivatives									-				578
Funds withheld reinsurance liabilities			7,862			7,179			6,433				7,089
Payables for collateral on investments			8,378			6,215			7,525				8,936
Other liabilities			14,129			13,466			11,725				15,441
Separate account liabilities			175,667			167,965			145,791				182,583
Total liabilities			358,322			343,278			327,808				369,635

Contingencies and Commitments (See Note 11)
Contingencies and Commitments (See Note 9)

Stockholder’s Equity
Common stock – 10,000,000 shares authorized, issued and outstanding			11,940			11,853			12,020				11,950
Retained earnings			4,670			4,167			4,506				3,886
Accumulated other comprehensive income (loss)			6,944			9,021			(3,899	)			6,544
Total stockholder’s equity			23,554			25,041			12,627				22,380
Total liabilities and stockholder’s equity		$	381,876		$	368,319		$	340,435			$	392,015

‎

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 Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenues
Insurance premiums	$	1,341		$	1,241		$	3,999		$	3,844		$	1,436		$	1,328		$	2,842		$	2,658
Fee income		1,927			1,799			5,051			4,676			1,446			1,600			2,949			3,124
Net investment income		1,511			1,404			4,468			3,834			1,309			1,510			2,661			2,957
Realized gain (loss)		(24	)		(13	)		16			(448	)		82			(172	)		347			39
Amortization of deferred gain on business sold through reinsurance		8			9			22			27
Amortization of deferred gain (loss) on business sold through reinsurance														18			7			35			14
Other revenues		149			131			480			410			163			162			316			332
Total revenues		4,912			4,571			14,036			12,343			4,454			4,435			9,150			9,124
Expenses
Interest credited		744			737			2,206			2,184			701			732			1,392			1,463
Benefits		1,840			2,350			5,871			6,042			2,051			1,848			4,250			4,031
Commissions and other expenses		1,839			1,899			4,272			4,065			1,081			1,262			2,273			2,432
Interest and debt expense		29			29			86			96			31			28			60			57
Strategic digitization expense		22			14			57			39
Spark program expense														44			21			75			35
Total expenses		4,474			5,029			12,492			12,426			3,908			3,891			8,050			8,018
Income (loss) before taxes		438			(458	)		1,544			(83	)		546			544			1,100			1,106
Federal income tax expense (benefit)		66			(131	)		246			(114	)		90			82			175			180
Net income (loss)		372			(327	)		1,298			31			456			462			925			926
Other comprehensive income (loss), net of tax		(617	)		360			(2,077	)		2,339			(5,450	)		1,721			(10,443	)		(1,460	)
Comprehensive income (loss)	$	(245	)	$	33		$	(779	)	$	2,370		$	(4,994	)	$	2,183		$	(9,518	)	$	(534	)

‎

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
	For the Three						For the Nine						Months Ended						Months Ended
	Months Ended						Months Ended						June 30,						June 30,
	September 30,						September 30,						2022			2021			2022			2021
	2021			2020			2021			2020
Common Stock
Balance as of beginning-of-period	$	11,930		$	11,799		$	11,853		$	11,312		$	11,948		$	11,919		$	11,950		$	11,853
Capital contribution from Lincoln National Corporation		-			-			65			475			65			-			65			65
Stock compensation/issued for benefit plans		10			10			22			22			7			11			5			12
Balance as of end-of-period		11,940			11,809			11,940			11,809			12,020			11,930			12,020			11,930

Retained Earnings
Balance as of beginning-of-period		4,598			4,188			4,167			4,437			4,330			4,451			3,886			4,167
Cumulative effect from adoption of new accounting standards		-			-			-			(201	)
Net income (loss)		372			(327	)		1,298			31			456			462			925			926
Dividends paid to Lincoln National Corporation		(300	)		(80	)		(795	)		(486	)		(280	)		(315	)		(305	)		(495	)
Balance as of end-of-period		4,670			3,781			4,670			3,781			4,506			4,598			4,506			4,598

Accumulated Other Comprehensive Income (Loss)
Balance as of beginning-of-period		7,561			7,815			9,021			5,836			1,551			5,840			6,544			9,021
Other comprehensive income (loss), net of tax		(617	)		360			(2,077	)		2,339			(5,450	)		1,721			(10,443	)		(1,460	)
Balance as of end-of-period		6,944			8,175			6,944			8,175			(3,899	)		7,561			(3,899	)		7,561
Total stockholder’s equity as of end-of-period	$	23,554		$	23,765		$	23,554		$	23,765		$	12,627		$	24,089		$	12,627		$	24,089

‎

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 Nine						For the Six
	Months Ended						Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Cash Flows from Operating Activities
Net income (loss)	$	1,298		$	31		$	925		$	926
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Realized (gain) loss		(16	)		448			(347	)		(39	)
Trading securities purchases, sales and maturities, net		219			24
Amortization of deferred gain on business sold through reinsurance		(22	)		(27	)
Sales and maturities (purchases) of trading securities, net								109			210
Amortization of deferred gain (loss) on business sold through reinsurance								(35	)		(14	)
Change in:
Deferred acquisition costs, value of business acquired, deferred sales inducements
and deferred front-end loads deferrals and interest, net of amortization		325			355			(8	)		109
Premiums and fees receivable		(99	)		(33	)		(71	)		(98	)
Accrued investment income		(44	)		(157	)		(40	)		(11	)
Insurance liabilities and reinsurance-related balances		(300	)		634			54			(3	)
Accrued expenses		200			(188	)		(340	)		35
Federal income tax accruals		234			(236	)		198			167
Cash management agreement		(1,367	)		(1,694	)		2,427			(1,223	)
Other		(226	)		50			258			(219	)
Net cash provided by (used in) operating activities		202			(793	)		3,130			(160	)
Cash Flows from Investing Activities
Purchases of available-for-sale securities and equity securities		(11,756	)		(12,107	)		(8,091	)		(8,192	)
Sales of available-for-sale securities and equity securities		1,441			1,354			236			1,277
Maturities of available-for-sale securities		6,897			3,581			3,165			4,570
Purchases of alternative investments		(504	)		(265	)		(300	)		(360	)
Sales and repayments of alternative investments		258			116			181			128
Issuance of mortgage loans on real estate		(2,191	)		(1,221	)		(1,368	)		(1,611	)
Repayment and maturities of mortgage loans on real estate		1,267			835			1,422			846
Issuance (repayment) of policy loans, net		47			(51	)
Repayment (issuance) of policy loans, net								(6	)		16
Net change in collateral on investments, derivatives and related settlements		2,132			2,207			(2,321	)		1,704
Other		(181	)		(113	)		(96	)		(67	)
Net cash provided by (used in) investing activities		(2,590	)		(5,664	)		(7,178	)		(1,689	)
Cash Flows from Financing Activities
Capital contribution from Lincoln National Corporation		65			475			65			65
Payment of long-term debt, including current maturities		(60	)		(30	)		(40	)		(60	)
Issuance of long-term debt, net of issuance costs		-			30
Issuance (payment) of short-term debt		(14	)		(142	)		(385	)		(40	)
Payment related to sale-leaseback transactions								(47	)		-
Proceeds from certain financing arrangements		50			69			53			50
Deposits of fixed account values, including the fixed portion of variable		9,136			10,544			6,892			6,367
Withdrawals of fixed account values, including the fixed portion of variable		(4,935	)		(4,590	)		(3,280	)		(3,283	)
Transfers to and from separate accounts, net		(252	)		427
Transfers from (to) separate accounts, net								62			(229	)
Common stock issued for benefit plans		(12	)		(8	)		(21	)		(11	)
Dividends paid to Lincoln National Corporation		(795	)		(486	)		(305	)		(495	)
Other		(63	)		-			-			(63	)
Net cash provided by (used in) financing activities		3,120			6,289			2,994			2,301

Net increase (decrease) in cash, invested cash and restricted cash		732			(168	)		(1,054	)		452
Cash, invested cash and restricted cash as of beginning-of-year		1,462			1,879			2,331			1,462
Cash, invested cash and restricted cash as of end-of-period	$	2,194		$	1,711		$	1,277		$	1,914

See accompanying Notes to Consolidated Financial Statements

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ~~Nature~~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 ~~2 insurance company subsidiaries,~~ Lincoln Life & Annuity Company of New York (“LLANY”) ~~and Lincoln Life Assurance Company of Boston (“LLACB”)~~. ~~Effective October 1, 2021, LLACB was merged into LNL.~~ We also own several non-insurance companies, including Lincoln Financial Distributors, our wholesale distributor, and Lincoln Financial Advisors Corporation, part of LNC’s retail distributor, Lincoln Financial Network. Through our business segments, we sell a wide range of wealth protection, accumulation, retirement income and group protection 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, employer-sponsored retirement plans and services, and group life, disability and dental. LNL is licensed and sells its products throughout the U.S. and several U.S. territories. See Note 1513 for additional information.

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. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (“~~2020~~2021 Form 10-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 ~~2020~~2021 Form 10-K.

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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2021,~~2022, especially when considering the risks and uncertainties associated with the COVID-19 pandemic and the future impacts of the pandemic on our business, results of operations and financial condition. All material inter-company accounts and transactions have been eliminated in consolidation.

‎

Table of Contents

2. 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 insignificant in presentation or amount.


Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2020-04, Reference Rate Reform (Topic 848) and 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, 2022, with certain exceptions. The amendments are effective for contract modifications made between March 12, 2020, and December 31, 2022.	March 12, 2020 through December 31, 2022	This standard may be elected and applied prospectively as reference rate reform unfolds. We have elected practical expedients to maintain hedge accounting for certain derivatives. We will continue to evaluate our options under this guidance as our reference rate reform adoption process continues. This ASU has not had a material impact to our consolidated financial condition and results of operations, but we will continue to evaluate those impacts as our transition progresses.

‎

Table of Contents

Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments	These amendments make changes to the accounting and reporting for long-duration contracts issued by an insurance entity that will significantly change how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and deferred acquisition costs. Under this ASU, insurers will be required to review cash flow assumptions at least annually and update them if necessary. They also will have to make quarterly updates to the discount rate assumptions they use to measure the liability for future policyholder benefits. The ASU creates a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value. The ASU provides various transition methods by topic that entities may elect upon adoption. The ASU is ~~currently~~ effective January 1, 2023, and early adoption is permitted.	January 1, 2023	We will adopt this ASU effective January 1, 2023, with a transition date of January 1, 2021, using a modified retrospective approach, except for market risk benefits in which we will apply a full retrospective transition approach. ‎ ‎We continue to make progress in our implementation process that includes, but is not limited to, making significant accounting policy decisions, employing appropriate internal controls, building and updating actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures. In the second quarter of 2022, we continued the process of calculating our transition adjustments and applicable prior period restatements. ‎ ‎We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of ~~operations.~~operations and will be able to better assess the effects as we progress with our implementation efforts. For example, upon adoption, there will be adjustments to retained earnings resulting from the remeasurement of certain current benefits (e.g., guaranteed minimum death benefits on variable annuities) to fair valued market risk benefits, excluding the portion attributable to non-performance risk, which will result in an impact to AOCI. There will be additional impacts to AOCI resulting from the remeasurement of in-force future contract benefits using current upper-medium grade fixed income instrument yields as well as the elimination of shadow accounting for DAC and DAC-like intangibles. While the impact to the consolidated financial statements may be material, the magnitude is currently being assessed.

‎

Table of Contents

3. Variable ~~Interest~~Interest Entities

Unconsolidated Variable Interest Entities

Structured Securities

Through our investment activities, we make passive investments in structured securities issued by variable interest entities (“VIEs”) for which we are not the manager. These structured securities include our asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“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 limited partnerships (“LPs”) and limited liability companies (“LLCs”)~~, including qualified affordable housing projects,~~ 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 ~~$2.7~~$3.0 billion and ~~$2.1~~$2.8 billion as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively. Included in these carrying amounts are our investments in qualified affordable housing projects, which were $5 million and $7 million as of September 30, 2021, and December 31, 2020, respectively. We received affordable housing tax credits of less than $1 million and $1 million for the three months ended September 30, 2021 and 2020, respectively, and $1 million and $4 million for the nine months ended September 30, 2021 and 2020, respectively. These returns were recognized in federal income tax expense (benefit) on our Consolidated Statements of Comprehensive Income (Loss).

Table of Contents

4. ~~Investments~~Investments

Fixed Maturity AFS Securities

The amortized cost, gross unrealized gains and losses, allowance for credit losses and fair value of fixed maturity available-for-sale (“AFS”) securities (in millions) were as follows:



	As of September 30, 2021										As of June 30, 2022
							Allowance										Allowance
	Amortized		Gross Unrealized				for Credit		Fair		Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value		Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	88,020	$	12,418	$	297	$	16	$	100,125	$	88,629	$	1,596	$	6,970	$	7	$	83,248
U.S. government bonds		357		55		2		-		410		387		13		14		-		386
State and municipal bonds		5,324		1,334		10		-		6,648		5,214		413		301		-		5,326
Foreign government bonds		446		63		7		-		502		353		25		38		-		340
RMBS		2,481		232		3		1		2,709		2,047		48		100		3		1,992
CMBS		1,519		76		10		-		1,585		1,698		2		151		-		1,549
ABS		8,180		147		31		-		8,296		10,268		47		609		1		9,705
Hybrid and redeemable preferred securities		425		106		12		-		519		423		69		35		1		456
Total fixed maturity AFS securities	$	106,752	$	14,431	$	372	$	17	$	120,794	$	109,019	$	2,213	$	8,218	$	12	$	103,002



	As of December 31, 2020										As of December 31, 2021
							Allowance										Allowance
	Amortized		Gross Unrealized				for Credit		Fair		Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value		Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	85,625	$	15,947	$	136	$	12	$	101,424	$	86,197	$	11,569	$	326	$	17	$	97,423
U.S. government bonds		369		81		1		-		449		348		54		2		-		400
State and municipal bonds		5,145		1,517		-		-		6,662		5,113		1,275		11		-		6,377
Foreign government bonds		380		86		1		-		465		365		63		5		-		423
RMBS		2,551		289		1		1		2,838		2,132		178		4		1		2,305
CMBS		1,380		115		-		-		1,495		1,542		62		14		-		1,590
ABS		7,035		158		15		-		7,178		8,433		127		54		-		8,506
Hybrid and redeemable preferred securities		536		94		30		-		600		396		103		11		1		487
Total fixed maturity AFS securities	$	103,021	$	18,287	$	184	$	13	$	121,111	$	104,526	$	13,431	$	427	$	19	$	117,511

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of ~~September~~June 30, ~~2021,~~2022, were as follows:



	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	2,997	$	3,023	$	2,789	$	2,771
Due after one year through five years		15,494		16,372		16,988		16,561
Due after five years through ten years		19,680		21,388		19,461		18,259
Due after ten years		56,401		67,421		55,768		52,165
Subtotal		94,572		108,204		95,006		89,756
Structured securities (RMBS, CMBS, ABS)		12,180		12,590		14,013		13,246
Total fixed maturity AFS securities	$	106,752	$	120,794	$	109,019	$	103,002

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

Table of Contents

The fair value and gross unrealized losses 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 September 30, 2021															As of June 30, 2022
	Less Than or Equal					Greater Than										Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total					to Twelve Months					Twelve Months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses ⁽¹⁾		Value			Losses		Value			Losses		Value			Losses ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	8,487		$	213	$	1,115		$	84	$	9,602		$	297	$	55,939		$	6,139	$	2,974		$	831	$	58,913		$	6,970
U.S. government bonds		29			1		3			1		32			2		227			9		23			5		250			14
State and municipal bonds		455			9		12			1		467			10		1,749			283		61			18		1,810			301
Foreign government bonds		148			5		28			2		176			7		81			20		74			18		155			38
RMBS		205			2		17			1		222			3		1,229			96		28			4		1,257			100
CMBS		360			9		12			1		372			10		1,289			110		205			41		1,494			151
ABS		3,661			29		107			2		3,768			31		7,773			526		1,077			83		8,850			609
Hybrid and redeemable
preferred securities		33			1		115			11		148			12		134			13		65			22		199			35
Total fixed maturity AFS securities	$	13,378		$	269	$	1,409		$	103	$	14,787		$	372	$	68,421		$	7,196	$	4,507		$	1,022	$	72,928		$	8,218

Total number of fixed maturity AFS securities in an unrealized loss position	Total number of fixed maturity AFS securities in an unrealized loss position														1,737	Total number of fixed maturity AFS securities in an unrealized loss position														7,065



	As of December 31, 2020															As of December 31, 2021
	Less Than or Equal					Greater Than										Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total					to Twelve Months					Twelve Months					Total
				Gross					Gross					Gross					Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses ⁽¹⁾		Value			Losses		Value			Losses		Value			Losses ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	2,785		$	85	$	588		$	51	$	3,373		$	136	$	10,611		$	230	$	1,386		$	96	$	11,997		$	326
U.S. government bonds		28			1		-			-		28			1		6			-		26			2		32			2
State and municipal bonds																	498			10		19			1		517			11
Foreign government bonds		57			1		-			-		57			1		61			3		56			2		117			5
RMBS		43			1		6			-		49			1		261			3		20			1		281			4
CMBS																	440			12		33			2		473			14
ABS		1,527			9		355			6		1,882			15		4,646			49		165			5		4,811			54
Hybrid and redeemable
preferred securities		112			13		96			17		208			30		47			1		76			10		123			11
Total fixed maturity AFS securities	$	4,552		$	110	$	1,045		$	74	$	5,597		$	184	$	16,570		$	308	$	1,781		$	119	$	18,351		$	427

Total number of fixed maturity AFS securities in an unrealized loss position	Total number of fixed maturity AFS securities in an unrealized loss position														782	Total number of fixed maturity AFS securities in an unrealized loss position														2,577

⁽¹⁾As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, we recognized $8$5 million and $1$8 million of gross unrealized losses, respectively, in other comprehensive income (loss) (“OCI”) for fixed maturity AFS securities for which an allowance for credit losses has been recorded.

910

Table of Contents

The fair value, gross unrealized losses (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 September 30, 2021							As of June 30, 2022
			Gross			Number				Gross			Number
	Fair		Unrealized			of		Fair		Unrealized			of
	Value		Losses		Securities⁽¹⁾			Value		Losses		Securities⁽¹⁾
Less than six months	$	9	$	2			4	$	7,778	$	2,656			1,028
Six months or greater, but less than nine months		17		5			1		4		1			3
Twelve months or greater		60		9			25		1		1			17
Total	$	86	$	16			30	$	7,783	$	2,658			1,048



	As of December 31, 2020							As of December 31, 2021
			Gross			Number				Gross			Number
	Fair		Unrealized			of		Fair		Unrealized			of
	Value		Losses		Securities⁽¹⁾			Value		Losses		Securities⁽¹⁾
Less than six months	$	63	$	23			14	$	12	$	3			6
Six months or greater, but less than nine months		2		1			4
Nine months or greater, but less than twelve months		22		6			13
Twelve months or greater		30		11			20		58		8			24
Total	$	117	$	41			51	$	70	$	11			30

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

Our gross unrealized losses on fixed maturity AFS securities increased by ~~$188 million~~$7.8 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. As discussed further below, we believe the unrealized loss position as of ~~September~~June 30, ~~2021,~~2022, did not require 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 the fixed maturity AFS securities before recovery of their amortized cost basis; and (iii) the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation as of ~~September~~June 30, ~~2021,~~2022, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums, fee income and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our impaired securities.

As of ~~September~~June 30, ~~2021,~~2022, 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 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 of each 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 ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.6 billion and ~~$3.8~~$3.5 billion, respectively, and a fair value of ~~$3.8~~$3.4 billion and ~~$4.0~~$3.7 billion, respectively. Based upon the analysis discussed above, we believe that as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, we would have recovered the amortized cost of each corporate bond.

As of ~~September~~June 30, ~~2021,~~2022, the unrealized losses associated with our mortgage-backed securities and ABS were attributable primarily to 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 impaired ~~security~~security.

As of ~~September~~June 30 ~~2021,~~, 2022, 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 credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each impaired security.

