Exhibit 99.1
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Bob Dineen
President and CEO
Lincoln Financial Network
President and CEO
Lincoln Financial Network
LFD and LFN
Successfully Affecting Outcomes
Successfully Affecting Outcomes
Will Fuller
President and CEO
Lincoln Financial Distributors
President and CEO
Lincoln Financial Distributors
Lincoln’s Distribution Franchise
568 Wholesalers
LFN
8,045 Advisors
311 Worksite
Consultants
Consultants
Group Protection
148 Wholesalers
Disciplined
Powerful
• Dedicated to consumer driven products
• Focused on growing market segments where advice and
planning are highly valued
planning are highly valued
Consumer Trends
• Focus on safety (guarantees)
• Tempered expectations on
returns
returns
• Concern regarding taxes
• Need for advice
1 Source: US Census Bureau Projections
2 Source: Federal Reserve Flow of Funds Report April 2010, 10-year Treasury Note maturity 2/15/2021, interest rate 3.625%.
Company estimates regarding wealth transfer, excludes future savings
Company estimates regarding wealth transfer, excludes future savings
Daily
Registered
14,769
Registered
14,769
RIA Only
18,582
18,582
Regional
B/Ds
B/Ds
35,994
Industry Trends and Advisor Flows
• Environmental
conditions
accelerating migration
from wirehouse and
regionals to
independent
conditions
accelerating migration
from wirehouse and
regionals to
independent
Sources: Securities Industry Association, Investment News, Financial Planning, Bank Insurance Market Research Group, National Regulatory
Services, Standard & Poors, Money Market Directories, Cerulli Associates; Consolidated Industry Surveys (Financial Planning Magazine, June
2010; Investment News, April 2010; Financial Advisor, April 2010)
Services, Standard & Poors, Money Market Directories, Cerulli Associates; Consolidated Industry Surveys (Financial Planning Magazine, June
2010; Investment News, April 2010; Financial Advisor, April 2010)
400
300
200
100
0
-100
-200
-300
-400
-500
-16.7%
-9.4%
-8.9%
-7.4%
-6.3%
-4.9%
-4.5%
-2.4%
1.0%
1.7%
3.8%
5.4%
13.0%
Sage
Point
Point
ING
New
England
England
Axa
Advisors
Advisors
Princor
John
Hancock
Hancock
MML
Ameriprise
NWM
LPL
LFN
Common
wealth
wealth
Cambridge
% Change vs. 2009
# Change vs. 2009
Advisor Headcount Changes 2010 vs. 2009
Banks
B/Ds
16,406
B/Ds
16,406
Wirehouse
54,865
Insurance
B/Ds
B/Ds
70,405
Independent
B/Ds
B/Ds
98,706
LFN: Delivering Shareholder Value to Lincoln
Wirehouse Regionals Insurance BD LFA/Sagemark ABGA GA Independent
LFN: Keys to Sustained Growth
• Independence
– Open architecture and affiliation choice
• National Recruiting Platform
– Growing number of productive, process driven advisors
• Retention of top-tier advisors remains strong
• Recruiting of productive advisors very strong
• Advice
– Deep financial planning expertise
• National Planning Center
• Advisory process helps insulate from margin compression
2007
2008
2009
2010
Sept
2011
2011
Sustained Growth Trend
Number of Active LFN Advisors
Number of Active LFN Advisors
1 Investment News, January 26, 2011
2nd Largest Independent Broker-Dealer1
LFD: A History of Consistent Achievement
49,743
Producers
Producers
55,029
Producers
Producers
57,264
Producers
Producers
58,000
Producers
Producers
Across different business cycles, consistent
new business levels and growing producer levels
new business levels and growing producer levels
S&P
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q08
3Q08
$5
$2
$1
$4
$3
Consolidated Deposits ($ billions)
Doing Business on Our Terms
Variable Annuities Market Share and Rankings1
Core Life Market Share and Rankings2
1 Rankings based on MARC YTD sales as of June 30, 2011
2 Rankings based on LIMRA YTD sales as of June 30, 2011. Core Life includes UL, VUL and term
2008 | 2009 |
• De-risking and re-pricing of VA portfolio |
Variable Annuities |
2010 | 2Q 2011 |
• Risk mitigation built into products and further re-pricing |