1011

Table of Contents

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 allowance for credit losses on fixed maturity AFS securities (in millions), aggregated by investment category, were as follows:



	For the Three
	Months Ended
	September 30, 2021
	Corporate
	Bonds			RMBS		ABS		Total
Balance as of beginning-of-period	$	8		$	1	$	-	$	9
Additions for securities for which credit losses were not
previously recognized		8			-		-		8
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Balance as of end-of-period ⁽²⁾	$	16		$	1	$	-	$	17

	For the Nine										For the Three
	Months Ended										Months Ended
	September 30, 2021										June 30, 2022
	Corporate										Corporate
	Bonds			RMBS		ABS		Total			Bonds			RMBS		Other		Total
Balance as of beginning-of-period	$	12		$	1	$	-	$	13		$	16		$	2	$	2	$	20
Additions for securities for which credit losses were not
previously recognized		8			-		-		8			1			-		-		1
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-			-			-		-		-
Additions (reductions) for securities for which credit losses
were previously recognized		2			-		-		2			2			1		-		3
Reductions for securities charged-off		(6	)		-		-		(6	)		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	16		$	1	$	-	$	17		$	7		$	3	$	2	$	12


	For the Three											For the Six
	Months Ended											Months Ended
	September 30, 2020											June 30, 2022
	Corporate											Corporate
	Bonds			RMBS		ABS			Total			Bonds			RMBS		Other		Total
Balance as of beginning-of-period	$	19		$	1	$	1		$	21
Additions for securities for which credit losses were not
previously recognized		5			-		-			5
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-			-
Additions (reductions) for securities for which credit losses
were previously recognized		(3	)		-		(1	)		(4	)
Reductions for securities charged-off		(10	)		-		-			(10	)
Balance as of end-of-period ⁽²⁾	$	11		$	1	$	-		$	12

	For the Nine
	Months Ended
	September 30, 2020
	Corporate
	Bonds			RMBS		ABS			Total
Balance as of beginning-of-period	$	-		$	-	$	-		$	-
Balance as of beginning-of-year												$	17		$	1	$	1	$	19
Additions for securities for which credit losses were not
previously recognized		39			1		1			41			1			-		1		2
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-			-			-			-		-		-
Additions (reductions) for securities for which credit losses
were previously recognized		(3	)		-		(1	)		(4	)		2			2		-		4
Reductions for securities disposed		(15	)		-		-			(15	)		(1	)		-		-		(1	)
Reductions for securities charged-off		(10	)		-		-			(10	)		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	11		$	1	$	-		$	12		$	7		$	3	$	2	$	12


	For the Three
	Months Ended
	June 30, 2021
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-period	$	13		$	1	$	-	$	14
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions (reductions) for securities for which credit losses
were previously recognized		1			-		-		1
Reductions for securities charged-off		(6	)		-		-		(6	)
Balance as of end-of-period ⁽²⁾	$	8		$	1	$	-	$	9

1112

Table of Contents

	For the Six
	Months Ended
	June 30, 2021
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-year	$	12		$	1	$	-	$	13
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions (reductions) for securities for which credit losses
were previously recognized		2			-		-		2
Reductions for securities charged-off		(6	)		-		-		(6	)
Balance as of end-of-period ⁽²⁾	$	8		$	1	$	-	$	9

⁽¹⁾Represents purchased credit-deteriorated (“PCD”) fixed maturity AFS securities.

⁽²⁾~~Accrued interest receivable~~As of June 30, 2022 and 2021, accrued investment income on fixed maturity AFS securities totaled $1.0 billion, ~~as of September 30, 2021 and 2020,~~ and was excluded from the estimate of credit losses.

Mortgage Loans on Real Estate

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



	As of September 30, 2021									As of December 31, 2020									As of June 30, 2022									As of December 31, 2021
	Commercial			Residential			Total			Commercial			Residential			Total			Commercial			Residential			Total			Commercial			Residential			Total
Current	$	17,013		$	691		$	17,704		$	16,162		$	610		$	16,772		$	16,501		$	1,055		$	17,556		$	17,068		$	837		$	17,905
30 to 59 days past due		-			15			15			4			28			32			303			23			326			15			21			36
60 to 89 days past due		-			3			3			-			8			8			-			3			3			-			5			5
90 or more days past due		-			33			33			-			69			69			-			25			25			-			29			29
Allowance for credit losses		(114	)		(16	)		(130	)		(186	)		(17	)		(203	)		(72	)		(9	)		(81	)		(78	)		(17	)		(95	)
Unamortized premium (discount)		(12	)		23			11			(14	)		22			8			(10	)		31			21			(11	)		27			16
Mark-to-market gains (losses) ⁽¹⁾		(3	)		-			(3	)		(5	)		-			(5	)		(20	)		-			(20	)		(3	)		-			(3	)
Total carrying value	$	16,884		$	749		$	17,633		$	15,961		$	720		$	16,681		$	16,702		$	1,128		$	17,830		$	16,991		$	902		$	17,893

⁽¹⁾Represents the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 1412 for additional information.

Our commercial mortgage loan portfolio has the largest concentrations in California, which accounted for ~~26%~~27% and ~~24%~~26% of commercial mortgage loans on real estate as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively, and Texas, which accounted for 9% ~~and 10%~~ of commercial mortgage loans on real estate as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020, respectively.~~2021.

Our residential mortgage loan portfolio has the largest concentrations in California, which accounted for ~~23%~~20% and ~~32%~~22% of residential mortgage loans on real estate as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively, and Florida, which accounted for ~~16%~~11% and ~~18%~~14% of residential mortgage loans on real estate as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively.

As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, we had 6563 and ~~147~~65 residential mortgage loans, respectively, that were either delinquent or in foreclosure. As of June 30, 2022, and December 31, 2021, we had 41 and 34 residential mortgage loans in foreclosure, respectively, with an aggregate carrying value of $17 million and $15 million, respectively.

~~For our~~As of June 30, 2022, and December 31, 2021, there were five and four specifically identified impaired commercial mortgage loans, ~~there were 6 specifically identified impaired loans~~respectively, with an aggregate carrying value of $1 ~~million as~~million.

As of ~~September~~June 30, ~~2021. There~~2022, and December 31, 2021, there were 432 and 50 specifically identified impaired residential mortgage loans, respectively, with an aggregate carrying value of $1$10 million ~~as of December 31, 2020.~~

~~For our residential mortgage loans, there were 54 specifically identified impaired loans with an aggregate carrying value of $25~~and $22 million, ~~as of September 30, 2021. There were 76 specifically identified impaired loans with an aggregate carrying value of $34 million as of December 31, 2020.~~

respectively.

1213

Table of Contents

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

For the Three
For the Nine
Months Ended
Months Ended
September 30,
September 30,
2021
2020
2021
2020
Average aggregate carrying value for impaired
mortgage loans on real estate
$
31
$
31
$
33
$
17
Interest income recognized on impaired
mortgage loans on real estate
-
-
-
-
Interest income collected on impaired
mortgage loans on real estate
-
-
-
-



	For the Three				For the Six
	Months Ended				Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Average aggregate carrying value for impaired mortgage loans on real estate	$	15	$	37	$	18	$	36
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 September 30, 2021				As of December 31, 2020				As of June 30, 2022				As of December 31, 2021
	Nonaccrual				Nonaccrual				Nonaccrual				Nonaccrual
	with no				with no				with no				with no
	Allowance				Allowance				Allowance				Allowance
	for Credit				for Credit				for Credit				for Credit
	Losses		Nonaccrual		Losses		Nonaccrual		Losses		Nonaccrual		Losses		Nonaccrual
Commercial mortgage loans on real estate	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential mortgage loans on real estate		-		34		-		71		-		26		-		30
Total	$	-	$	34	$	-	$	71	$	-	$	26	$	-	$	30

We use 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 (dollars in millions) by year of origination and credit quality indicator was as follows:



	As of September 30, 2021											As of June 30, 2022
			Debt-			Debt-			Debt-					Debt-			Debt-			Debt-
			Service			Service			Service					Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage			Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 74%		Ratio	than 75%		Ratio	Total		than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2022												$	963	2.20	$	51	1.55	$	-	-	$	1,014
2021	$	1,654	3.07	$	127	1.76	$	-	-	$	1,781		2,344	3.05		77	1.52		-	-		2,421
2020		1,355	3.02		144	1.67		-	-		1,499		1,319	2.98		19	1.54		-	-		1,338
2019		2,966	2.18		293	1.62		-	-		3,259		2,659	2.13		159	1.48		-	-		2,818
2018		2,296	2.15		174	1.58		15	1.02		2,485		2,186	2.13		148	1.56		15	0.54		2,349
2017		1,710	2.32		150	1.74		27	0.96		1,887
2016 and prior		5,859	2.40		195	1.77		36	0.78		6,090
2017 and prior													6,560	2.39		267	1.48		27	0.81		6,854
Total	$	15,840		$	1,083		$	78		$	17,001	$	16,031		$	721		$	42		$	16,794


	As of December 31, 2020											As of December 31, 2021
			Debt-			Debt-			Debt-					Debt-			Debt-			Debt-
			Service			Service			Service					Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage			Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 74%		Ratio	than 75%		Ratio	Total		than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2021												$	2,361	3.05	$	136	1.74	$	-	-	$	2,497
2020	$	1,495	2.85	$	32	1.52	$	-	-	$	1,527		1,349	3.02		144	2.06		-	-		1,493
2019		3,098	2.24		258	1.78		2	1.74		3,358		2,875	2.14		187	1.42		-	-		3,062
2018		2,379	2.16		182	1.49		15	0.71		2,576		2,272	2.13		168	1.59		15	1.02		2,455
2017		1,779	2.34		169	1.73		-	-		1,948		1,648	2.33		149	1.74		27	0.83		1,824
2016		1,711	2.37		174	1.56		22	1.58		1,907
2015 and prior		4,695	2.38		133	1.95		8	1.02		4,836
2016 and prior													5,543	2.41		171	1.76		27	1.08		5,741
Total	$	15,157		$	948		$	47		$	16,152	$	16,048		$	955		$	69		$	17,072

1314

Table of Contents

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 September 30, 2021							As of June 30, 2022
	Performing		Nonperforming			Total		Performing		Nonperforming			Total
Origination Year
2022								$	232		$	-	$	232
2021	$	241		$	1	$	242		557			2		559
2020		149			3		152		100			3		103
2019		220			26		246		145			18		163
2018		121			4		125		77			3		80
2017		-			-		-
2016 and prior		-			-		-
2017 and prior									-			-		-
Total	$	731		$	34	$	765	$	1,111		$	26	$	1,137


	As of December 31, 2020							As of December 31, 2021
	Performing		Nonperforming			Total		Performing		Nonperforming			Total
Origination Year
2021								$	467		$	2	$	469
2020	$	176		$	8	$	184		129			2		131
2019		315			51		366		189			21		210
2018		175			12		187		104			5		109
2017		-			-		-		-			-		-
2016		-			-		-
2015 and prior		-			-		-
2016 and prior									-			-		-
Total	$	666		$	71	$	737	$	889		$	30	$	919

~~Table of Contents~~

Credit Losses on Mortgage Loans on Real Estate

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.

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



	For the Three									For the Three
	Months Ended									Months Ended
	September 30, 2021									June 30, 2022
	Commercial			Residential			Total			Commercial		Residential			Total
Balance as of beginning-of-period	$	155		$	14		$	169		$	59	$	18		$	77
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(41	)		2			(39	)		13		(9	)		4
Additions from purchases of PCD mortgage loans on real estate		-			-			-			-		-			-
Balance as of end-of-period ⁽²⁾	$	114		$	16		$	130		$	72	$	9		$	81

	For the Nine
	Months Ended
	September 30, 2021
	Commercial			Residential			Total
Balance as of beginning-of-period	$	186		$	17		$	203
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(72	)		(1	)		(73	)
Additions from purchases of PCD mortgage loans on real estate		-			-			-
Balance as of end-of-period ⁽²⁾	$	114		$	16		$	130

For the Three
Months Ended
September 30, 2020
Commercial
Residential
Total
Balance as of beginning-of-period
$
234
$
37
$
271
Additions (reductions) from provision for credit loss expense ⁽³⁾
(63
)
(7
)
(70
)
Additions from purchases of PCD mortgage loans on real estate
-
-
-
Balance as of end-of-period ⁽²⁾
$
171
$
30
$
201
For the Nine
Months Ended
September 30, 2020
Commercial
Residential
Total
Balance as of beginning-of-period
$
-
$
2
$
2
Impact of new accounting standard
61
26
87
Additions (reductions) from provision for credit loss expense ⁽³⁾
110
2
112
Additions from purchases of PCD mortgage loans on real estate
-
-
-
Balance as of end-of-period ⁽²⁾
$
171
$
30
$
201


	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⁾Due to improving economic projections, the provision for credit loss expense decreased by $39 million and $73 million for the three and nine months ended September 30, 2021, respectively. We recognized $1 million and $4 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the three and nine months ended September 30, 2021, respectively.

⁽²⁾~~Accrued interest receivable on mortgage loans on real estate totaled $50 million as of September 30, 2021 and 2020, and was excluded from the estimate of credit losses.~~

⁽³⁾Due to changes in economic projections driven by the impact of the COVID-19 pandemic, the provision for credit loss expense decreased by $70 million for the three months ended September 30, 2020, and increased by $112 million for the nine months ended September 30, 2020. For the three months ended September 30, 2020, we recognized no credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate. For the nine months ended September 30, 2020, we recognized $1 million of credit loss beneﬁt (expense) related to unfunded commitments for mortgage loans on real estate.

Table of Contents


	For the Three
	Months Ended
	June 30, 2021
	Commercial			Residential		Total
Balance as of beginning-of-period	$	171		$	12	$	183
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(16	)		2		(14	)
Additions from purchases of PCD mortgage loans on real estate		-			-		-
Balance as of end-of-period ⁽²⁾	$	155		$	14	$	169


	For the Six
	Months Ended
	June 30, 2021
	Commercial			Residential			Total
Balance as of beginning-of-year	$	186		$	17		$	203
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(31	)		(3	)		(34	)
Additions from purchases of PCD mortgage loans on real estate		-			-			-
Balance as of end-of-period ⁽²⁾	$	155		$	14		$	169

⁽¹⁾We recognized less than $(1) million and $(1) million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the three months ended June 30, 2022 and 2021, respectively. We recognized less than $(1) million and $2 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the six months ended June 30, 2022 and 2021, respectively.

⁽²⁾Accrued investment income on mortgage loans on real estate totaled $49 million and $50 million as of June 30, 2022 and 2021, respectively, and was excluded from the estimate of credit losses.

Alternative Investments

As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, alternative investments included investments in ~~297~~317 and ~~270~~305 different partnerships, respectively, and represented approximately 2% ~~and 1%, respectively,~~ of total investments.

Table of Contents

Impairments on Fixed Maturity AFS Securities

Details underlying credit loss benefit (expense) incurred as a result of impairments that were recognized in net income (loss) and included in realized gain (loss) on fixed maturity AFS securities (in millions) were as follows:



	For the Three						For the Nine						For the Three					For the Six
	Months Ended						Months Ended						Months Ended					Months Ended
	September 30,						September 30,						June 30,					June 30,
	2021			2020			2021			2020			2022			2021		2022			2021
Credit Loss Benefit (Expense)
Fixed maturity AFS securities:
Corporate bonds	$	(8	)	$	(2	)	$	(9	)	$	(21	)	$	(3	)	$	1	$	(2	)	$	(1	)
RMBS		-			-			-			(1	)		(1	)		-		(2	)		-
ABS		-			1			-			-			-			-		(1	)		-
Gross credit loss benefit (expense)		(8	)		(1	)		(9	)		(22	)		(4	)		1		(5	)		(1	)
Associated amortization of DAC, VOBA, DSI and DFEL ⁽¹⁾		-			-			-			1			-			-		-			-
Net credit loss benefit (expense)	$	(8	)	$	(1	)	$	(9	)	$	(21	)	$	(4	)	$	1	$	(5	)	$	(1	)

⁽¹⁾Deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”).

Payables for Collateral on Investments

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



	As of September 30, 2021				As of December 31, 2020				As of June 30, 2022				As of December 31, 2021
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value		Value		Value		Value		Value
Collateral payable for derivative investments ⁽¹⁾	$	4,948	$	4,948	$	2,970	$	2,970	$	3,296	$	3,296	$	5,565	$	5,565
Securities pledged under securities lending agreements ⁽²⁾		300		290		115		112		299		291		241		235
Investments pledged for Federal Home Loan Bank of
Indianapolis (“FHLBI”)⁽³⁾		3,130		4,911		3,130		5,049
Indianapolis ⁽³⁾										3,930		5,259		3,130		4,876
Total payables for collateral on investments	$	8,378	$	10,149	$	6,215	$	8,131	$	7,525	$	8,846	$	8,936	$	10,676

⁽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 5 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 investments for ~~FHLBI~~Federal Home Loan Bank (“FHLB”) of Indianapolis (“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.

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 ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, we were not participating in any open repurchase agreements.

1617

Table of Contents

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



	For the Nine					For the Six
	Months Ended					Months Ended
	September 30,					June 30,
	2021		2020			2022			2021
Collateral payable for derivative investments	$	1,978	$	1,789		$	(2,269	)	$	1,414
Securities pledged under securities lending agreements		185		17			58			113
Investments pledged for FHLBI		-		(450	)		800			450
Total increase (decrease) in payables for collateral on investments	$	2,163	$	1,356		$	(1,411	)	$	1,977

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


	As of September 30, 2021										As of June 30, 2022
	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
Securities Lending
Corporate bonds		299		-		-		-		299	$	288	$	-	$	-	$	-	$	288
Foreign government bonds		1		-		-		-		1		10		-		-		-		10
Equity securities												1		-		-		-		1
Total gross secured borrowings	$	300	$	-	$	-	$	-	$	300	$	299	$	-	$	-	$	-	$	299



	As of December 31, 2020										As of December 31, 2021
	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
Securities Lending
Corporate bonds	$	114	$	-	$	-	$	-	$	114	$	239	$	-	$	-	$	-	$	239
Foreign government bonds		1		-		-		-		1		1		-		-		-		1
Equity securities												1		-		-		-		1
Total gross secured borrowings	$	115	$	-	$	-	$	-	$	115	$	241	$	-	$	-	$	-	$	241

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 that we are permitted to sell or re-pledge. As of ~~September~~June 30, ~~2021,~~2022, the fair value of all collateral received that we are permitted to sell or re-pledge was ~~$23~~$25 million, and we had ~~not~~ re-pledged ~~any~~all of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative ~~investments as of September 30, 2021.~~investments.

Investment Commitments

As of ~~September~~June 30, ~~2021,~~2022, our investment commitments were ~~$2.7~~$2.6 billion, which included ~~$1.7~~$1.4 billion of LPs, ~~$653~~$787 million of private placement securities and ~~$346~~$384 million of mortgage loans on real estate.

Concentrations of Financial Instruments

As of ~~September~~June 30, 2022, and December 31, 2021, our most significant investments in one issuer were our investments in securities issued by ~~the Federal Home Loan Mortgage Corporation and by the Federal National Mortgage Association~~White Chapel LLC with a fair value of ~~$1.1~~$1.0 billion and ~~$1.0 billion,~~$995 million, respectively, or 1% of total ~~investments. As of December 31, 2020, our most significant~~ investments, ~~in one issuer were~~and our investments in securities issued by the Federal Home Loan Mortgage Corporation ~~and by White Chapel LLC~~ with a fair value of ~~$1.2 billion~~$760 million and ~~$1.0 billion,~~$910 million, respectively, or 1% of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of ~~$21.9~~$19.7 billion and $21.7 billion, respectively, or 15% and 14%, respectively, of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of ~~$19.0~~$15.3 billion and ~~$19.2~~$18.6 billion, respectively, or ~~12%~~11% and ~~13%~~12%, respectively, of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

1718

Table of Contents

5. 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. We assess these risks by continually identifying and monitoring changes in our 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 overseeing the implementation of various hedging strategies that are developed through the analysis of financial simulation models and other internal and industry sources. The resulting hedging strategies are incorporated into our overall risk management strategies.

See Note 1412 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 designated and qualifying as cash flow hedges to hedge our exposure to interest rate fluctuations related to the forecasted purchases of certain assets.

We also use forward-starting interest rate swaps to hedge the interest rate exposure within our life products related to the forecasted purchases of certain assets.

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.

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.

1819

Table of Contents

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, ~~products~~indexed variable annuity and fixed indexed ~~variable~~ annuity 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. Contract holders 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 contract holders, 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.

Put Options

We use put options to hedge the liability exposure on certain options in variable annuity products. Put options are contracts that require counterparties to pay us 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.

Table of Contents

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

~~Table of Contents~~

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 contract holders and investors. The CDSs hedge the contract holders 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 Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”), an affiliated insurer, assumes the risk under certain UL contracts for lapse protection riders (“LPR”). If the contract holder’s account value is insufficient to pay the cost of insurance charges required to keep the policy in force, and the contract holder has made the required deposits, we will be reimbursed for those charges.

Embedded Derivatives

We have embedded derivatives that include:

GLB Reserves Embedded Derivatives

Certain features of these guarantees have elements of both insurance benefits accounted for under the Financial Services – Insurance – Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB Accounting Standards Codification (“ASC”) (“benefit reserves”) and embedded derivatives accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC (“embedded derivative reserves”). We calculate the value of the benefit reserves and the embedded derivative reserves based on the specific characteristics of each guaranteed living benefit (“GLB”) feature.

We use a hedging strategy designed to mitigate the risk and income statement volatility caused by changes in the equity markets, interest rates and volatility associated with GLBs offered in our variable annuity products, including products with guaranteed withdrawal benefit and guaranteed income benefit features. These GLB features are reinsured among various reinsurance counterparties on a coinsurance basis. We cede a portion of the GLB features to LNBAR, a wholly-owned subsidiary of LNC, on a funds withheld coinsurance basis. The funds withheld arrangement includes a dynamic hedging strategy designed to mitigate selected risks. Changes in the value of the hedge contracts due to changes in equity markets, interest rates and implied volatilities hedge the income statement effect of changes in embedded derivative GLB reserves assumed by LNBAR caused by those same factors. We rebalance our hedge positions based upon changes in these factors as needed. While we actively manage our hedge positions, these hedge positions may not be totally effective in offsetting changes in the embedded derivative reserve assumed by LNBAR due to, among other things, differences in timing between when a market exposure changes and corresponding changes to the hedge positions, extreme swings in the equity markets and interest rates, market volatility, contract holder behavior, divergence between the performance of the underlying funds and the hedging indices, divergence between the actual and expected performance of the hedge instruments and our ability to purchase hedging instruments at prices consistent with our desired risk and return trade-off. However, the hedging results do not impact LNL due to a funds withheld agreement with LNBAR, which causes the financial impact of the derivatives, as well as the cash flow activity, to be reflected on LNBAR.

Table of Contents

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. Contract holders 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 contract holders, such that we are economically hedged with respect to equity returns for the current reset period.

~~Table of Contents~~

~~Reinsurance Related~~Reinsurance-Related Embedded Derivatives

We have certain modified coinsurance ~~(“Modco”)~~ 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.

Table of Contents

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 September 30, 2021						As of December 31, 2020						As of June 30, 2022						As of December 31, 2021
	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⁾	$	1,516	$	53	$	34	$	964	$	87	$	11	$	2,134	$	5	$	222	$	2,009	$	98	$	11
Foreign currency contracts ⁽¹⁾		3,745		259		54		3,089		147		151		4,281		598		8		3,979		283		51
Total cash flow hedges		5,261		312		88		4,053		234		162		6,415		603		230		5,988		381		62
Fair value hedges:
Interest rate contracts ⁽¹⁾		528		-		212		530		-		271		524		-		89		526		-		210
Non-Qualifying Hedges
Interest rate contracts ⁽¹⁾		78,941		1,211		190		135,434		1,587		159		89,687		596		579		82,786		897		176
Foreign currency contracts ⁽¹⁾		369		6		1		304		1		8		382		27		1		487		7		2
Equity market contracts ⁽¹⁾		92,835		5,217		1,651		74,300		3,486		1,952		94,377		4,598		1,813		92,278		6,461		2,108
Commodity contracts ⁽¹⁾														10		9		-		-		-		-
Credit contracts ⁽¹⁾		32		-		-		51		-		-		244		-		-		49		-		-
LPR ceded derivative ⁽²⁾		-		293		-		-		-		-		-		215		-		-		318		-
Embedded derivatives:
GLB direct ⁽³⁾		-		1,698		-		-		450		-		-		1,400		-		-		1,963		-
GLB ceded ⁽³⁾		-		55		1,749		-		82		531		-		41		1,437		-		56		2,015
Reinsurance related ⁽⁴⁾		-		-		692		-		-		540
Reinsurance-related ⁽⁴⁾														-		401		-		-		-		578
Indexed annuity and IUL contracts ^{(3) (5)}		-		495		4,804		-		550		3,594		-		440		3,366		-		528		6,131
Total derivative instruments	$	177,966	$	9,287	$	9,387	$	214,672	$	6,390	$	7,217	$	191,639	$	8,330	$	7,515	$	182,114	$	10,611	$	11,282

⁽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 assets and other liabilities on our Consolidated Balance Sheets.

⁽⁴⁾Reported in ~~reinsurance related~~reinsurance-related embedded derivatives on our Consolidated Balance Sheets.

⁽⁵⁾Reported in future contract benefits on our Consolidated Balance Sheets.

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



	Remaining Life as of September 30, 2021												Remaining Life as of June 30, 2022
	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⁾	$	2,508	$	49,605	$	16,004	$	12,868	$	-	$	80,985	$	24,275	$	29,824	$	21,587	$	16,659	$	-	$	92,345
Foreign currency contracts ⁽²⁾		195		563		1,582		1,732		42		4,114		295		633		1,627		2,014		94		4,663
Equity market contracts		59,199		16,253		7,023		1,623		8,737		92,835		54,801		22,871		7,303		10		9,392		94,377
Commodity contracts														10		-		-		-		-		10
Credit contracts		-		32		-		-		-		32		-		244		-		-		-		244
Total derivative instruments
with notional amounts	$	61,902	$	66,453	$	24,609	$	16,223	$	8,779	$	177,966	$	79,381	$	53,572	$	30,517	$	18,683	$	9,486	$	191,639

⁽¹⁾As of ~~September~~June 30, ~~2021,~~2022, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was ~~November 22, 2023.~~December 18, 2024.

⁽²⁾As of ~~September~~June 30, ~~2021,~~2022, 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.

‎

2123

Table of Contents

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

September 30,

December 31,

September 30,

December 31,

June 30,

December 31,

June 30,

December 31,

2021

2020

2021

2020

2022

2021

2022

2021

Line Item in the Consolidated Balance Sheets in

which the Hedged Item is Included

Fixed maturity AFS securities, at fair value

762

824

212

271

640

764

211

The change in our unrealized gain (loss) on derivative instruments within accumulated other comprehensive income (loss) (“AOCI”) (in millions) was as follows:



	For the Nine						For the Six
	Months Ended						Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	42		$	181		$	240		$	42
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period:
Cash flow hedges:
Interest rate contracts		(58	)		75			(307	)		(69	)
Foreign currency contracts		113			213			19			55
Change in foreign currency exchange rate adjustment		129			(16	)		373			45
Change in DAC, VOBA, DSI and DFEL		-			(70	)		4			(29	)
Income tax benefit (expense)		(40	)		(43	)		(18	)		(1	)
Less:
Reclassification adjustment for gains (losses)
included in net income (loss):
Cash flow hedges:
Interest rate contracts ⁽¹⁾		2			2			1			1
Foreign currency contracts ⁽¹⁾		34			46			30			21
Foreign currency contracts ⁽²⁾		(2	)		6			4			(2	)
Associated amortization of DAC, VOBA, DSI and DFEL		(1	)		(14	)		(10	)		(19	)
Income tax benefit (expense)		(7	)		(8	)		(5	)		-
Balance as of end-of-period	$	160		$	308		$	291		$	42

⁽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).

‎

2224

Table of Contents

The effects of qualifying and non-qualifying hedges (in millions) on the Consolidated Statements of Comprehensive Income (Loss) were as follows:



	Gain (Loss) Recognized in Income																Gain (Loss) Recognized in Income
	For the Three Months Ended September 30,																For the Three Months Ended June 30,
	2021								2020								2022								2021
	Realized			Net					Realized			Net					Realized			Net					Realized			Net
	Gain			Investment					Gain			Investment					Gain			Investment					Gain			Investment
	(Loss)			Income			Benefits		(Loss)			Income			Benefits		(Loss)			Income			Benefits		(Loss)			Income			Benefits
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	(24	)	$	1,511		$	1,840	$	(13	)	$	1,404		$	2,350	$	82		$	1,309		$	2,051	$	(172	)	$	1,510		$	1,848

Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(10	)		-		-			(21	)		-		-			(58	)		-		-			35			-
Derivatives designated as
hedging instruments		-			10			-		-			21			-		-			58			-		-			(35	)		-
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			1			-		-			1			-		-			-			-		-			-			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			13			-		(2	)		24			-		1			17			-		-			11			-


Non-Qualifying Hedges
Interest rate contracts		(149	)		-			-		(374	)		-			-		(625	)		-			-		432			-			-
Foreign currency contracts																		2			-			-		(1	)		-			-
Equity market contracts		387			-			-		949			-			-		(1,588	)		-			-		713			-			-
Credit contracts		-			-			-		1			-			-
Commodity contracts																		9			-			-		-			-			-
LPR ceded derivative		-			-			1		-			-			-		-			-			51		-			-			26
Embedded derivatives:
GLB		-			-			-		4			-			-		(1	)		-			-		-			-			-
Reinsurance related		37			-			-		(127	)		-			-
Reinsurance-related																		432			-			-		(213	)		-			-
Indexed annuity and IUL
contracts		33			-			-		(105	)		-			-		2,177			-			-		(735	)		-			-

‎

2325

Table of Contents


	Gain (Loss) Recognized in Income
	For the Six Months Ended June 30,
	2022								2021
	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	$	347		$	2,661		$	4,250	$	39		$	2,957		$	4,031


Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(121	)		-		-			(49	)		-
Derivatives designated as																-
hedging instruments		-			121			-		-			49
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			1			-		-			1			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		4			30			-		(2	)		21			-



Non-Qualifying Hedges
Interest rate contracts		(1,446	)		-			-		(727	)		-			-
Foreign currency contracts		3			-			-		(1	)		-			-
Equity market contracts		(1,912	)		-			-		1,955			-			-
Commodity contracts		9			-			-		-			-			-
LPR ceded derivative		-			-			103		-			-			76
Embedded derivatives:
GLB		-			-			-		3			-			-
Reinsurance-related		979			-			-		129			-			-
Indexed annuity and IUL
contracts		2,683			-			-		(1,329	)		-			-

Gain (Loss) Recognized in Income
For the Nine Months Ended September 30,
2021
2020
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
$
16
$
4,468
$
5,871
$
(448
)
$
3,834
$
6,042
Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items
-
(59
)
-
-
100
-
Derivatives designated as
-
hedging instruments
-
59
-
-
(100
)
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income
-
2
-
-
2
-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income
(2
)
34
-
6
46
-
Non-Qualifying Hedges
Interest rate contracts
(876
)
-
-
1,795
-
-
Foreign currency contracts
(1
)
-
-
-
-
-
Equity market contracts
2,342
-
-
565
-
-
Credit contracts
-
-
-
(4
)
-
-
LPR ceded derivative
-
-
77
-
-
-
Embedded derivatives:
GLB
3
-
-
(1
)
-
-
Reinsurance related
166
-
-
(141
)
-
-
Indexed annuity and IUL
contracts
(1,296
)
-
-
396
-
-

As of ~~September~~June 30, ~~2021, $78~~2022, $93 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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, there were 0 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 September 30, 2021, we did not have any exposure related to CDSs for which we are the seller.~~
‎

2426

Table of Contents

Information related to our CDSs for which we are the seller (dollars in millions) was as follows:

As of December 31, 2020

As of June 30, 2022

Credit

Reason

Nature

Rating of

Number

Maximum

Reason

Nature

Rating of

Number

Maximum

for

Underlying

Fair

Potential

for

Underlying

Fair

Potential

Credit Contract Type

Maturity

Entering

Recourse

Obligation ⁽¹⁾

Instruments

Value ⁽²⁾

Payout

Maturity

Entering

Recourse

Obligation ⁽¹⁾

Instruments

Value ⁽²⁾

Payout

Basket CDSs

12/20/2025

⁽³⁾

⁽⁴⁾

BBB+

6/20/2027

⁽³⁾

⁽⁴⁾

BBB+

244

⁽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 CDSs.

⁽³⁾CDSs 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.

As of December 31, 2021, we did not have any exposure related to CDSs for which we are the seller.

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



		As of			As of			As of			As of
	September 30,			December 31,			June 30,			December 31,
		2021			2020			2022			2021
Maximum potential payout		$	-		$	51		$	244		$	-
Less: Counterparty thresholds			-			-			-			-
Maximum collateral potentially required to post		$	-		$	51		$	244		$	-

Certain of our CDS 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, weour counterparties would have been required to post ~~collateral if the market value was~~ less than ~~zero.~~$1 million of collateral as of June 30, 2022.

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”). The NPR 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 ~~September~~June 30, ~~2021,~~2022, the NPR adjustment was 0. 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 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. We did 0t have any exposure as of ~~September~~June 30, ~~2021,~~2022, or December 31, ~~2020.~~2021.

‎

2527

Table of Contents

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 September 30, 2021					As of December 31, 2020					As of June 30, 2022					As of December 31, 2021
	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-	$	1,940	$	-		$	1,232	$	(7	)	$	677	$	(1	)	$	2,346	$	-
A+		2,527		(40	)		1,112		(175	)		2,489		(105	)		2,762		(44	)
A		60		-			53		-			126		-			456		-
A-		421		-			572		-
	$	4,948	$	(40	)	$	2,969	$	(182	)	$	3,292	$	(106	)	$	5,564	$	(44	)

Balance Sheet Offsetting

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



		As of September 30, 2021										As of June 30, 2022
					Embedded										Embedded
	Derivative										Derivative
	Instruments							Total			Instruments							Total

Financial Assets
Gross amount of recognized assets		$	7,393			$	2,248	$	9,641			$	5,469			$	2,282	$	7,751
Gross amounts offset			(1,914	)			-		(1,914	)			(2,379	)			-		(2,379	)
Net amount of assets ⁽¹⁾			5,479				2,248		7,727				3,090				2,282		5,372
Gross amounts not offset:
Cash collateral			(4,948	)			-		(4,948	)
Cash collateral ⁽²⁾													(3,090	)			-		(3,090	)
Non-cash collateral			(224	)			-		(224	)			-				-		-
Net amount		$	307			$	2,248	$	2,555			$	-			$	2,282	$	2,282

Financial Liabilities
Gross amount of recognized liabilities		$	663			$	7,245	$	7,908			$	241			$	4,803	$	5,044
Gross amounts offset			(3	)			-		(3	)			(84	)			-		(84	)
Net amount of liabilities			660				7,245		7,905				157				4,803		4,960
Gross amounts not offset:
Cash collateral			(40	)			-		(40	)
Cash collateral ⁽²⁾													(106	)			-		(106	)
Non-cash collateral			-				-		-				-				-		-
Net amount		$	620			$	7,245	$	7,865			$	51			$	4,803	$	4,854

⁽¹⁾Includes deferred premiums receivable (payable) of ~~$651~~$(279) million reported in other assets and other liabilities on our Consolidated Balance Sheets.

⁽²⁾Excludes excess cash collateral received of $202 million, as the cash collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.

‎

2628

Table of Contents

As of December 31, 2020
Embedded
Derivative
Derivative
Instruments
Instruments
Total
Financial Assets
Gross amount of recognized assets
$
4,978
$
1,082
$
6,060
Gross amounts offset
(1,869
)
-
(1,869
)
Net amount of assets
3,109
1,082
4,191
Gross amounts not offset:
Cash collateral
(2,969
)
-
(2,969
)
Non-cash collateral
(56
)
-
(56
)
Net amount
$
84
$
1,082
$
1,166
Financial Liabilities
Gross amount of recognized liabilities
$
902
$
4,665
$
5,567
Gross amounts offset
(330
)
-
(330
)
Net amount of liabilities
572
4,665
5,237
Gross amounts not offset:
Cash collateral
(182
)
-
(182
)
Non-cash collateral
-
-
-
Net amount
$
390
$
4,665
$
5,055



		As of December 31, 2021
					Embedded
	Derivative				Derivative
	Instruments				Instruments			Total

Financial Assets
Gross amount of recognized assets		$	7,938			$	2,547	$	10,485
Gross amounts offset			(2,241	)			-		(2,241	)
Net amount of assets ⁽¹⁾			5,697				2,547		8,244
Gross amounts not offset:
Cash collateral			(5,564	)			-		(5,564	)
Non-cash collateral			(133	)			-		(133	)
Net amount		$	-			$	2,547	$	2,547

Financial Liabilities
Gross amount of recognized liabilities		$	349			$	8,724	$	9,073
Gross amounts offset			(68	)			-		(68	)
Net amount of liabilities			281				8,724		9,005
Gross amounts not offset:
Cash collateral			(44	)			-		(44	)
Non-cash collateral			-				-		-
Net amount		$	237			$	8,724	$	8,961

⁽¹⁾Includes deferred premiums receivable (payable) of $260 million reported in other assets on our Consolidated Balance Sheets.

6. Fed~~6. Federal~~eral Income Taxes

The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss). The effective tax rate was ~~15% and~~ 16% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively,~~2022, compared to ~~29%~~15% and ~~137%~~16%, respectively, for the corresponding periods in ~~2020.~~2021. The effective tax rate on pre-tax income is 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 ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, the effective tax rate differed from the prevailing corporate federal income tax rate ~~of 21%~~ due primarily to the effects of the preferential tax items.

‎

For the three and nine months ended September 30, 2020, the effective tax rate differed from the prevailing corporate federal income tax rate of 21% due primarily to a tax benefit at 21% from pre-tax losses in addition to the effects of preferential tax items.

~~7. Reinsurance~~

~~Credit Losses on Reinsurance-related Assets~~

In connection with our recognition of an allowance for credit losses for reinsurance-related assets, we perform a quantitative analysis using a probability of loss approach to estimate expected credit losses for reinsurance recoverables, inclusive of similar assets recognized using the deposit method of accounting. As of September 30, 2021, our allowance for credit losses for reinsurance-related assets was $196 million. There have been no material changes to the allowance for credit losses for the nine months ended September 30, 2021.

~~Modco Agreements~~

Some portions of our annuity business have been reinsured on a Modco basis with other companies. In a Modco agreement, we as the ceding company retain the reserves, as well as the assets backing those reserves, and the reinsurer shares proportionally in all financial terms of the reinsured policies based on their respective percentage of the risk. Effective October 1, 2018, we entered into one such Modco agreement with Athene Holding Ltd. (“Athene”) to reinsure fixed annuity products, which resulted in a deposit asset of $5.1 billion and $5.8 billion as of September 30, 2021, and December 31, 2020, respectively, within other assets on our Consolidated Balance Sheets.

2729

Table of Contents

7. Guaranteed

~~We held assets in support of reserves associated with the transaction in a Modco investment portfolio, which consisted of the following (in millions):~~

As of
As of
September 30,
December 31,
2021
2020
Fixed maturity AFS securities
$
1,114
$
1,531
Trading securities
3,096
3,357
Equity securities
27
17
Mortgage loans on real estate
792
832
Derivative investments
86
103
Other investments
251
167
Cash and invested cash
207
92
Accrued investment income
36
42
Other assets
25
3
Total
$
5,634
$
6,144

~~In addition, the portfolio was supported by $166 million of over-collateralization and a $152 million letter of credit as of September 30, 2021.~~

~~Reinsurance Transaction~~

Our previously announced reinsurance transaction with Security Life of Denver Insurance Company, a subsidiary of Resolution Life, to reinsure liabilities under a block of in-force executive benefit and universal life policies in our Life Insurance business became effective as of October 1, 2021. The agreement is structured as coinsurance for the general account reserves and Modco for the separate account reserves. The $1.2 billion in proceeds from the transaction will predominantly be used by LNC to fund incremental share repurchases that we expect to be completed by the end of the first quarter of 2022, with the remainder to be used for general corporate purposes, primarily paying down debt.

~~8. Guaranteed~~ Benefit Features

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



	As of						As of		As of
	September 30,			December 31,			June 30,		December 31,
		2021 ⁽¹⁾			2020 ⁽¹⁾		2022 ⁽¹⁾			2021 ⁽¹⁾
Return of Net Deposits
Total account value		$	114,058		$	109,856	$	96,245		$	117,503
Net amount at risk ⁽²⁾			96			72		990			84
Average attained age of contract holders			66 years			66 years		67 years			67 years

Minimum Return
Total account value		$	98		$	100	$	76		$	102
Net amount at risk ⁽²⁾			12			12		15			11
Average attained age of contract holders			79 years			78 years		79 years			79 years
Guaranteed minimum return			5%			5%		5%			5%

Anniversary Contract Value
Total account value		$	28,067		$	27,650	$	22,393		$	28,788
Net amount at risk ⁽²⁾			511			390		3,839			400
Average attained age of contract holders			73 years			72 years		73 years			73 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.