2008 | 2009 |
• Increased Term focus • Continued expansion of MoneyGuard franchise |
Life |
2010 | 2Q 2011 |
• Re-pricing of SG UL and MoneyGuard products • Increased focus on non-interest rate sensitive products (VUL, Term, Indexed UL) |
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
7.2%
6.4%
6.6%
6.2%
Ranked
#1
#1
Ranked
#2
#2
Ranked
#2
#2
Ranked
#1
#1
8.0%
8.2%
8.2%
8.6%
Growth On: LFD Creating Value for Lincoln
1 Excludes 2011 Defined Contribution expansion
Growing Active Producers
+17%
Growing Wholesaler Productivity
+27%
1
• Increasing producers across products
– 8,000+ new producers
– 10,000+ producers selling multiple
Lincoln products
Lincoln products
• Winning the war for talent
– Success in attracting top talent from
industry
industry
– Record high retention
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Life Insurance
Protecting Margins / Leveraging Franchise
Protecting Margins / Leveraging Franchise
Mark Konen
President, Insurance and Retirement Solutions
President, Insurance and Retirement Solutions
Tailwinds
• Renewed consumer interest in
protection; favorable demographics
protection; favorable demographics
• Innovation to meet changing needs
• Risk management track record
• Advice-driven model
The Life Insurance Industry Today
Headwinds
• Macro economic
environment
environment
• Resetting expectations
to “new normal”
to “new normal”
Life insurance remains an important solution
Diverse Product Portfolio
• Secondary Guarantee Universal Life
(SG UL) now less than 50% of sales
(SG UL) now less than 50% of sales
• Sales of products other than SG UL
up 19% year-over-year
up 19% year-over-year
Sales1 by Product
1 Sales as defined on page ii of our quarterly statistical report
2 Non-SG UL includes Indexed UL sales
3Q 2011 YTD sales: $471 million
Comprehensive portfolio: relevant and adaptable to market conditions
SG UL
Non-SG UL2
VUL
Term
MoneyGuard
Executive
Benefits
Benefits
Multi-Channel Distribution Strategy
• Significant scale in each channel
• Lincoln ranks #1 in Top 10 accounts2
Sales by Channel1
Source: LIMRA; core life sales (excluding whole life)
1 Based on YTD sales as of September 30, 2011; specialty represents COLI/BOLI
2 As of August 30, 2011
3Q 2011 YTD sales: $471 million
Multi-channel distribution
drives ability to “pivot”
across products
drives ability to “pivot”
across products
Lincoln vs. Industry by
Distribution Channel
Distribution Channel
Retail | Banks/ Wires | ||
2Q11 Market Share % | 5.5% | 34% | |
Rank | 8 | 2 |
Responding to Market Conditions
Core Life Market Share and Rankings1
1 Rankings based on LIMRA YTD sales as of June 30, 2011. Core Life includes UL, VUL and term
2006 - 2007 |
• Merger with Jefferson-Pilot |
• Integration of product portfolio, underwriting standards, and distribution platform by year- end 2007 • MoneyGuard franchise repositioned in the marketplace |
2008 - 2009 |
• The Great Recession – Capital markets frozen – Consumer and marketplace turmoil |
• Increased diversification focus of business mix – Increased Term focus – Expansion of MoneyGuard franchise • Repricing of SG UL products |
2010 - 2Q 2011 |
• Sustained low interest rates |
• Repricing of SG UL products • Repricing of MoneyGuard product • Increased focus on remainder of portfolio (VUL, Term, Indexed UL) |
Challenge |
Response |
Ranked #2
Ranked
#1
#1
Ranked
#2
#2
Ranked
#2
#2
Ranked
#2
#2
Ranked
#1
#1
7.6%
8.3%
8.0%
8.2%
8.2%
8.6%
Product Actions to Improve Margins
Life Product Portfolio
(Combined Pricing IRR)
(Combined Pricing IRR)
Long-term
Target Return
Projected
Range
Range
Improve IRR
• Increased SG UL prices by 5-15%
• MoneyGuard changes:
– New business operating efficiencies
– Benefit payout reduced 10-20%
• Additional changes - 1st Half 2012
– SG UL price increase
– MoneyGuard changes
Promote product portfolio diversity
• VUL repositioning/marketing
enhancements
enhancements
• Term product improvements