~~Table of Contents~~

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. The following summarizes the balances of and changes in the liabilities for GDBs (in millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:



	For the Nine						For the Six
	Months Ended						Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Balance as of beginning-of-year	$	121		$	117		$	132		$	121
Changes in reserves		31			46			202			14
Benefits paid		(16	)		(21	)		(21	)		(11	)
Balance as of end-of-period	$	136		$	142		$	313		$	124

Variable Annuity Contracts

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			As of
	September 30,			December 31,			June 30,		December 31,
		2021			2020		2022			2021
Asset Type
Domestic equity		$	73,503		$	70,362	$	59,512		$	77,290
International equity			21,041			20,855		16,410			21,223
Fixed income			44,627			43,521		37,845			45,231
Total		$	139,171		$	134,738	$	113,767		$	143,744

Percent of total variable annuity separate account values			98%			98%

Secondary Guarantee Products

Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment. Reserves on UL and VUL products with secondary guarantees represented 37% of total life insurance in-force reserves as of ~~September~~June 30, ~~2021,~~2022, and December 31, 2020. UL and VUL products with secondary guarantees represented 17% and 15% of total life insurance sales for the three and nine months ended September 30, 2021, respectively, compared to 32% for the corresponding periods in 2020.

2021.

2930

Table of Contents

9.8. Liability for ~~Unpaid~~Unpaid Claims

The liability for unpaid claims consists primarily of long-term disability claims and is reported in future contract benefits on our Consolidated Balance Sheets. Changes in the liability for unpaid claims (in millions) were as follows:



	For the Nine						For the Six
	Months Ended						Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Balance as of beginning-of-year	$	5,934		$	5,552		$	6,280		$	5,934
Reinsurance recoverable		151			152			147			151
Net balance as of beginning-of-year		5,783			5,400			6,133			5,783
Incurred related to:
Current year		2,999			2,615			2,014			1,932
Prior years:
Interest		112			116			81			81
All other incurred ⁽¹⁾		(284	)		(157	)		(149	)		(170	)
Total incurred		2,827			2,574			1,946			1,843
Paid related to:
Current year		(1,393	)		(1,184	)		(794	)		(792	)
Prior years		(1,222	)		(1,118	)		(1,052	)		(953	)
Total paid		(2,615	)		(2,302	)		(1,846	)		(1,745	)
Net balance as of end-of-period		5,995			5,672			6,233			5,881
Reinsurance recoverable		145			149			142			148
Balance as of end-of-period	$	6,140		$	5,821		$	6,375		$	6,029

⁽¹⁾All other incurred is primarily impacted by the level of claim resolutions in the period compared to that which is expected by the reserve assumption. A negative number implies a favorable result where claim resolutions were more favorable than assumed. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the long-term life of the block of claims. It will vary from actual experience in any one period, both favorably and unfavorably.

The interest rate assumption used for discounting long-term claim reserves is an important part of the reserving process due to the long benefit period for these claims. Interest accrued on prior years’ reserves has been calculated on the opening reserve balance less one-half of the prior years’ incurred claim payments at our average reserve discount rate.

Long-term disability benefits may extend for many years, and claim development schedules do not reflect these longer benefit periods. As a result, we use longer term retrospective runoff studies, experience studies and prospective studies to develop our liability estimates. Long-term disability reserves are discounted using rates ranging from 2.5% to 5.0% that vary by year of claim incurral.

~~10. Debt~~

~~Credit Facility~~

On June 21, 2021, LNC entered into an amended and restated credit agreement with a syndicate of banks, which amended and restated LNC’s existing credit facility agreement, dated as of July 31, 2019. The amended credit facility, which is unsecured, allows for the issuance of letters of credit (“LOCs”) and borrowing of up to $2.5 billion and has a commitment termination date of June 19, 2026. The LOCs under the credit facility are used primarily to satisfy reserve credit requirements of (i) LNL and LNC’s other domestic insurance companies for which reserve credit is provided by our captive reinsurance subsidiaries and LNBAR and (ii) certain ceding companies of our legacy reinsurance business.

‎

~~Table of Contents~~

~~The amended credit facility agreement contains:~~

Customary terms and conditions, including covenants restricting the ability of LNC and its subsidiaries to incur liens and the ability of LNC to merge or consolidate with another entity where it is not the surviving entity and dispose of all or substantially all of its assets;

Financial covenants including maintenance by LNC of a minimum consolidated net worth equal to the sum of $10.0 billion plus 50% of the aggregate net proceeds of equity issuances received by LNC or any of its subsidiaries in accordance with the terms of the agreement; and a debt-to-capital ratio as defined in accordance with the agreement not to exceed 0.35 to 1.00;

~~A cap on LNC’s secured non-operating indebtedness and non-operating indebtedness of LNC’s subsidiaries equal to 7.5% of total capitalization, as defined in accordance with the agreement; and~~

~~Customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default.~~

Upon an event of default, the amended credit facility agreement provides that, among other things, the commitments may be terminated and the loans then outstanding may be declared due and payable. As of September 30, 2021, LNC was in compliance with all such covenants.

~~11.~~9. Contingencies and Commitments

Contingencies

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 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

Table of Contents

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 ~~September~~June 30, ~~2021.~~2022.

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 ~~September~~June 30, ~~2021,~~2022, 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 $120 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.

~~Table of Contents~~

Among other matters, we are presently engaged in litigation, including relating to cost of insurance rates (“Cost of Insurance and Other Litigation”), as described below. No accrual has been made for several of these matters. Although a loss is believed to be reasonably possible for 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 impact on ~~our~~the consolidated financial statements, but, based on information currently known, management does not believe those cases are likely to have such an impact.

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 ~~will~~may initiate ~~arbitration~~legal proceedings, as necessary, under these agreements in order to protect our contractual rights. Additionally, reinsurers have initiated, and may in the future initiate, ~~arbitration~~legal proceedings against us. We believe it is unlikely the outcome of these disputes would have a material impact on ~~our~~the consolidated financial statements. ~~For more information about reinsurance, see Note 7.~~

Cost of Insurance and Other Litigation

Cost of Insurance Litigation

Glover v. 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. 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.

Hanks v. Lincoln Life & Annuity Company of New York (“LLANY”) and Voya Retirement Insurance and Annuity Company (“Voya”), filed in the U.S. District Court for the Southern District of New York, No. 1:16-cv-6399, is a putative class action that was served on LLANY on August 12, 2016. Plaintiff owns a universal life policy originally issued by Aetna (now Voya) and alleges that (i) Voya breached the terms of the policy when it increased non-guaranteed cost of insurance rates on Plaintiff’s policy; and (ii) LLANY, as reinsurer and administrator of Plaintiff’s policy, engaged in wrongful conduct related to the cost of insurance increase and was unjustly enriched as a result. Plaintiff seeks to represent all owners of Aetna life insurance policies that were subject to non-guaranteed cost of insurance rate increases in 2016 and seeks damages on their behalf. On March 13, 2019, the court issued an order granting plaintiff’s motion for class certification for the breach of contract claim and denying such motion with respect to the unjust enrichment claim against LLANY, and, on September 12, 2019, the court issued an order approving the parties’ joint stipulation of dismissal with respect to the unjust enrichment claim and dismissed LLANY as a defendant in the case. In light of LLANY’s role as reinsurer and administrator under the 1998 coinsurance agreement with Aetna (now Voya), and of the parties’ rights and obligations thereunder, LLANY continues to be actively engaged in the defense of this case. On September 30, 2020, the court denied plaintiff’s motion for summary judgment and granted in part Voya’s motion for summary judgment. On October 22, 2021, the parties informed the presiding judge that they have

Table of Contents

reached a settlement of the action, subject to court approval. ~~The parties requested the suspension of the current case-schedule, including trial date, and 45 days to prepare~~On January 19, 2022, plaintiffs filed a ~~final settlement agreement and~~renewed motion for preliminary ~~approval.~~approval of the class action settlement. The settlement consists of $92.5 million in pre-tax cash and a five-year cost of insurance rate freeze, among other terms. On ~~October 25, 2021,~~February 3, 2022, the ~~presiding judge~~court preliminarily approved the ~~parties’ request. The~~class action settlement, and on June 29, 2022, the court conducted a final fairness hearing concerning the terms of the ~~provisional~~ settlement, ~~remain confidential.~~and granted final approval.

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 Legend Series universal life insurance policies originally issued by Jefferson-Pilot (now LNL). 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, Master File No. 2:16-cv-06605-GJP, is a consolidated litigation matter related to multiple putative class action filings that were consolidated by an order dated March 20, 2017. In addition to consolidating a number of existing matters, the order also covers any future cases filed in the same district related to the same subject matter. Plaintiffs own universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2016. Plaintiffs seek to represent classes of policyowners and seek damages on their behalf. We are vigorously defending this matter.

In re: Lincoln National 2017 COI Rate Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Master File No. 2:17-cv-04150, is a consolidated litigation matter related to multiple putative class action filings that were consolidated by an order of the court in March 2018. Plaintiffs own universal life insurance policies originally issued by former Jefferson-Pilot (now LNL). 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 to represent classes of policyholders and seek damages on their behalf. We are vigorously defending this matter.

~~Table of Contents~~

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.

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). Plaintiffs allege that LNL breached the terms of policyholders’ contracts when it 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. ~~Plaintiff seeks to represent~~On March 31, 2022, the court issued an order granting plaintiff’s motion for class certification and certified a class of all current ~~and~~or former owners of six universal life ~~(including variable universal life) policies who own or owned policies~~insurance products issued by LLANY ~~and its predecessors in interest~~ that were ~~in force at~~assessed a cost of insurance charge any time on or after June 27, ~~2013, and which contain~~2013. Plaintiff seeks damages on behalf of the class. 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 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 policies. Plaintiff also seeks to represent a sub-class of such policyholders who own or owned “life insurance policies issued in the State of New York.” Plaintiff~~plaintiff’s policy and seeks damages on ~~behalf~~their behalf. Breach of contract is the ~~policyholder class and sub-class.~~only cause of action asserted. We are vigorously defending this matter.

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. On July 28, 2021, plaintiff filed a notice of appeal with respect to this ~~ruling.~~

‎ruling, and on June 6, 2022, oral argument was held.

Table of Contents

~~12.~~10. 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 Nine						For the Six
	Months Ended						Months Ended
	September 30,						June 30,
	2021			2020			2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS Securities
Unrealized Gain (Loss) on Fixed Maturity AFS Securities and Certain Other
Investments
Balance as of beginning-of-year	$	8,993		$	5,637		$	6,315		$	8,993
Cumulative effect from adoption of new accounting standard		-			40
Unrealized holding gains (losses) arising during the period		(4,049	)		5,190			(19,013	)		(3,175	)
Change in foreign currency exchange rate adjustment		(123	)		19			(371	)		(37	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		1,360			(2,392	)		6,039			1,362
Income tax benefit (expense)		599			(603	)		2,850			395
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(5	)		(46	)		(4	)		(3	)
Associated amortization of DAC, VOBA, DSI and DFEL		(18	)		48			3			9
Income tax benefit (expense)		5			-			-			(1	)
Balance as of end-of-period	$	6,798		$	7,889
Unrealized Other-Than-Temporary-Impairment on Fixed Maturity AFS Securities
Balance as of beginning-of-year	$	-		$	40
Cumulative effect from adoption of new accounting standard		-			(40	)
Balance as of end-of-period	$	-		$	-		$	(4,179	)	$	7,533
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	42		$	181		$	240		$	42
Unrealized holding gains (losses) arising during the period		55			288			(288	)		(14	)
Change in foreign currency exchange rate adjustment		129			(16	)		373			45
Change in DAC, VOBA, DSI and DFEL		-			(70	)		4			(29	)
Income tax benefit (expense)		(40	)		(43	)		(18	)		(1	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		34			54			35			20
Associated amortization of DAC, VOBA, DSI and DFEL		(1	)		(14	)		(10	)		(19	)
Income tax benefit (expense)		(7	)		(8	)		(5	)		-
Balance as of end-of-period	$	160		$	308		$	291		$	42
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(14	)	$	(22	)	$	(11	)	$	(14	)
Adjustment arising during the period		-			-			-			-
Balance as of end-of-period	$	(14	)	$	(22	)	$	(11	)	$	(14	)

‎

Table of Contents

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



	For the Nine							For the Six
	Months Ended							Months Ended
	September 30,							June 30,
	2021			2020				2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS Securities
Unrealized Gain (Loss) on Fixed Maturity AFS
Securities and Certain Other Investments
Gross reclassification	$	(5	)	$	(46	)	Realized gain (loss)	$	(4	)	$	(3	)	Realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(18	)		48		Realized gain (loss)		3			9		Realized gain (loss)
Reclassification before income
tax benefit (expense)		(23	)		2		Income (loss) before taxes		(1	)		6		Income (loss) before taxes
Income tax benefit (expense)		5			-		Federal income tax expense (benefit)		-			(1	)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	(18	)	$	2		Net income (loss)	$	(1	)	$	5		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments	Unrealized Gain (Loss) on Derivative Instruments							Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	2		$	2		Net investment income	$	1		$	1		Net investment income
Foreign currency contracts		34			46		Net investment income		30			21		Net investment income
Foreign currency contracts		(2	)		6		Realized gain (loss)		4			(2	)	Realized gain (loss)
Total gross reclassifications		34			54				35			20
Associated amortization of DAC,
VOBA, DSI and DFEL		(1	)		(14	)	Commissions and other expenses		(10	)		(19	)	Commissions and other expenses
Reclassifications before income
tax benefit (expense)		33			40		Income (loss) before taxes		25			1		Income (loss) before taxes
Income tax benefit (expense)		(7	)		(8	)	Federal income tax expense (benefit)		(5	)		-		Federal income tax expense (benefit)
Reclassifications, net of income tax	$	26		$	32		Net income (loss)	$	20		$	1		Net income (loss)

Table of Contents

~~13.~~11. Realized ~~Gain~~Gain (Loss)

Realized gain (loss) on our Consolidated Statements of Comprehensive Income (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 for 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 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 recognized in net income, net of associated amortization of DAC, VOBA, DSI and DFEL. Realized gain (loss) is also net of allocations of investment gains and losses to certain contract holders and certain funds withheld on reinsurance arrangements for which we have a contractual obligation. Details underlying realized gain (loss) (in millions) were as follows:



	For the Three						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Fixed maturity AFS securities:
Gross gains	$	1		$	-		$	15		$	26		$	2		$	4		$	4		$	14
Gross losses		(3	)		(6	)		(20	)		(72	)		(4	)		(8	)		(8	)		(17	)
Credit loss benefit (expense) ⁽¹⁾		(8	)		(1	)		(9	)		(21	)		(4	)		1			(5	)		(1	)
Realized gain (loss) on equity securities⁽²⁾		4			5			35			(9	)		(15	)		20			(10	)		31
Credit loss benefit (expense) on mortgage loans on real estate		40			70			77			(111	)		(4	)		13			14			36
Credit loss benefit (expense) on reinsurance related assets		(2	)		-			(6	)		-
Credit loss benefit (expense) on reinsurance-related assets														(1	)		(5	)		(5	)		(4	)
Other gain (loss) on investments		(1	)		2			-			(7	)		-			(1	)		(4	)		2
Associated amortization of DAC, VOBA, DSI and DFEL
and changes in other contract holder funds		(9	)		(8	)		(19	)		34			-			(5	)		(7	)		(10	)
Total realized gain (loss) related to certain financial assets		22			62			73			(160	)		(26	)		19			(21	)		51
Realized gain (loss) on the mark-to-market on certain instruments ⁽³⁾⁽⁴⁾		23			(51	)		111			(102	)		185			(131	)		460			88
Indexed annuity and IUL contracts net derivative results: ⁽⁵⁾
Gross gain (loss)		(24	)		47			16			(2	)		35			8			147			40
Associated amortization of DAC, VOBA, DSI and DFEL		19			(20	)		9			(5	)		(38	)		2			(93	)		(11	)
GLB fees ceded to LNBAR and attributed fees:
Gross gain (loss)		(56	)		(46	)		(168	)		(157	)		(66	)		(62	)		(130	)		(113	)
Associated amortization of DAC, VOBA, DSI and DFEL		(8	)		(5	)		(25	)		(22	)		(8	)		(8	)		(16	)		(16	)
Total realized gain (loss)	$	(24	)	$	(13	)	$	16		$	(448	)	$	82		$	(172	)	$	347		$	39

⁽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 ~~market~~mark-to-market adjustments on equity securities still held of $4$(12) million and $5$24 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$37~~$(5) million and ~~$(8)~~$34 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

⁽³⁾Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts net derivative results), ~~reinsurance related~~reinsurance-related embedded derivatives, mortgage loans on real estate accounted for under the fair value option and trading securities. ~~See Note 7 for information regarding Modco.~~

⁽⁴⁾Includes gains and losses from fair value changes on mortgage loans on real estate accounted for under the fair value option of $2$(14) million and $3$1 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and $2$(17) million and $8less than $1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

⁽⁵⁾Represents the net difference between 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 and IUL contracts along with changes in the fair value of embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.

Table of Contents

~~14.~~12. Fair Value of ~~Financial~~Financial Instruments

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



	As of September 30, 2021						As of December 31, 2020						As of June 30, 2022						As of December 31, 2021
	Carrying			Fair			Carrying			Fair			Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value			Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	120,794		$	120,794		$	121,111		$	121,111		$	103,002		$	103,002		$	117,511		$	117,511
Trading securities		4,135			4,135			4,442			4,442			3,778			3,778			4,427			4,427
Equity securities		239			239			127			127			345			345			314			314
Mortgage loans on real estate		17,633			18,511			16,681			18,129			17,830			16,903			17,893			18,599
Derivative investments ⁽¹⁾		4,828			4,828			3,109			3,109			3,370			3,370			5,437			5,437
Other investments		3,295			3,295			3,015			3,015			3,748			3,748			3,439			3,439
Cash and invested cash		2,194			2,194			1,462			1,462			1,277			1,277			2,331			2,331
Other assets:
GLB direct embedded derivatives		1,698			1,698			450			450			1,400			1,400			1,963			1,963
GLB ceded embedded derivatives		55			55			82			82			41			41			56			56
Reinsurance-related embedded derivatives														401			401			-			-
Indexed annuity ceded embedded derivatives		495			495			550			550			440			440			528			528
LPR ceded derivative		293			293			-			-			215			215			318			318
Separate account assets		175,667			175,667			167,965			167,965			145,791			145,791			182,583			182,583

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(4,804	)		(4,804	)		(3,594	)		(3,594	)		(3,366	)		(3,366	)		(6,131	)		(6,131	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(1,813	)		(1,813	)		(1,854	)		(1,854	)		(1,801	)		(1,801	)		(1,788	)		(1,788	)
Account values of certain investment contracts		(40,557	)		(46,384	)		(40,917	)		(49,709	)		(41,960	)		(36,969	)		(41,164	)		(47,828	)
Short-term debt		(483	)		(483	)		(497	)		(497	)		(698	)		(698	)		(1,084	)		(1,084	)
Long-term debt		(2,333	)		(2,699	)		(2,412	)		(2,834	)		(2,267	)		(2,275	)		(2,334	)		(2,675	)
Reinsurance related embedded derivatives		(692	)		(692	)		(540	)		(540	)
Reinsurance-related embedded derivatives														-			-			(578	)		(578	)
Other liabilities:
Derivative liabilities⁽¹⁾		(224	)		(224	)		(353	)		(353	)		(249	)		(249	)		(249	)		(249	)
GLB ceded embedded derivatives		(1,749	)		(1,749	)		(531	)		(531	)		(1,437	)		(1,437	)		(2,015	)		(2,015	)

⁽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, 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.

‎

Table of Contents

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 ~~Federal Home Loan Bank (“FHLB”)~~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 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.

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 ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, 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

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 our 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 ~~Modco~~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 our Consolidated Statement of Comprehensive Income (Loss). Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and 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, ~~as a result of a change to a third-party pricing source during 2020,~~ mortgage loans electing the fair value option ~~were categorized~~are classified as Level 3 ~~as of September 30, 2021, and December 31, 2020.~~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		As of		As of
	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Fair value	$	792	$	832	$	528	$	739
Aggregate contractual principal		795		839		547		742

As of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, 0 loans for which the fair value option was elected were in non-accrual status, and 0ne were more than 90 days past due and still accruing interest.

Table of Contents

Financial Instruments Carried at Fair Value

Short-Term Investments

Short-term investments consist of securities with original maturities of one year or less, but greater than three months, and are included in other investments on our Consolidated Balance Sheets. 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.

We did 0t have any assets or liabilities measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2021,~~2022, or December 31, ~~2020.~~2021.

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



		As of September 30, 2021														As of June 30, 2022
		Quoted														Quoted
		Prices														Prices
		in Active														in Active
	Markets for			Significant											Markets for			Significant
		Identical		Observable				Unobservable				Total				Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair				Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value				(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	-		$	91,713			$	8,412		$	100,125			$	-		$	74,717			$	8,531		$	83,248
U.S. government bonds			405			5				-			410				365			21				-			386
State and municipal bonds			-			6,648				-			6,648				-			5,326				-			5,326
Foreign government bonds			-			396				106			502				-			303				37			340
RMBS			-			2,708				1			2,709				-			1,991				1			1,992
CMBS			-			1,584				1			1,585				-			1,549				-			1,549
ABS			-			7,562				734			8,296				-			8,552				1,153			9,705
Hybrid and redeemable preferred securities			53			388				78			519				44			313				99			456
Trading securities			32			3,503				600			4,135				-			3,158				620			3,778
Equity securities			10			145				84			239				13			187				145			345
Mortgage loans on real estate			-			-				792			792				-			-				528			528
Derivative investments ⁽¹⁾			-			6,577				169			6,746				-			5,384				449			5,833
Other investments – short-term investments			-			76				-			76				-			132				-			132
Cash and invested cash			-			2,194				-			2,194				-			1,277				-			1,277
Other assets:
GLB direct embedded derivatives			-			-				1,698			1,698				-			-				1,400			1,400
GLB ceded embedded derivatives			-			-				55			55				-			-				41			41
Reinsurance-related embedded derivatives																	-			401				-			401
Indexed annuity ceded embedded derivatives			-			-				495			495				-			-				440			440
LPR ceded derivative			-			-				293			293				-			-				215			215
Separate account assets			561			175,098				-			175,659				392			145,398				-			145,790
Total assets		$	1,061		$	298,597			$	13,518		$	313,176			$	814		$	248,709			$	13,659		$	263,182

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(4,804	)	$	(4,804	)		$	-		$	-			$	(3,366	)	$	(3,366	)
Reinsurance related embedded derivatives			-			(692	)			-			(692	)
Other liabilities:
Derivative liabilities ⁽¹⁾			-			(1,974	)			(168	)		(2,142	)			-			(2,266	)			(446	)		(2,712	)
GLB ceded embedded derivatives			-			-				(1,749	)		(1,749	)			-			-				(1,437	)		(1,437	)
Total liabilities		$	-		$	(2,666	)		$	(6,721	)	$	(9,387	)		$	-		$	(2,266	)		$	(5,249	)	$	(7,515	)

‎

Table of Contents



		As of December 31, 2021
		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		$	-		$	88,622			$	8,801		$	97,423
U.S. government bonds			395			5				-			400
State and municipal bonds			-			6,377				-			6,377
Foreign government bonds			-			382				41			423
RMBS			-			2,302				3			2,305
CMBS			-			1,590				-			1,590
ABS			-			7,636				870			8,506
Hybrid and redeemable preferred securities			53			344				90			487
Trading securities			32			3,567				828			4,427
Equity securities			7			216				91			314
Mortgage loans on real estate			-			-				739			739
Derivative investments ⁽¹⁾			-			7,597				149			7,746
Other investments – short-term investments			-			114				-			114
Cash and invested cash			-			2,331				-			2,331
Other assets:
GLB direct embedded derivatives			-			-				1,963			1,963
GLB ceded embedded derivatives			-			-				56			56
Indexed annuity ceded embedded derivatives			-			-				528			528
LPR ceded derivative			-			-				318			318
Separate account assets			646			181,929				-			182,575
Total assets		$	1,133		$	303,012			$	14,477		$	318,622

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(6,131	)	$	(6,131	)
Reinsurance-related embedded derivatives			-			(578	)			-			(578	)
Other liabilities:
Derivative liabilities ⁽¹⁾			-			(2,430	)			(128	)		(2,558	)
GLB ceded embedded derivatives			-			-				(2,015	)		(2,015	)
Total liabilities		$	-		$	(3,008	)		$	(8,274	)	$	(11,282	)

As of December 31, 2020
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
$
-
$
93,663
$
7,761
$
101,424
U.S. government bonds
438
6
5
449
State and municipal bonds
-
6,662
-
6,662
Foreign government bonds
-
391
74
465
RMBS
-
2,836
2
2,838
CMBS
-
1,494
1
1,495
ABS
-
6,608
570
7,178
Hybrid and redeemable preferred securities
53
444
103
600
Trading securities
5
3,794
643
4,442
Equity securities
22
48
57
127
Mortgage loans on real estate
-
-
832
832
Derivative investments ⁽¹⁾
-
1,733
3,575
5,308
Cash and invested cash
-
1,462
-
1,462
Other assets:
GLB direct embedded derivatives
-
-
450
450
GLB ceded embedded derivatives
-
-
82
82
Indexed annuity ceded embedded derivatives
-
-
550
550
Separate account assets
606
167,351
-
167,957
Total assets
$
1,124
$
286,492
$
14,705
$
302,321
Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives
$
-
$
-
$
(3,594
)
$
(3,594
)
Reinsurance related embedded derivatives
-
(540
)
-
(540
)
Other liabilities:
Derivative liabilities ⁽¹⁾
-
(519
)
(2,033
)
(2,552
)
GLB ceded embedded derivatives
-
-
(531
)
(531
)
Total liabilities
$
-
$
(1,059
)
$
(6,158
)
$
(7,217
)

⁽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. This summary excludes any effect of amortization of DAC, VOBA, DSI and 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 September 30, 2021																		For the Three Months Ended June 30, 2022
							Gains		Issuances,				Transfers												Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or									Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out									Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending			Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair			Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value			Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	8,047		$	1		$	(87	)	$	476		$	(25	)	$	8,412		$	8,948		$	-		$	(651	)	$	254		$	(20	)	$	8,531
Foreign government bonds		43			-			(3	)		66			-			106			40			-			(3	)		-			-			37
RMBS		1			-			-			-			-			1			13			-			-			-			(12	)		1
CMBS		9			-			-			-			(8	)		1			17			-			-			-			(17	)		-
ABS		629			-			(1	)		144			(38	)		734			988			-			(33	)		266			(68	)		1,153
Hybrid and redeemable preferred
securities		100			-			5			(27	)		-			78			94			-			5			-			-			99
Trading securities		630			3			-			(33	)		-			600			797			(29	)		-			(148	)		-			620
Equity securities		79			5			-			-			-			84			98			15			-			32			-			145
Mortgage loans on real estate		818			4			3			(33	)		-			792			537			(12	)		(5	)		8			-			528
Derivative investments		1			-			-			-			-			1			3			-			-			-			-			3
Other assets:
GLB direct embedded derivatives ⁽³⁾		1,767			(69	)		-			-			-			1,698			1,880			(480	)		-			-			-			1,400
GLB ceded embedded derivatives ⁽³⁾		53			2			-			-			-			55			42			(1	)		-			-			-			41
Indexed annuity ceded embedded
derivatives ⁽³⁾		-			(14	)		-			(6	)		515			495			493			(113	)		-			60			-			440
LPR ceded derivative ⁽⁴⁾		294			(1	)		-			-			-			293			266			(51	)		-			-			-			215
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		-			47			-			86			(4,937	)		(4,804	)		(5,574	)		2,290			-			(82	)		-			(3,366	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(1,816	)		67			-			-			-			(1,749	)		(1,917	)		480			-			-			-			(1,437	)
Total, net	$	10,655		$	45		$	(83	)	$	673		$	(4,493	)	$	6,797		$	6,725		$	2,099		$	(687	)	$	390		$	(117	)	$	8,410

‎

Table of Contents



	For the Three Months Ended September 30, 2020																		For the Three Months Ended June 30, 2021
							Gains		Issuances,				Transfers												Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or									Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out									Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending			Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair			Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value			Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	6,975		$	(7	)	$	191		$	64		$	(16	)	$	7,207		$	7,772		$	1		$	69		$	206		$	(1	)	$	8,047
U.S. government bonds		5			-			-			-			(5	)		-			5			-			-			(5	)		-			-
Foreign government bonds		86			-			-			(20	)		-			66			66			-			-			14			(37	)		43
RMBS		2			-			-			-			-			2			1			-			-			-			-			1
CMBS		1			-			-			-			-			1			1			-			-			8			-			9
ABS		424			-			3			60			(74	)		413			688			1			3			99			(162	)		629
Hybrid and redeemable preferred
securities		90			-			1			13			-			104			84			-			10			6			-			100
Trading securities		673			2			-			(119	)		(21	)		535			715			2			-			(64	)		(23	)		630
Equity securities		29			2			-			18			-			49			59			19			-			1			-			79
Mortgage loans on real estate																				874			4			1			(61	)		-			818
Derivative investments		595			958			-			(189	)		(216	)		1,148			2,661			(2	)		-			-			(2,658	)		1
Other assets:⁽³⁾
GLB ceded embedded derivatives		3,081			(1,976	)		-			-			-			1,105
Indexed annuity ceded embedded derivatives		664			295			-			(423	)		-			536
Other assets:
GLB direct embedded derivatives ⁽³⁾																				1,831			(64	)		-			-			-			1,767
GLB ceded embedded derivatives ⁽³⁾																				42			11			-			-			-			53
Indexed annuity ceded embedded
derivatives ⁽³⁾																				527			-			-			-			(527	)		-
LPR ceded derivative ⁽⁴⁾																				268			26						-			-			294
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(2,272	)		(400	)		-			(16	)		-			(2,688	)		(4,170	)		-			-			-			4,170			-
Other liabilities – GLB direct embedded
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(3,086	)		1,980			-			-			-			(1,106	)		(1,869	)		53			-			-			-			(1,816	)
Total, net	$	7,267		$	854		$	195		$	(612	)	$	(332	)	$	7,372		$	9,555		$	51		$	83		$	204		$	762		$	10,655

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:
GLB direct embedded derivatives ⁽³⁾		1,963			(563	)		-			-			-			1,400
GLB ceded embedded derivatives ⁽³⁾		56			(15	)		-			-			-			41
Indexed annuity ceded embedded
derivatives ⁽³⁾		528			(166	)		-			78			-			440
LPR ceded derivative ⁽⁴⁾		318			(103	)		-			-			-			215
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(6,131	)		2,849			-			(84	)		-			(3,366	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(2,015	)		578			-			-			-			(1,437	)
Total, net	$	6,203		$	2,541		$	(1,069	)	$	781		$	(46	)	$	8,410

For the Nine Months Ended September 30, 2021
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
$
7,761
$
3
$
(139
)
$
840
$
(53
)
$
8,412
U.S. government bonds
5
-
-
(5
)
-
-
Foreign government bonds
74
-
(11
)
80
(37
)
106
RMBS
2
-
-
-
(1
)
1
CMBS
1
-
-
8
(8
)
1
ABS
570
1
(5
)
426
(258
)
734
Hybrid and redeemable preferred
securities
103
-
16
(41
)
-
78
Trading securities
643
2
-
(31
)
(14
)
600
Equity securities
57
31
-
(4
)
-
84
Mortgage loans on real estate
832
10
7
(57
)
-
792
Derivative investments
1,542
1,249
-
(132
)
(2,658
)
1
Other assets:
GLB direct embedded derivatives ⁽³⁾
450
1,248
-
-
-
1,698
GLB ceded embedded derivatives ⁽³⁾
82
(27
)
-
-
-
55
Indexed annuity ceded embedded
derivatives ⁽³⁾
550
17
-
(60
)
(12
)
495
LPR ceded derivative ⁽⁴⁾
-
(25
)
-
-
318
293
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾
(3,594
)
(579
)
-
136
(767
)
(4,804
)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾
(531
)
(1,218
)
-
-
-
(1,749
)
Total, net
$
8,547
$
712
$
(132
)
$
1,160
$
(3,490
)
$
6,797

Table of Contents



	For the Nine Months Ended September 30, 2020																		For the Six Months Ended June 30, 2021
							Gains		Issuances,				Transfers												Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or									Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out									Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending			Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair			Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other ⁽¹⁾			Net			Net			Value			Value			Income			Other ⁽¹⁾			Net			Net			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	6,978		$	(6	)	$	17		$	146		$	72		$	7,207		$	7,761		$	2		$	(52	)	$	364		$	(28	)	$	8,047
U.S. government bonds		5			-			-			-			(5	)		-			5			-			-			(5	)		-			-
Foreign government bonds		90			-			(4	)		(20	)		-			66			74			-			(8	)		14			(37	)		43
RMBS		11			-			-			-			(9	)		2			2			-			-			-			(1	)		1
CMBS		1			-			-			-			-			1			1			-			-			8			-			9
ABS		268			-			5			317			(177	)		413			570			1			(4	)		282			(220	)		629
Hybrid and redeemable preferred
securities		78			-			(1	)		9			18			104			103			-			11			(14	)		-			100
Trading securities		666			(2	)		-			(139	)		10			535			643			(1	)		-			2			(14	)		630
Equity securities		30			1			-			18			-			49			57			26			-			(4	)		-			79
Mortgage loans on real estate																				832			6			4			(24	)		-			818
Derivative investments		868			555			267			(326	)		(216	)		1,148			1,542			1,249			-			(132	)		(2,658	)		1
Other assets: ⁽³⁾
GLB direct embedded derivatives		450			(450	)		-			-			-			-
GLB ceded embedded derivatives		60			1,045			-			-			-			1,105
Indexed annuity ceded embedded derivatives		927			484			-			(875	)		-			536
Other assets:
GLB direct embedded derivatives ⁽³⁾																				450			1,317			-			-			-			1,767
GLB ceded embedded derivatives ⁽³⁾																				82			(29	)		-			-			-			53
Indexed annuity ceded embedded
derivatives ⁽³⁾																				550			32			-			(55	)		(527	)		-
LPR ceded derivative ⁽⁴⁾																				-			(24	)		-			-			318			294
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(2,585	)		(88	)		-			(15	)		-			(2,688	)		(3,594	)		(626	)		-			50			4,170			-
Other liabilities: ⁽³⁾
GLB direct embedded derivatives		-			(1,106	)		-			-			-			(1,106	)
GLB ceded embedded derivatives		(510	)		510			-			-			-			-
Other liabilities – GLB ceded embedded
derivatives⁽³⁾																				(531	)		(1,285	)		-			-			-			(1,816	)
Total, net	$	7,337		$	943		$	284		$	(885	)	$	(307	)	$	7,372		$	8,547		$	668		$	(49	)	$	486		$	1,003		$	10,655

⁽¹⁾The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 5).

⁽²⁾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 credit loss expense are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

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

⁽⁴⁾Gains (losses) from the changes in fair value are included in benefits on our 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, 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 September 30, 2021																		For the Three Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total			Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	635		$	(17	)	$	(82	)	$	(60	)	$	-		$	476		$	443		$	(74	)	$	(4	)	$	(85	)	$	(26	)	$	254
Foreign government bonds		66			-			-			-			-			66
ABS		195			-			-			(51	)		-			144			305			-			-			(39	)		-			266
Hybrid and redeemable preferred
securities		3			-			-			-			(30	)		(27	)
Trading securities		3			(15	)		-			(21	)		-			(33	)		92			(88	)		-			(152	)		-			(148	)
Equity securities																				32			-			-			-			-			32
Mortgage loans on real estate		8			-			(22	)		(19	)		-			(33	)		9			-			-			(1	)		-			8
Other assets – indexed annuity ceded
embedded derivatives		19			-			-			(25	)		-			(6	)		20			-			-			40			-			60
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(47	)		-			-			133			-			86			(100	)		-			-			18			-			(82	)
Total, net	$	882		$	(32	)	$	(104	)	$	(43	)	$	(30	)	$	673		$	801		$	(162	)	$	(4	)	$	(219	)	$	(26	)	$	390




	For the Three Months Ended September 30, 2020																		For the Three Months Ended June 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total			Issuances		Sales			Maturities		Settlements				Calls		Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	182		$	(53	)	$	(3	)	$	(17	)	$	(45	)	$	64		$	417	$	(45	)	$	(6	)	$	(160	)	$	-	$	206
U.S. government bonds																				-		-			(5	)		-			-		(5	)
Foreign government bonds		-			-			(20	)		-			-			(20	)		14		-			-			-			-		14
CMBS																				8		-			-			-			-		8
ABS		74			-			-			(14	)		-			60			168		-			-			(69	)		-		99
Hybrid and redeemable preferred
securities		13			-			-			-			-			13			6		-			-			-			-		6
Trading securities		15			-			(20	)		(114	)		-			(119	)		36		(5	)		-			(95	)		-		(64	)
Equity securities		18			-			-			-			-			18			2		(1	)		-			-			-		1
Derivative investments		126			(177	)		(138	)		-			-			(189	)
Other assets – indexed annuity ceded
embedded derivatives		4			-			-			(427	)		-			(423	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(88	)		-			-			72			-			(16	)
Mortgage loans on real estate																				9		(66	)		(4	)		-			-		(61	)
Total, net	$	344		$	(230	)	$	(181	)	$	(500	)	$	(45	)	$	(612	)	$	660	$	(117	)	$	(15	)	$	(324	)	$	-	$	204

‎

Table of Contents



	For the Nine Months Ended September 30, 2021																		For the Six Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total			Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,356		$	(90	)	$	(103	)	$	(306	)	$	(17	)	$	840		$	898		$	(98	)	$	(24	)	$	(128	)	$	(31	)	$	617
U.S. government bonds		-			-			(5	)		-			-			(5	)
Foreign government bonds		80			-			-			-			-			80
RMBS																				12			-			-			-			-			12
CMBS		8			-			-			-			-			8			17			-			-			-			-			17
ABS		563			-			-			(137	)		-			426			555			-			-			(95	)		(7	)		453
Hybrid and redeemable preferred
securities		9			(20	)		-			-			(30	)		(41	)
Trading securities		127			(24	)		-			(134	)		-			(31	)		271			(220	)		-			(197	)		-			(146	)
Equity securities		5			(9	)		-			-			-			(4	)		32			(8	)		-			-			-			24
Mortgage loans on real estate		89			(101	)		(26	)		(19	)		-			(57	)		12			-			-			(202	)		-			(190	)
Derivative investments		174			(124	)		(182	)		-			-			(132	)
Other assets – indexed annuity ceded
embedded derivatives		22			-			-			(82	)		-			(60	)		38			-			-			40			-			78
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(155	)		-			-			291			-			136			(228	)		-			-			144			-			(84	)
Total, net	$	2,278		$	(368	)	$	(316	)	$	(387	)	$	(47	)	$	1,160		$	1,607		$	(326	)	$	(24	)	$	(438	)	$	(38	)	$	781



	For the Nine Months Ended September 30, 2020																		For the Six Months Ended June 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total			Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	665		$	(250	)	$	(37	)	$	(109	)	$	(123	)	$	146		$	721		$	(73	)	$	(21	)	$	(246	)	$	(17	)	$	364
U.S. government bonds																				-			-			(5	)		-			-			(5	)
Foreign government bonds		-			-			(20	)		-			-			(20	)		14			-			-			-			-			14
CMBS																				8			-			-			-			-			8
ABS		352			-			-			(35	)		-			317			368			-			-			(86	)		-			282
Hybrid and redeemable preferred
securities		13			(4	)		-			-			-			9			6			(20	)		-			-			-			(14	)
Trading securities		53			(25	)		(20	)		(147	)		-			(139	)		124			(9	)		-			(113	)		-			2
Equity securities		19			(1	)		-			-			-			18			5			(9	)		-			-			-			(4	)
Mortgage loans on real estate																				81			(101	)		(4	)		-			-			(24	)
Derivative investments		374			(395	)		(305	)		-			-			(326	)		174			(124	)		(182	)		-			-			(132	)
Other assets – indexed annuity ceded
embedded derivatives		21			-			-			(896	)		-			(875	)		3			-			-			(58	)		-			(55	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(170	)		-			-			155			-			(15	)		(108	)		-			-			158			-			50
Total, net	$	1,327		$	(675	)	$	(382	)	$	(1,032	)	$	(123	)	$	(885	)	$	1,396		$	(336	)	$	(212	)	$	(345	)	$	(17	)	$	486

‎

Table of Contents

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						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Trading securities ⁽¹⁾	$	3		$	-		$	3		$	-		$	(28	)	$	3		$	(58	)	$	-
Equity securities ⁽¹⁾		5			-			33			-			14			22			32			28
Mortgage loans on real estate ⁽¹⁾		4			-			12			-			(12	)		4			(15	)		8
Derivative investments ⁽¹⁾		-			731			-			265			1			-			3			-
Other assets – LPR ceded derivative ⁽²⁾		(1	)		-			(25	)		-			(51	)		26			(103	)		(24	)
Embedded derivatives:(1)
Indexed annuity and IUL contracts ⁽¹⁾		(36	)		340			22			582			(26	)		-			58			-
Other assets – GLB direct and ceded ⁽¹⁾		141			2,143			1,839			(1,062	)		(284	)		153			(178	)		1,698
Other liabilities – GLB direct and ceded ⁽¹⁾		(141	)		(2,143	)		(1,836	)		1,062
Other liabilities – GLB ceded														283			(153	)		178			(1,695	)
Total, net	$	(25	)	$	1,071		$	48		$	847		$	(103	)	$	55		$	(83	)	$	15

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

⁽²⁾Included in benefits on our Consolidated Statements of Comprehensive Income (Loss).

The following summarizes changes in unrealized gains (losses) included in OCI, net of tax, 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					For the Nine						For the Three					For the Six
	Months Ended					Months Ended						Months Ended					Months Ended
	September 30,					September 30,						June 30,					June 30,
	2021			2020		2021			2020			2022			2021		2022			2021
Fixed maturity AFS securities:
Corporate bonds	$	(82	)	$	139	$	(139	)	$	(154	)	$	(651	)	$	65	$	(1,005	)	$	(57	)
Foreign government bonds		(3	)		-		(11	)		(2	)		(3	)		-		(5	)		(8	)
ABS		(1	)		3		(5	)		-			(34	)		3		(62	)		(4	)
Hybrid and redeemable preferred
securities		5			1		18			(4	)		5			11		10			12
Mortgage loans on real estate		3			-		5			-			(5	)		-		(6	)		3
Total, net	$	(78	)	$	143	$	(132	)	$	(160	)	$	(688	)	$	79	$	(1,068	)	$	(54	)

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								For the Three								For the Three
	Months Ended									Months Ended								Months Ended								Months Ended
	September 30, 2021									September 30, 2020								June 30, 2022								June 30, 2021
	Transfers			Transfers						Transfers		Transfers						Transfers		Transfers						Transfers		Transfers
	Into			Out of						Into		Out of						Into		Out of						Into		Out of
	Level 3			Level 3			Total			Level 3		Level 3			Total			Level 3		Level 3			Total			Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	-		$	(25	)	$	(25	)	$	38	$	(54	)	$	(16	)	$	32	$	(52	)	$	(20	)	$	-	$	(1	)	$	(1	)
U.S. government bonds		-			-			-			-		(5	)		(5	)
Foreign government bonds																			-		-			-			-		(37	)		(37	)
RMBS																			-		(12	)		(12	)		-		-			-
CMBS		-			(8	)		(8	)		-		-			-			-		(17	)		(17	)		-		-			-
ABS		8			(46	)		(38	)		-		(74	)		(74	)		1		(69	)		(68	)		-		(162	)		(162	)
Trading securities		-			-			-			-		(21	)		(21	)		-		-			-			-		(23	)		(23	)
Derivative investments		-			-			-			-		(216	)		(216	)		-		-			-			-		(2,658	)		(2,658	)
Other assets – indexed annuity ceded
embedded derivatives		515			-			515			-		-			-			-		-			-			-		(527	)		(527	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(4,937	)		-			(4,937	)		-		-			-			-		-			-			-		4,170			4,170
Total, net	$	(4,414	)	$	(79	)	$	(4,493	)	$	38	$	(370	)	$	(332	)	$	33	$	(150	)	$	(117	)	$	-	$	762		$	762


1
	For the Nine									For the Nine									For the Six								For the Six
	Months Ended									Months Ended									Months Ended								Months Ended
	September 30, 2021									September 30, 2020									June 30, 2022								June 30, 2021
	Transfers			Transfers						Transfers			Transfers						Transfers		Transfers						Transfers		Transfers
	Into			Out of						Into			Out of						Into		Out of						Into		Out of
	Level 3			Level 3			Total			Level 3			Level 3			Total			Level 3		Level 3			Total			Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	11		$	(64	)	$	(53	)	$	288		$	(216	)	$	72		$	228	$	(114	)	$	114		$	11	$	(39	)	$	(28	)
U.S. government bonds		-			-			-			(5	)		-			(5	)
Foreign government bonds		-			(37	)		(37	)		-			-			-			-		-			-			-		(37	)		(37	)
RMBS		-			(1	)		(1	)		1			(10	)		(9	)		-		(14	)		(14	)		-		(1	)		(1	)
CMBS		-			(8	)		(8	)		-			-			-			-		(17	)		(17	)		-		-			-
ABS		8			(266	)		(258	)		18			(195	)		(177	)		1		(111	)		(110	)		-		(220	)		(220	)
Hybrid and redeemable preferred
securities		-			-			-			18			-			18
Trading securities		12			(26	)		(14	)		12			(2	)		10			-		(4	)		(4	)		12		(26	)		(14	)
Derivative investments		-			(2,658	)		(2,658	)		-			(216	)		(216	)		-		(15	)		(15	)		-		(2,658	)		(2,658	)
Other assets:
Indexed annuity ceded embedded
derivatives		515			(527	)		(12	)		-			-			-			-		-			-			-		(527	)		(527	)
LPR ceded derivative		318			-			318			-			-			-			-		-			-			318		-			318
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(4,937	)		4,170			(767	)		-			-			-			-		-			-			-		4,170			4,170
Total, net	$	(4,073	)	$	583		$	(3,490	)	$	332		$	(639	)	$	(307	)	$	229	$	(275	)	$	(46	)	$	341	$	662		$	1,003

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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, transfers in and out of Level 3 were attributable primarily to the financial instruments’ observable market information no longer being available or becoming available. ~~During the second and third quarters of~~In 2021, transfers ~~into and~~ out of Level 3 included ~~free-standing and embedded~~ derivative instruments for which we changed valuation techniques. This change in valuation technique was primarily from unobservable inputs in counterparty models to a mathematical model provided by a third party. The updated valuation technique is considered industry standard and provides us with greater visibility into the economic valuation inputs.

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 ~~September~~June 30, ~~2021:~~2022:



											Weighted												Weighted
											Average												Average
	Fair			Valuation	Significant	Assumption or					Input		Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾		Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	3,594		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.0	%	-	6.8	%	1.4	%	$	3,272		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.8	%	-	5.5	%	2.0	%
Foreign government
bonds		106		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.0	%	-	8.8	%	3.5	%		37		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.3	%	-	6.5	%	5.4	%
ABS		19		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	2.2	%	-	2.2	%	2.2	%		16		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	2.0	%	-	2.0	%	2.0	%
Hybrid and redeemable
preferred securities		7		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.7	%	-	1.7	%	1.7	%		7		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.7	%	-	1.7	%	1.7	%
Equity securities		21		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	6.6	%	6.1	%		20		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.1	%	-	4.5	%	4.2	%
Other assets:
GLB direct and ceded
embedded derivatives		1,753		Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾			1,441		Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾						Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾						Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.08	%	-	1.37	%	0.93	%					NPR ⁽⁶⁾	0.25	%	-	2.11	%	1.53	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾						Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.55	%					Volatility ⁽⁸⁾	1	%	-	28	%	14.08	%

Indexed annuity ceded
embedded derivatives		495		Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾			440		Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾						Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

LPR ceded derivative		293		Discounted cash flow	Long-term lapse rate ⁽³⁾	0	%	-	1.65	%	⁽¹⁰⁾			215		Discounted cash flow	Long-term lapse rate ⁽³⁾	0	%	-	1.65	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.08	%	-	1.37	%	0.9	%					NPR ⁽⁶⁾	0.25	%	-	2.11	%	1.52	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾						Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

Liabilities
Future contract benefits –
indexed annuity contracts
embedded derivatives	$	(4,758	)	Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾		$	(3,476	)	Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾						Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Other liabilities –
GLB ceded embedded
derivatives		(1,749	)	Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾			(1,437	)	Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾						Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾						Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.08	%	-	1.37	%	0.93	%					NPR ⁽⁶⁾	0.25	%	-	2.11	%	1.53	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾						Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.55	%					Volatility ⁽⁸⁾	1	%	-	28	%	14.08	%

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

⁽²⁾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.

⁽³⁾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 contracts represents the lapse rates during the surrender charge period.

~~Table of Contents~~

⁽⁴⁾The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

Table of Contents

⁽⁵⁾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.

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

⁽⁷⁾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.

⁽⁸⁾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. 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 rate 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 rate, utilization factors or mortality rate.

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 rate or mortality rate 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 rate, NPR or mortality rate inputs would have resulted in an increase 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 have resulted in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs 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.

Table of Contents

~~15. Segment~~13. Segment Information

We provide products and services and report results through our Annuities, 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. A discussion of these segments and Other Operations is found in Note 2221 to the ~~consolidated financial statements~~Consolidated Financial Statements in our ~~2020~~2021 Form 10-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 financial assets;

Changes in the fair value of equity securities;

Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities (“gain (loss) on the mark-to-market on certain instruments”);

GLB rider fees ceded to LNBAR;

The net valuation premium of the GLB attributed rider fees; and

Changes in the fair value of the embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value (“indexed annuity forward-starting option”);

Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders and VUL products with secondary guarantees (“benefit ratio unlocking”);

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

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

Losses from the impairment of intangible assets;

Income (loss) from discontinued operations;

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

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

Excluded realized gain (loss);

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

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

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

‎

Table of Contents

The tables below reconcile our segment measures of performance to the GAAP measures presented in our Consolidated Statements of Comprehensive Income (Loss) (in millions):



	For the Three						For the Nine						For the Three					For the Six
	Months Ended						Months Ended						Months Ended					Months Ended
	September 30,						September 30,						June 30,					June 30,
	2021			2020			2021			2020			2022		2021			2022		2021
Revenues
Operating revenues:
Annuities	$	1,158		$	1,082		$	3,389		$	3,055		$	1,063	$	1,136		$	2,187	$	2,233
Retirement Plan Services		325			307			977			878			311		329			624		651
Life Insurance		2,225			2,032			5,956			5,297			1,697		1,911			3,411		3,730
Group Protection		1,243			1,184			3,742			3,607			1,323		1,246			2,626		2,500
Other Operations		36			37			109			115			29		38			62		73
Excluded realized gain (loss), pre-tax		(75	)		(71	)		(137	)		(609	)		31		(225	)		240		(63	)
Total revenues	$	4,912		$	4,571		$	14,036		$	12,343		$	4,454	$	4,435		$	9,150	$	9,124



	For the Three						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	375		$	32		$	993		$	589		$	350		$	320		$	698		$	618
Retirement Plan Services		57			47			170			111			51			59			103			112
Life Insurance		153			(318	)		448			(149	)		61			252			79			295
Group Protection		(32	)		6			(12	)		85			59			46			18			20
Other Operations		(120	)		(34	)		(202	)		(109	)		(67	)		(40	)		(130	)		(82	)
Excluded realized gain (loss), after-tax		(59	)		(56	)		(108	)		(480	)		25			(178	)		190			(50	)
Benefit ratio unlocking, after-tax		(2	)		-			9			(4	)		(23	)		3			(33	)		13
Acquisition and integration costs related to mergers
and acquisitions, after-tax		-			(4	)		-			(12	)
Net income (loss)	$	372		$	(327	)	$	1,298		$	31		$	456		$	462		$	925		$	926

~~16. Subsequent Event~~

~~On October 19, 2021, LNL paid an extraordinary cash dividend in the amount of $900 million to LNC.~~

‎

Table of Contents

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	53
Introduction	54
Critical Accounting Policies and Estimates	55
Results of Consolidated Operations	56
Results of Annuities	57
Results of Retirement Plan Services	58
Results of Life Insurance	59
Results of Group Protection	60
Results of Other Operations	62
Realized Gain (Loss)	63
Liquidity and Capital Resources	64

‎

Table of Contents

Management’s ~~narrative analysis~~Narrative Analysis (“MNA”) of the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared with the corresponding periods in ~~2020~~2021 of The Lincoln National Life Insurance Company (“LNL”) and its consolidated subsidiaries should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements,” our Form 10-K for the year ended December 31, ~~2020~~2021 (“~~2020~~2021 Form 10-K”) and other reports filed with the Securities and Exchange Commission (“SEC”). Unless otherwise stated or the context otherwise requires, “LNL,” “Company,” “we,” “our” or “us” refers to The Lincoln National Life Insurance Company and its consolidated subsidiaries. LNL is a wholly-owned subsidiary of Lincoln National Corporation (“LNC”).

See “Part I – Item 1. Business” and Note 1 in our ~~2020~~2021 Form 10-K for a description of the business.

In this report, in addition to providing consolidated revenues and net income (loss), we also provide segment operating revenues and income (loss) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments. Operating revenues and income (loss) from operations are the 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 ~~15.~~13. 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. Certain items are excluded 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 readers with a more valuable measure of our performance because it better reveals trends in our business.

Management’s ~~narrative analysis~~Narrative Analysis 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.

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

This Quarterly Report on Form 10-Q, including “Risk Factors” and “Management’s Narrative Analysis of the Results of Operations,” contains “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. Forward-looking statements may contain words like: “anticipate,” “believe,” “estimate,” “expect,” “project,” “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 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:

The continuation of the COVID-19 pandemic, or future outbreaks of COVID-19, and uncertainty surrounding the length and severity of future impacts on the global economy and on our business, results of operations and financial condition;

~~Further deterioration in~~Weak general economic and business conditions that may affect demand for our products, account values, investment results 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;

Legislative, regulatory or tax changes that ~~affect:~~affect the cost of, or demand for, our ~~products;~~products or our ability to conduct business;

The impact of U.S. federal tax reform legislation on our business, earnings and capital;

The impact of Regulation Best Interest or other 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;

Actions taken by reinsurers to raise rates on in-force business;

~~Further declines~~Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) 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 impact of the implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act 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 features of our variable annuity products;

5354

Table of Contents

Changes in our assumptions related to deferred acquisition costs (“DAC”) or, value of business acquired (“VOBA”), deferred sales inducements (“DSI”) or deferred front-end loads (“DFEL”);

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 that may affect our business, results of operations and financial ~~condition;~~condition, including the adoption effective January 1, 2023, of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts;

Lowering of one or more of our financial strength ratings;

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 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;

Future pandemics, acts of terrorism, 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 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 included here are not exhaustive. Our most recent Form 10-K as well as other 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 ~~2020~~2021 Form 10-K for a discussion of certain risks relating to our business.

INTRODUCTION

COVID-19 Pandemic

The health, economic and business conditions precipitated by the worldwide COVID-19 pandemic that emerged in 2020 continue to adversely affect us and are expected to continue to adversely affect our business, results of operations and financial ~~condition. The COVID-19 pandemic led to an extreme downturn in and volatility of the capital markets~~condition in the ~~early part~~third quarter of 2020, record-low interest rates and wide-ranging changes in consumer behavior, including as a result of quarantines, shelter-in-place orders and limitations on business activity. Although vaccinations are under way, hospitalization rates remain elevated in populations with lower vaccination rates due to COVID-19 variants. While states have eased restrictions and the capital markets have recovered, it is unclear when the economy will operate under normal conditions. Because the economic and regulatory environment continues to react and evolve, we cannot predict the full impact of the pandemic and ensuing conditions on our business and financial condition.

2022. We continue to monitor ~~vaccination rates and~~ U.S. CDC reports related to COVID-19 and the potential impacts of the COVID-19 pandemic inon our Life Insurance and Group Protection segments. ~~We expect elevated mortality in the fourth quarter~~See “Additional Information” within Results of ~~2021 in our~~ Life Insurance and Results of Group Protection ~~segments as a result of the~~below for expected impacts of the COVID-19 ~~pandemic.~~

Because the profitability of some of our business depends in part on interest rates, changes in interest rates may impact both our margins and our return on invested capital. In response to the economic impact of the COVID-19 pandemic ~~the Federal Reserve cut interest rates to near zero in March 2020 and has announced its intention to keep interest rates near zero~~ in the ~~near term. We expect the continuation~~third quarter of the low interest rate environment to continue to adversely affect the interest margins of our businesses. We continue to be proactive in our investment strategies, product designs, crediting rate strategies, expense management actions and overall asset-liability practices to mitigate the risk of unfavorable consequences in this low interest rate environment. For risks related to sustained low interest rates, 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 changes in interest rates may also result in increased contract withdrawals” in our 2020 Form 10-K.2022.

The ~~economic environment has continued to improve from~~ultimate impact on our business, results of operations and financial condition depends on the ~~early part of 2020~~severity and economic restrictions have eased, but there could be ongoing weakness if there is a resurgence of COVID-19 cases that could cause renewed restrictions on economic activity. This could impact select corporate industries and partsduration of the ~~commercial mortgage loan market,~~COVID-19 pandemic and related health, economic and business impacts and actions taken by governmental authorities and other third parties in response, each of which ~~could lead~~is uncertain, rapidly changing and difficult to ~~increased credit defaults and/or negative ratings migrations within our broader investment portfolio. We continue to closely monitor developments relating to the COVID-19 pandemic.~~

predict. For more information on the risks related to the COVID-19 pandemic, see “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our ~~2020~~2021 Form 10-K.

Interest Rate Environment

In light of substantial progress since 2020 in the labor markets, elevated inflation and geopolitical events, the Federal Reserve announced in March 2022 the first increase to the federal funds rate target range since December 2018. Subsequently, the Federal Reserve announced three additional increases to the federal funds rate target range through July 2022, when it set the range at 2.25% to 2.50% and stated that it anticipates ongoing increases through the remainder of 2022 to combat inflation. Additionally, the Federal Reserve announced that it will continue the reduction it started in June 2022 of its holdings of Treasury securities, agency debt and agency mortgage-backed securities. Although short-term interest rates have been rising in 2022, we continue to be proactive in our investment strategies, product designs, crediting rate strategies, expense management actions and overall asset-liability practices to mitigate the risk of unfavorable consequences in this continued historically low interest rate environment.

We have provided disclosures around interest rate risk in “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 changes in interest rates may also result in increased contract withdrawals,” “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Critical Accounting Policies and Estimates – Annual Assumption

5455

Table of Contents

~~Spark Initiative~~

~~In the fourth quarter of~~Review – Long-Term New Money Investment Yield Sensitivity” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 LNC formally communicated its new expense savings initiative, the Spark Initiative, focused on driving efficiencies throughout all aspects of its business from leveraging automation to simplifying and improving process efficiency. In addition, this program will target benefits beyond cost savings including improving the way we work by focusing on reskilling and upskilling our valuable employee base.Form 10-K.

Critical Accounting Policies and Estimates

The MNA included in our ~~2020~~2021 Form 10-K contains a detailed discussion of our critical accounting policies and estimates. The following information updates the “Critical Accounting Policies and Estimates” provided in our ~~2020~~2021 Form 10-K, and therefore, should be read in conjunction with that disclosure.

~~DAC, VOBA, Deferred Sales Inducements (“DSI”) and Deferred Front-End Loads (“DFEL”)~~

~~Unlocking~~

As stated in “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Critical Accounting Policies and Estimates – Unlocking” in our 2020 Form 10-K, we conduct our annual comprehensive review of the assumptions and projection models underlying the amortization of DAC, VOBA, DSI ~~DFEL, embedded derivatives~~ and reserves for life insurance and annuity products in the third quarter of each year. As a result of this review, we recorded unlocking that resulted in increases and decreases to the carrying values of these items. See “DAC, VOBA, DSI and DFEL” in Note 1 of our 2020 Form 10-K for a detailed discussion of our unlocking process.

~~Details underlying the effect to net income (loss) from our unlocking as a result of our annual comprehensive review (in millions) were as follows:~~

For the Three
Months Ended
September 30,
2021
2020
Income (loss) from operations:
Annuities
$
18
$
(10
)
Retirement Plan Services
-
(3
)
Life Insurance
(51
)
(426
)
Excluded realized gain (loss)
(11
)
21
Net income (loss)
$
(44
)
$
(418
)

~~Unlocking was driven primarily by the following:~~

~~2021~~

~~For Annuities, favorable unlocking was driven by updates to expense and policyholder behavior assumptions, partially offset by unfavorable updates to interest rate assumptions.~~

~~For Life Insurance, unfavorable unlocking was driven by updates to policyholder behavior and interest rate assumptions, partially offset by favorable updates to investment allocation assumptions.~~

~~For excluded realized gain (loss), unfavorable unlocking was driven by updates to policyholder behavior assumptions, partially offset by favorable updates to other items.~~

~~2020~~

~~As part of our annual comprehensive review in the third quarter of 2021, we~~updated our interest rate assumptions. These updates included lowering starting new money rates to reflect the current interest rate environment and reducing our long-term new money investment yield assumption by 50 basis points, resulting in an ultimate long-term assumption of 3.0% for a 10-year U.S. Treasury. As a result of these updates, we recorded unfavorable after-tax unlocking of $351 million for Life Insurance, $46 million for Annuities and $7 million for Retirement Plan Services.

~~For Annuities, unfavorable unlocking was driven by updates to interest rate assumptions, partially offset by favorable updates to policyholder behavior assumptions and other items.~~

~~For Retirement Plan Services, unfavorable unlocking was driven by updates to interest rate assumptions, partially offset by favorable updates to expense assumptions and other items.~~

~~Table of Contents~~

~~For Life Insurance, unfavorable unlocking was driven by updates to interest rate and policyholder behavior assumptions.~~

~~For excluded realized gain (loss), favorable unlocking was driven by updates to reserves for fixed and indexed annuities, partially offset by unfavorable updates to policyholder behavior assumptions.~~DFEL

Reversion to the Mean

As variable fund returns do not move in a systematic manner, we reset the baseline of account values from which EGPs are projected, which we refer to as our reversion to the mean (“RTM”) process, as discussed in our ~~2020~~2021 Form 10-K.

If we had unlocked our RTM assumption as of ~~September~~June 30, ~~2021,~~2022, we would have recorded ~~favorable~~unfavorable unlocking of approximately ~~$440~~$35 million, pre-tax, primarily within our Annuities segment.

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 ~~2020~~2021 Form 10-K and Note 1412 herein.

Derivatives

~~Our~~For information on our accounting policies for derivatives, ~~and the potential effect~~see Note 5 herein. For information on ~~interest spreads in a falling rate environment are discussed in~~market exposures associated with our derivatives, including sensitivities, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our ~~2020~~2021 Form ~~10-K~~10-K.

Annual Assumption Review

During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used for our EGPs underlying the amortization of DAC, VOBA, DSI and DFEL as well as our reserves and embedded derivatives. For more information on our comprehensive review, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Annual Assumption Review” and Note ~~5 herein.~~1 in our 2021 Form 10-K.

~~Acquisitions and Dispositions~~

~~For information about acquisitions and dispositions, see Note 3 in our 2020 Form 10-K.~~

‎

Table of Contents

RESULTS OF CONSOLIDATED OPERATIONS

Details underlying the consolidated results (in millions) were as follows:



	For the Three						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	375		$	32		$	993		$	589		$	350		$	320		$	698		$	618
Retirement Plan Services		57			47			170			111			51			59			103			112
Life Insurance		153			(318	)		448			(149	)		61			252			79			295
Group Protection		(32	)		6			(12	)		85			59			46			18			20
Other Operations		(120	)		(34	)		(202	)		(109	)		(67	)		(40	)		(130	)		(82	)
Excluded realized gain (loss), after-tax		(59	)		(56	)		(108	)		(480	)		25			(178	)		190			(50	)
Benefit ratio unlocking, after-tax		(2	)		-			9			(4	)		(23	)		3			(33	)		13
Acquisition and integration costs related to mergers
and acquisitions, after-tax		-			(4	)		-			(12	)
Net income (loss)	$	372		$	(327	)	$	1,298		$	31		$	456		$	462		$	925		$	926

Comparison of the Three and Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Net income ~~increased~~decreased due primarily to the following:

~~The effect of unlocking.~~Higher benefits due to growth in business in force.

~~Higher~~Lower investment income on alternative ~~investments, and higher prepayment and bond make-whole premiums.~~investments.

~~Growth in~~Lower fee income driven by lower average daily variable account ~~values, business in force and group earned premiums.~~values.

Unfavorable benefit ratio unlocking driven by equity market performance.

The ~~increase~~decrease in net income was partially offset by the following:

~~Unfavorable experience in our Group Protection segment driven by the COVID-19 pandemic.~~Higher realized gains.

~~Unfavorable mortality in our Life Insurance segment.~~

~~Higher legal~~Lower expenses ~~trail commissions~~driven by lower amortization expense, equity market performance and ~~incentive compensation,~~lower production performance, partially offset by ~~continued focus on~~higher Spark program expense ~~management.~~

~~Spread compression due to average new money rates trailing~~as part of our ~~current portfolio yields, partially offset by actions implemented to reduce interest crediting rates.~~

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~Net income increased due primarily to the following:~~

~~Higher investment income on alternative investments, and higher prepayment and bond make-whole premiums.~~

~~Realized gains in 2021 compared to realized losses in 2020.~~

~~The effect of unlocking.~~Spark Initiative.

Growth in ~~average account values,~~ business in force and group earned premiums.

~~The increase in net income was partially offset by the following:~~

~~Unfavorable experience in our Group Protection segment driven by the COVID-19 pandemic.~~

~~Higher legal expenses, trail commissions, incentive compensation and strategic digitization investments, partially offset by continued focus on expense management.~~

~~Spread compression due to average new money rates trailing our current portfolio yields, partially offset by actions implemented to reduce interest crediting rates.~~

For a discussion ~~of the impacts~~ of the COVID-19 pandemic, see “Introduction” above. 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 ~~2020~~2021 Form 10-K.

Table of Contents

RESULTS OF ANNUITIES

Details underlying the results for Annuities (in millions) were as follows:



	For the Three					For the Nine				For the Three				For the Six
	Months Ended					Months Ended				Months Ended				Months Ended
	September 30,					September 30,				June 30,				June 30,
	2021		2020			2021		2020		2022		2021		2022		2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	30	$	17		$	89	$	92	$	25	$	27	$	55	$	59
Fee income		633		613			1,857		1,678		553		625		1,152		1,224
Net investment income		351		312			986		871		320		328		661		636
Operating realized gain (loss) ⁽²⁾		49		57			152		160		51		53		105		103
Amortization of deferred gain on
business sold through reinsurance		7		8			19		24		6		6		13		12
Other revenues ⁽³⁾		88		75			286		230		108		97		201		199
Total operating revenues		1,158		1,082			3,389		3,055		1,063		1,136		2,187		2,233
Operating Expenses
Interest credited		210		209			607		592		210		199		416		398
Benefits ⁽¹⁾		27		69			142		202		73		55		133		115
Commissions and other expenses		470		791			1,455		1,599		367		505		814		984
Total operating expenses		707		1,069			2,204		2,393		650		759		1,363		1,497
Income (loss) from operations before taxes		451		13			1,185		662		413		377		824		736
Federal income tax expense (benefit)		76		(19	)		192		73		63		57		126		118
Income (loss) from operations	$	375	$	32		$	993	$	589	$	350	$	320	$	698	$	618

⁽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~~which are subject to market volatility and the net settlement related to certain reinsurance transactions, ~~that~~which has a corresponding offset in net investment income and interest credited.

Comparison of the Three and Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Income from operations for this segment increased due primarily to lower commissions and other expenses due to lower amortization and lower incentive compensation expense as a result of production performance.

The increase in income from operations was partially offset by the following:

Lower ~~commissions and other expenses due to amortization expense and expense management, partially offset~~fee income driven by ~~trail commissions resulting from higher~~lower average daily variable account ~~values and incentive compensation as a result of production performance.~~

~~Lower benefits due to the effect of unlocking.~~values.

Higher benefits driven by an increase in the growth of our GLB and GDB benefit reserves due to market performance.

The increase in income from operations for the three months ended June 30, 2022, was also partially offset by lower net investment income, net of interest credited, driven by ~~prepayment and bond make-whole premiums and~~lower investment income on alternative investments within our surplus portfolio.

~~Higher fee income driven by higher average daily variable account values.~~

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~Income from operations for this segment increased due primarily to the following:~~

~~Higher fee income driven by higher average daily variable account values.~~

Lower commissions and other expenses due to amortization expense and expense management, partially offset by trail commissions resulting from higher average account values and incentive compensation as a result of production performance.

~~Higher net investment income, net of interest credited, driven by investment income on alternative investments within our surplus portfolio and prepayment and bond make-whole premiums.~~

~~Lower benefits due to the effect of unlocking.~~

~~See “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” above for information about unlocking.~~

~~Table of Contents~~

Additional Information

Strategic actions to re-price certain products in 2020 to respond to the low interest rate environment continued to contribute to lower deposits and negative net flows for the nine months ended September 30, 2021. We expect the trend of negative net flows to persist in the fourth quarter of 2021. For a discussion ~~of the impacts~~ of the COVID-19 pandemic, see “Introduction” ~~above.~~above and “Part I – 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

The other component of net flows relates to the retention of ~~the business.~~new business and account values. An important measure of retention is the reduction in account values caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average gross account values were 8%7% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, and 7%8% for the corresponding periods in ~~2020.~~2021.

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

Table of Contents

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 ~~the~~ interest rate risk, ~~due to falling interest rates,~~ 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 changes in interest rates may also result in increased contract withdrawals” and ~~“Effect of Interest Rate Sensitivity” and “Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” in~~ “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our ~~2020~~2021 Form 10-K. For information on the current interest rate environment, see “Introduction” above.

RESULTS OF RETIREMENT PLAN SERVICES

Details underlying the results for Retirement Plan Services (in millions) were as follows:



	For the Three				For the Nine				For the Three				For the Six
	Months Ended				Months Ended				Months Ended				Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Operating Revenues
Insurance premiums and fee income ⁽¹⁾	$	73	$	63	$	214	$	179
Fee income									$	63	$	72	$	131	$	142
Net investment income		243		238		736		680		239		248		474		493
Other revenues ⁽²⁾⁽¹⁾		9		6		27		19		9		9		19		16
Total operating revenues		325		307		977		878		311		329		624		651
Operating Expenses
Interest credited		153		155		462		458		156		155		308		309
Benefits		1		-		2		1		1		1		1		1
Commissions and other expenses		102		98		308		294		94		103		196		205
Total operating expenses		256		253		772		753		251		259		505		515
Income (loss) from operations before taxes		69		54		205		125		60		70		119		136
Federal income tax expense (benefit)		12		7		35		14		9		11		16		24
Income (loss) from operations	$	57	$	47	$	170	$	111	$	51	$	59	$	103	$	112

⁽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.

Comparison of the Three and Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Income from operations for this segment ~~increased~~decreased due primarily to the following:

~~Higher insurance premiums and fee income driven by higher average variable account values.~~

~~Higher~~Lower net investment income, net of interest credited, driven by ~~prepayment and bond make-whole premiums,~~lower investment income on alternative investments within our surplus portfolio and lower prepayment and bond make-whole premiums, partially offset by higher average fixed account ~~values, partially offset~~values.

Lower fee income driven by ~~spread compression due to~~lower average ~~new money rates trailing our current portfolio yields.~~daily account values.

The ~~increase~~decrease in income from operations was partially offset by ~~higher~~lower commissions and other expenses driven by lower incentive compensation as a result of production performance and lower trail commissions resulting from ~~higher~~lower average account ~~values, partially offset by expense management.~~

~~Table of Contents~~

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~Income from operations for this segment increased due primarily to the following:~~

Higher net investment income, net of interest credited, driven by investment income on alternative investments within our surplus portfolio, prepayment and bond make-whole premiums and higher average fixed account values, partially offset by spread compression due to average new money rates trailing our current portfolio yields.

~~Higher insurance premiums and fee income driven by higher average variable account~~ values.

The increase in income from operations was partially offset by higher commissions and other expenses driven by trail commissions resulting from higher average account values and incentive compensation as a result of production performance, partially offset by expense management.

~~See “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” above for information about unlocking.~~

Additional Information

For adiscussion of the COVID-19 pandemic, see “Introduction” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic ~~see “Introduction” above.~~have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Net flows in this business fluctuate based on the timing of larger plans being implemented 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 caused by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account values were 9% and 10% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, compared to~~2022, respectively, and 10% ~~and 13%, respectively,~~ for the corresponding periods in ~~2020.~~2021.

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

Table of Contents

proportion of these products to our total account values was 18% ~~and 20%~~ as of ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. Due to this 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 ~~the~~ interest rate risk, ~~due to falling interest rates,~~ 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 changes in interest rates may also result in increased contract withdrawals” and ~~“Effect of Interest Rate Sensitivity” and “Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” in~~ “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our ~~2020~~2021 Form 10-K. For information on the current interest rate environment, see “Introduction” above.

‎

~~Table of Contents~~

RESULTS OF LIFE INSURANCE

Details underlying the results for Life Insurance (in millions) were as follows:



	For the Three					For the Nine					For the Three				For the Six
	Months Ended					Months Ended					Months Ended				Months Ended
	September 30,					September 30,					June 30,				June 30,
	2021		2020			2021		2020			2022		2021		2022		2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	203	$	172		$	576	$	520		$	224	$	193	$	431	$	372
Fee income		1,221		1,122			2,980		2,819			829		903		1,664		1,758
Net investment income		795		737			2,381		1,947			632		810		1,289		1,585
Operating realized gain (loss) ⁽²⁾		2		1			1		1			-		-		2		(1	)
Amortization of deferred gain (loss) on
business sold through reinsurance		-		1			2		3			11		1		22		3
Other revenues		4		(1	)		16		7			1		4		3		13
Total operating revenues		2,225		2,032			5,956		5,297			1,697		1,911		3,411		3,730
Operating Expenses
Interest credited		370		363			1,101		1,099			324		367		644		731
Benefits		821		1,378			2,872		3,187			1,021		901		2,103		2,051
Commissions and other expenses		845		701			1,432		1,219			280		329		579		586
Total operating expenses		2,036		2,442			5,405		5,505			1,625		1,597		3,326		3,368
Income (loss) from operations before taxes		189		(410	)		551		(208	)		72		314		85		362
Federal income tax expense (benefit)		36		(92	)		103		(59	)		11		62		6		67
Income (loss) from operations	$	153	$	(318	)	$	448	$	(149	)	$	61	$	252	$	79	$	295

⁽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 ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Income from operations for this segment ~~increased~~decreased due primarily to the following:

Lower ~~benefits due to the effect of unlocking, partially offset by growth in business in force and unfavorable mortality.~~

Higher fee income due to the effect of unlocking and growth in business in force, partially offset by the outcome of a reinsurance arbitration and lower DFEL amortization as a result of lower actual gross profits.

~~Higher~~ net investment income, net of interest credited, driven by lower investment income on alternative investments and ~~prepayment and bond make-whole premiums, partially offset by spread compression~~the impact of the fourth quarter 2021 reinsurance agreement.

Lower fee income due to ~~average new money rates trailing our current portfolio yields.~~the impact of the fourth quarter 2021 reinsurance agreement and lower DFEL amortization.

Higher benefits due to growth in business in force and favorable mortality experience in the second quarter of 2021.

The ~~increase~~decrease in income from operations was partially offset by ~~higher~~the following:

Lower commissions and other expenses due to ~~the effect of unlocking~~lower amortization and lower incentive compensation as a result of production ~~performance, partially offset by expense management.~~

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~Income from operations for this segment increased due primarily to the following:~~

performance.

Higher ~~net investment income, net~~amortization of ~~interest credited, driven by investment income~~deferred gain on ~~alternative investments and prepayment and bond make-whole premiums, partially offset by spread compression due to average new money rates trailing our current portfolio yields.~~

~~Lower benefits due to the effect of unlocking, partially offset by growth in~~ business ~~in force.~~

~~Higher fee income due to the effect of unlocking, growth in business in force and higher DFEL amortization~~sold through reinsurance as a result of ~~higher actual gross profits.~~

~~The increase in income from operations was partially offset by higher commissions and other expenses due to~~ the ~~effect of unlocking and incentive compensation as a result of production performance, partially offset by expense management.~~

~~See “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” above for information about unlocking.~~fourth quarter 2021 reinsurance agreement.

6160

Table of Contents

~~Strategies~~Comparison of the Six Months Ended June 30, 2022 to ~~Address Statutory Reserve Strain~~2021

WeIncome from operations for this segment decreased due primarily to the following:

Lower net investment income, net of interest credited, driven by lower investment income on alternative investments and ~~our insurance subsidiaries have statutory surplus~~the impact of the fourth quarter 2021 reinsurance agreement.

Lower fee income due to the impact of the fourth quarter 2021 reinsurance agreement and ~~risk-based capital levels above current regulatory required levels. Term products~~lower DFEL amortization.

The decrease in income from operations was partially offset by the following:

Higher amortization of deferred gain on business sold through reinsurance as a result of the fourth quarter 2021 reinsurance agreement.

Lower commissions and other ~~products containing secondary guarantees require reserves calculated pursuant~~expenses due to ~~the Valuation~~lower incentive compensation as a result of Life Insurance Policies Model Regulation (“XXX”), Actuarial Guideline 38 (“AG38”) and the principles-based reserving framework. For information on strategies we use to reduce the statutory reserve strain, see “Review of Consolidated Financial Condition – Liquidity and Capital Resources – Sources of Liquidity and Cash Flow – Statutory Capital and Surplus” below.production performance.

Additional Information

~~Strategic repricing actions~~Effective October 1, 2021, we entered into a reinsurance agreement with Security Life of Denver Insurance Company (a subsidiary of Resolution Life) to ~~respond~~reinsure liabilities under a block of in-force executive benefit and universal life policies. For more information, see Note 8 in our 2021 Form 10-K. We expect an ongoing reduction in income from operations in future periods as a result of this reinsurance agreement.

While U.S. pandemic deaths have improved, we continue to expect elevated mortality in the ~~low interest rate environment continued to contribute to lower sales for the nine months ended September 30, 2021, as compared to the corresponding period~~third quarter of ~~2020.~~2022. For a discussion of the ~~expected~~COVID-19 pandemic, see “Introduction – COVID-19 Pandemic” above and ~~potential~~“Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic ~~see “Introduction” above.~~have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

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 ~~the~~ interest rate risk, ~~due to falling interest rates,~~ 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 changes in interest rates may also result in increased contract withdrawals” and ~~“Effect of Interest Rate Sensitivity” and “Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” in~~ “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our ~~2020~~2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Interest Rate Environment” above.

RESULTS OF GROUP PROTECTION

Details underlying the results for Group Protection (in millions) were as follows:



	For the Three					For the Nine					For the Three				For the Six
	Months Ended					Months Ended					Months Ended				Months Ended
	September 30,					September 30,					June 30,				June 30,
	2021			2020		2021			2020		2022		2021		2022		2021
Operating Revenues
Insurance premiums	$	1,107		$	1,052	$	3,333		$	3,231	$	1,187	$	1,107	$	2,356	$	2,226
Net investment income		91			88		275			238		86		94		171		185
Other revenues ⁽¹⁾		45			44		134			138		50		45		99		89
Total operating revenues		1,243			1,184		3,742			3,607		1,323		1,246		2,626		2,500
Operating Expenses
Interest credited		1			1		4			4		2		1		3		3
Benefits		971			875		2,818			2,580		926		877		1,953		1,847
Commissions and other expenses		311			300		936			916		320		310		647		624
Total operating expenses		1,283			1,176		3,758			3,500		1,248		1,188		2,603		2,474
Income (loss) from operations before taxes		(40	)		8		(16	)		107		75		58		23		26
Federal income tax expense (benefit)		(8	)		2		(4	)		22		16		12		5		6
Income (loss) from operations	$	(32	)	$	6	$	(12	)	$	85	$	59	$	46	$	18	$	20

⁽¹⁾Consists of revenue from third parties for administrative services performed, which has a corresponding partial offset in commissions and other expenses.

Table of Contents

Comparison of the Three ~~and Nine~~ Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Income from operations for this segment increased due primarily to higher insurance premiums due to growth in the business and favorable persistency.

The increase in income from operations was partially offset by the following:

Higher benefits driven by growth in the business and higher severity in both our disability and life businesses, partially offset by lower incidence in our life business.

Lower net investment income, net of interest credited, driven by lower investment income on alternative investments within our surplus portfolio.

Higher commissions and other expenses driven by favorable persistency and investments in claims management to address higher claims volume and to improve ongoing operations, partially offset by lower incentive compensation as a result of production performance.

Comparison of the Six Months Ended June 30, 2022 to 2021

Income from operations for this segment decreased due primarily to the following:

Higher benefits driven by ~~unfavorable experience~~growth in the business, higher severity in both our disability and life businesses and higher disability incidence, partially offset by lower incidence in our life ~~and disability businesses, partially offset by favorable reserve adjustments in our disability~~ business. ~~See “Additional Information” below for further discussion on the impacts to benefits.~~

Higher commissions and other expenses ~~due~~driven by investments in claims management to address higher claims volume and to improve ongoing operations and by favorable persistency, partially offset by lower incentive compensation as a result of production ~~performance and~~performance.

Lower net investment income, net of interest credited, driven by lower investment income on alternative investments inwithin our ~~claims organization to address higher claims volume attributable to the COVID-19 pandemic.~~surplus portfolio.

The decrease in income from operations was partially offset by higher insurance premiums due to growth in the business and favorable persistency.

~~Table of Contents~~

Additionally, when comparing the nine months ended September 30, 2021 to 2020, the decrease in income from operations was also due to lower benefits in 2020 driven by lower utilization in our dental business, partially offset by higher net investment income, net of interest credited, driven by investment income on alternative investments within our surplus portfolio.

Additional Information

Our total loss ratio for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, was ~~87.8%~~78.2% and ~~84.7%~~83.0%, respectively, compared to ~~83.2%~~79.3% and ~~79.8%~~83.1% for the corresponding periods in ~~2020,~~2021, respectively. ~~The total loss ratio for the three~~We continue to expect morbidity headwinds in our disability business and ~~nine months ended September 30, 2021, increased due primarily to higher incidence and new claims severity~~elevated mortality in our life business ~~as a result of the impacts of~~attributable to the COVID-19 pandemic ~~and higher incidence~~ in ~~our disability business, partially offset by favorable reserve adjustments~~the third quarter of $16 million, after-tax, in 2021 as compared to unfavorable reserve adjustments of $3 million, after-tax, in 2020 due to modifying certain assumptions on the reserves in our disability business. In addition, for the nine months ended September 30, 2021, the total loss ratio increased due to lower utilization in our dental business in 2020 due to COVID-19 pandemic office closures.2022. For a discussion ~~of the expected and potential impacts~~ of the COVID-19 pandemic, see “Introduction” above.

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.

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 ~~2020~~2021 Form 10-K. For information on the effects of current interest rates on our long-term disability claim reserves, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” in our ~~2020~~2021 Form 10-K.

Table of Contents

RESULTS OF OTHER OPERATIONS

Details underlying the results for Other Operations (in millions) were as follows:



	For the Three						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	1		$	1		$	1		$	1		$	1		$	1		$	2		$	1
Net investment income		31			29			90			98			32			30			66			58
Other revenues		4			7			18			16			(4	)		7			(6	)		14
Total operating revenues		36			37			109			115			29			38			62			73
Operating Expenses
Interest credited		10			9			32			31			9			10			21			22
Benefits		17			28			48			67			19			18			36			33
Other expenses		110			3			144			22			2			14			20			33
Interest and debt expense		29			29			86			96			31			28			60			57
Strategic digitization expense		22			14			57			39
Spark program expense														44			21			75			35
Total operating expenses		188			83			367			255			105			91			212			180
Income (loss) from operations before taxes		(152	)		(46	)		(258	)		(140	)		(76	)		(53	)		(150	)		(107	)
Federal income tax expense (benefit)		(32	)		(12	)		(56	)		(31	)		(9	)		(13	)		(20	)		(25	)
Income (loss) from operations	$	(120	)	$	(34	)	$	(202	)	$	(109	)	$	(67	)	$	(40	)	$	(130	)	$	(82	)

~~Includes our disability income business, which has a corresponding offset in benefits for changes in reserves.~~

Comparison of the Three and Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

Loss from operations for Other Operations increased due primarily to the following:

Higher other expenses related to a one-time legal expense and the effect of changes in LNC’s stock price on our deferred compensation plans, as LNC’s stock price increased during the third quarter of 2021, compared to a decrease during the third quarter of 2020.

~~Higher strategic digitization~~Spark program expense as part of our ~~strategic digitization initiative.~~Spark Initiative.

Lower other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans, which decreased during the three and six months ended June 30, 2022, compared to an increase during the corresponding periods in 2021.

Less favorable income tax benefit driven by unfavorable market impacts on tax preferred investment income.

Higher interest and debt expense driven by an increase in average interest rates.

The increase in loss from operations was partially offset by ~~lower benefits~~the following:

Lower other expenses due to ~~modifying certain assumptions~~the effect of changes in ~~2020~~our stock price on our deferred compensation plans as LNC’s stock price decreased during the ~~reserves supporting our run-off institutional pension business.~~three and six months ended June 30, 2022, compared to an increase during the corresponding periods in 2021.

Higher net investment income, net of interest credited, related to higher allocated investments driven by an increase in excess capital retained by Other Operations.

Table of Contents

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~Loss from operations for Other Operations increased due primarily to the following:~~

Higher other expenses related to a one-time legal expense and the effect of changes in LNC’s stock price on our deferred compensation plans, as LNC’s stock price increased significantly during the nine months ended September 30, 2021, compared to a significant decrease during the nine months ended September 30, 2020.

~~Higher strategic digitization expense as part of our strategic digitization initiative.~~

~~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 following:~~

Lower benefits attributable to favorable experience in our run-off institutional pension and disability income businesses and modifying certain assumptions in 2020 on the reserves supporting our institutional pension business.

~~Lower interest and debt expense driven by a decline in average interest rates.~~

REALIZED GAIN (LOSS)

Details underlying realized gain (loss), after-DAC ⁽¹⁾ (in millions) were as follows:



	For the Three						For the Nine						For the Three						For the Six
	Months Ended						Months Ended						Months Ended						Months Ended
	September 30,						September 30,						June 30,						June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Components of Realized Gain (Loss), Pre-Tax
Total operating realized gain (loss)	$	51		$	58		$	153		$	161		$	51		$	53		$	107		$	102
Total excluded realized gain (loss)		(75	)		(71	)		(137	)		(609	)		31			(225	)		240			(63	)
Total realized gain (loss), pre-tax	$	(24	)	$	(13	)	$	16		$	(448	)	$	82		$	(172	)	$	347		$	39

Components of Excluded Realized Gain (Loss),
After-Tax
Realized gain (loss) related to certain financial assets	$	18		$	49		$	59		$	(126	)	$	(20	)	$	16		$	(16	)	$	41
Realized gain (loss) on the mark-to-market on
certain instruments ⁽²⁾		18			(40	)		87			(80	)		146			(105	)		363			69
GLB fees ceded to LNBAR and attributed fees,
including benefit ratio unlocking		(94	)		(83	)		(266	)		(264	)		(99	)		(95	)		(207	)		(170	)
Indexed annuity forward-starting option		(3	)		18			21			(14	)		(3	)		8			39			23
Excluded realized gain (loss) including benefit
ratio unlocking, after-tax		(61	)		(56	)		(99	)		(484	)		24			(176	)		179			(37	)
Less: benefit ratio unlocking, after tax		(2	)		-			9			(4	)
Less: benefit ratio unlocking on GDB
and GLB riders, after-tax														(1	)		2			(11	)		13
Total excluded realized gain (loss), after-tax	$	(59	)	$	(56	)	$	(108	)	$	(480	)	$	25		$	(178	)	$	190		$	(50	)

⁽¹⁾DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance assets and liabilities.

⁽²⁾Includes activity with LNBAR. The modified coinsurance ~~(“Modco”)~~ investment portfolio includes fixed maturity securities classified as available-for-sale (“AFS”) with changes in fair value recorded in other comprehensive income (loss). Since the corresponding and offsetting changes in fair value of the embedded derivatives related to the ~~Modco~~modified coinsurance investment portfolio are recorded in realized gain (loss), volatility can occur within net income (loss). See Note 78 in our 2021 Form 10-K for more ~~information.~~information regarding modified coinsurance.

Comparison of the Three Months Ended ~~September~~June 30, ~~2021~~2022 to ~~2020~~2021

We had ~~higher~~realized gains compared to realized losses due primarily to the following:

~~Lower~~Gains on the mark-to-market on certain instruments driven by favorable changes in the fair value of embedded derivatives related to certain modified coinsurance arrangements.

The realized gains were partially offset by losses related to certain financial assets driven by unfavorable equity market performance in 2022 compared to favorable equity market performance in 2021.

Comparison of the Six Months Ended June 30, 2022 to 2021

We had realized gains compared to realized losses due primarily to ~~changes in economic projections associated with our review of credit losses for mortgage loans on real estate.~~the following:

Higher ~~realized losses related to indexed annuity forward-starting option due to the effect of unlocking.~~

~~The higher realized losses were partially offset by~~ gains on the mark-to-market on certain instruments driven by favorable changes in the fair value of embedded derivatives related to certain ~~Modco~~modified coinsurance arrangements.

Higher gains related to the indexed annuity forward-starting option driven by an increase in discount rates and a decrease in projected index interest credited as a result of equity market performance.

The realized gains were partially offset by:

Losses related to certain financial assets driven by unfavorable equity market performance in 2022 compared to favorable equity market performance in 2021.

Increased losses related to GLB fees ceded to LNBAR and attributed fees driven by increased policy holder guaranteed amounts resulting from market activity.

Table of Contents

~~Comparison of the Nine Months Ended September 30, 2021 to 2020~~

~~We had lower realized losses due primarily to the following:~~

~~Gains related to certain financial assets in 2021 as compared to losses in 2020 due to changes in economic projections associated with our review of credit losses for mortgage loans on real estate.~~

~~Gains on the mark-to-market on certain instruments driven by favorable changes in the fair value of embedded derivatives related to certain Modco arrangements.~~

~~Gains related to our indexed annuity forward-starting option driven by an increase in discount rates, partially offset by the effect of unlocking.~~

The above components of excluded realized gain (loss) are described including benefit ratio unlocking, after-tax.

~~See “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” above for information about unlocking.~~

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 ~~2020~~2021 Form 10-K for a discussion of our operating realized gain (loss).

Realized Gain (Loss) Related to Certain Financial Assets

For information on realized gain (loss) related to certain financial assets, see Note ~~13.~~11.

Realized Gain (Loss) on the Mark-to-Market on Certain Instruments

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Realized Gain (Loss) on the Mark-to-Market on Certain Instruments” in our ~~2020~~2021 Form 10-K for a discussion of the mark-to-market on certain instruments. We also recognize the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 1412 for additional information.

Guaranteed Living Benefit 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~~”Fees” in our ~~2020~~2021 Form 10-K for a discussion of our guaranteed living benefit (“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~~”Option” in our ~~2020~~2021 Form 10-K for a discussion of our indexed annuity forward-starting option.

~~REVIEW OF CONSOLIDATED FINANCIAL CONDITION~~LIQUIDITY AND CAPITAL RESOURCES

~~Liquidity and Capital Resources~~

~~Sources of Liquidity and Cash Flow~~

Overview

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 flow from investing activities result from maturities and sales of investments. Our operating activities provided (used) cash of $202 million and $(793) million for the nine months ended September 30, 2021 and 2020, respectively. In addition, during the first quarter of 2021, we received a capital ~~contribution from LNC in the amount of $65 million.~~as described below. When considering our liquidity, ~~and cash flow,~~ it is important to distinguish between our needs, the needs of ~~our insurance subsidiaries~~Lincoln Life & Annuity Company of New York (“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.

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 and contract holder 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 $3.1 billion and $(160) million for the six months ended June 30, 2022 and 2021, respectively.

Statutory Capital and Surplus

Our regulatory capital levels are also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. 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 of Regulation 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 2020 Form 10-K, weWe employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the

~~Table of Contents~~

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. LOCs and related capital market solutions lower the capital effect of term products and UL products containing secondary guarantees. For information on the LOCs, see the credit facilities table in Note 1312 in our ~~2020~~2021 Form ~~10-K as updated by Note 10 herein.~~10-K. Our captive reinsurance subsidiaries and LNBAR have also issued long-term notes to finance a portion of the excess reserves. For information on long-term notes issued by our captive reinsurance subsidiaries, see Note 43 in our ~~2020~~2021 Form 10-K. We have also used the proceeds from certain senior notes issued by LNC to execute long-term structured solutions primarily supporting reinsurance of UL products containing secondary guarantees.

Table of Contents

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 ~~Lincoln Life & Annuity Company of New York (“LLANY”).~~LLANY.

~~Financing Activities~~Debt

For information about our short-term and long-term debt ~~see Note 13 in our 2020 Form 10-K. For information about~~and our credit facilities, see Note 1312 in our ~~2020~~2021 Form ~~10-K as updated by Note 10 herein.~~

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 derivative counterparties, there is a termination event if our financial strength ratings drop below BBB-/Baa3 (S&P Global Ratings/Moody’s). 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 ratings 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 2020 Form 10-K for more information. See “Part I – Item 1. Business – Financial Strength Ratings” in our 2020 Form 10-K for additional information on our financial strength ratings.10-K.

Alternative Sources of Liquidity

~~Inter-company~~Inter-Company Cash Management Program

In order to manage our capital more efficiently, we participate in an inter-company cash management program where LNL, certain of our subsidiaries and certain affiliates, 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 ~~September~~June 30, ~~2021,~~2022, we had a net outstanding receivable (payable) of ~~$3.5 billion~~$730 million from (to) certain subsidiaries and affiliates in the inter-company cash management program. Loans under the cash management program are permitted under applicable insurance laws subject to certain restrictions. LNL, domiciled in Indiana, ~~and our New Hampshire-domiciled insurance subsidiary are~~is subject to a borrowing and lending limit of, 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 its most recent year end but may not lend any amounts to LNC.

Federal Home Loan Bank

LNL is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis (“FHLBI”). Membership allows LNL 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. Borrowings under this facility are subject to the FHLBI’s discretion and require the availability of qualifying assets at LNL. As of ~~September~~June 30, ~~2021,~~2022, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of ~~$4.3~~$6.0 billion. As of ~~September~~June 30, ~~2021,~~2022, LNL had outstanding borrowings of ~~$3.1~~$3.9 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 ~~September~~June 30, ~~2021,~~2022, 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 ~~our insurance subsidiaries,~~LLANY, by virtue of their general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. As of ~~September~~June 30, ~~2021,~~2022, we had securities pledged under securities lending agreements with a carrying value of ~~$300~~$299 million. In addition, LNL, ~~our insurance subsidiaries~~LLANY and LNBAR had access to ~~$1.75~~$2.25 billion through committed repurchase agreements, of which $25 million was utilized as of ~~September~~June 30, ~~2021.~~2022. The cash received in our securities lending programs and repurchase agreements is typically invested in cash and invested cash or fixed maturity AFS securities. For additional information, see “Payables for Collateral on Investments” in Note 4.

~~Table of Contents~~

Collateral on 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 of ~~September~~June 30, ~~2021,~~2022, we were in a net collateral payable position of ~~$4.9~~$3.2 billion compared to ~~$2.8~~$5.5 billion as of December 31, ~~2020.~~2021. In the event of adverse changes in fair value of our derivative instruments, we may need to post collateral with a 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 through 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 1012 in our 2021 Form 10-K to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 5.

~~Uses of Capital~~Ratings

~~Our principal uses~~Financial Strength Ratings

See “Part I – Item 1. Business – Financial Strength Ratings” in our 2021 Form 10-K for information on our financial strength ratings.

Table of ~~cash are~~Contents

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 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.

See “Part I – Item 1A. Risk Factors –Covenants and Ratings – A downgrade in our financial strength ratings could limit our ability to ~~pay policy claims and benefits, operating expenses, commissions and taxes, to purchase new investments, to fund policy surrenders and withdrawals, to pay dividends to LNC and to repay debt.~~market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors” in our 2021 Form 10-K for more information.

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. For information on these market risks, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our ~~2020~~2021 Form 10-K. See also ~~“Part I – Item~~“Item 2. Management’s Narrative Analysis of the Results of Operations – Introduction” above.

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 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 material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended ~~September~~June 30, ~~2021,~~2022, that has materially affected, or is reasonably likely to materially affect, our 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 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.

‎

Table of Contents

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to Hanks v. Lincoln Life & Annuity Company of New York and Voya Retirement Insurance and Annuity Company, previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 (“2021 Form 10-K”). On ~~October 22, 2021,~~June 29, 2022, the ~~parties informed the presiding judge that they have reached a settlement of the action, subject to~~ court ~~approval. The parties requested the suspension of the current case-schedule, including trial date, and 45 days to prepare~~conducted a final ~~settlement agreement and motion for preliminary approval. On October 25, 2021,~~fairness hearing concerning the ~~presiding judge approved the parties’ request. The~~ terms of the ~~provisional~~ settlement, ~~remain confidential.~~and granted final approval.

Reference is made to Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York previously disclosed in our 2021 Form 10-K. On June 6, 2022, oral argument was held with respect to plaintiff’s appeal of the court’s July 2021 decision to grant, with prejudice, LLANY’s motion to dismiss.

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 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. We are vigorously defending this matter.

See Note 119 in “Part I – Item 1. Financial Statements” for further discussion regarding ~~this matter~~these matters and other contingencies.

Item 1A. Risk Factors

In addition to the factors set forth in “Part I – Item 2. Management’s Narrative Analysis of the Results of Operations – Forward-Looking Statements – Cautionary Language,” you should carefully consider the risks described under “Part I – Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, ~~2020.~~2021. Such risks and uncertainties are not the only ones facing our Company. Additional risks and uncertainties not presently known to 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 results of operations could be materially affected. In that case, the value of our securities could decline substantially.

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

None.

Item 6. Exhibits

The Exhibits included in this report are listed in the Exhibit Index beginning on page 69, which is incorporated herein by reference.

‎

Table of Contents

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

Exhibit Index for the Report on Form 10-Q

For the Quarter Ended ~~September~~June 30, ~~2021~~2022



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 – 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).

‎

Table of Contents

SIGNATURES

Pursuant to the requirements 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: ~~November~~August 8, ~~2021~~2022	By:	/s/ ~~Randal J. Freitag~~Adam Cohen
		~~Randal J. Freitag~~Adam Cohen ~~Executive~~Senior Vice President ~~Chief Financial Officer~~ and ~~Interim~~ Chief Accounting Officer (Authorized Signatory and Principal ~~Financial and~~ Accounting Officer)


Item		Page
PART I

1.	Financial Statements	1

2.	Management’s Narrative Analysis of the Results of Operations	53
	Forward-Looking Statements – Cautionary Language	53
	Introduction	54
	Critical Accounting Policies and Estimates	55
	Acquisitions and Dispositions	56
	Results of Consolidated Operations	57
	Results of Annuities	58
	Results of Retirement Plan Services	59
	Results of Life Insurance	61
	Results of Group Protection	62
	Results of Other Operations	63
	Realized Gain (Loss)	64
	Review of Consolidated Financial Condition	65
	Liquidity and Capital Resources	65

3.	Quantitative and Qualitative Disclosures About Market Risk	67

4.	Controls and Procedures	67

PART II

1.	Legal Proceedings	68

1A.	Risk Factors	68

2.	Unregistered Sales of Equity Securities and Use of Proceeds	68

6.	Exhibits	68

	Exhibit Index for the Report on Form 10-Q	69

	Signatures	70



	Gain (Loss) Recognized in Income
	For the Nine Months Ended September 30,
	2021								2020
	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	$	16		$	4,468		$	5,871	$	(448	)	$	3,834		$	6,042
Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(59	)		-		-			100			-
Derivatives designated as																-
hedging instruments		-			59			-		-			(100	)
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			2			-		-			2			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		(2	)		34			-		6			46			-

Non-Qualifying Hedges
Interest rate contracts		(876	)		-			-		1,795			-			-
Foreign currency contracts		(1	)		-			-		-			-			-
Equity market contracts		2,342			-			-		565			-			-
Credit contracts		-			-			-		(4	)		-			-
LPR ceded derivative		-			-			77		-			-			-
Embedded derivatives:
GLB		3			-			-		(1	)		-			-
Reinsurance related		166			-			-		(141	)		-			-
Indexed annuity and IUL
contracts		(1,296	)		-			-		396			-			-