• Enhanced Indexed UL
Potential sales decline until:
• Competition adjusts • Consumers reset expectations
Offset is potential for capital redeployment
Effectively Managing Spread Compression
Yield and Spread History1
8 bps spread to
guarantee
guarantee
Yield = 5.97%
5.96%
5.90%
1 Yields and spreads exclude alternative investments and are gross of default charges
2 As of September 30, 2011
Investment Strategies
• Long duration investment portfolio - average SG UL portfolio maturity: 24 years
• Pre-investments improve portfolio yields: $1.3B with 6.45% projected yield
• 10-year Treasury stays at 2%: spreads decline ~ 10 bps per year
Crediting Rate
• Responsive credited rate actions
2
Effectively Managing Mortality Risk and Lapses
1 A/E ratios and Lapses are YTD as of September 30, 2011
Mortality risk expertise
• Industry-leading underwriting
• Experience better than pricing
Actual to expected mortality ratios | 2010 | YTD1 2011 |
Business written 1999 forward (expected = pricing) | 90% | 94% |
Lapses (% Based on Face Amounts) | 2010 | YTD1 2011 |
SG UL | 4.3% | 3.8% |
Non-SG UL | 5.4% | 4.7% |
Total UL | 4.8% | 4.2% |
• Recent lapses running at 4% - higher
than pricing (positive for SG UL)
than pricing (positive for SG UL)
• Lapses consistent with pricing
These key product risks are realizing better than planned results
Strong Franchise Enables Responsible Product Actions
While Maintaining Long-Term Growth
While Maintaining Long-Term Growth
• Protecting Margins
– Repricing secondary guarantee
products
products
– MoneyGuard benefit reduction
and other changes
and other changes
– Credited rate reductions
– ALM and other risk management
expertise
expertise
• While Growing the Business
– Diversification of product portfolio
– Leveraging power of distribution
platform
platform
– Continued innovation
• “Non-traditional” distribution
expansion - financial advisors
expansion - financial advisors
• Penetration of underinsured
and uninsured high net worth
market
and uninsured high net worth
market
• Mass affluent/middle market
innovation
innovation
Leading the market on our terms
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Group Protection
Investing for Growth
Investing for Growth
Mark Konen
President, Insurance and Retirement Solutions
President, Insurance and Retirement Solutions
More Brokers -
More Solutions
More Solutions
• Increased group representatives and
territory management
territory management
• Broadened suite of solutions
• Comprehensive enrollment support
Investing for Growth through Distribution and Service
Seamless Employer/
Employee Experience
Employee Experience
• Focused investments in distribution
fueled sales growth
fueled sales growth
• 2010 ranked 8th in new premium for
core lines
core lines
• Maintain focus on the small case
market
market
– Top 5 or better in primary lines;
6th overall
6th overall
– Opportunistic expansion down market
and into middle-market
and into middle-market
Sales Ranking1 | 2008 | 2009 | 2010 |
LTD | 4 | 2 | 3 |
STD | 3 | 3 | 4 |
Life /ADD | 6 | 5 | 5 |
Dental | 14 | 12 | 12 |
Total | 6 | 8 | 6 |
• Focus on growing voluntary market
with promising early results
with promising early results
– 35% of premium and ranked 11th
today
today
– 2014 goal: top 5 approaching 50%
of premium
of premium
– Investment in people, product and
systems
systems
Strong Sales Growth with a Consistent Market Focus
1 By coverages sold, Source: LIMRA
14.3%
CAGR
CAGR
6.2%
CAGR
CAGR
Total
Voluntary
Effective Profitability Management
• Successful actions bring loss ratios
back in line:
back in line:
– Achieved good renewal results
– Higher loss ratio cases leaving
– Enhanced claims management actions
Balance among new sales, persistency
and renewal rate actions leads to
profitable growth
and renewal rate actions leads to
profitable growth
Non-medical Premium Growth
Over Prior Year’s Quarter
Over Prior Year’s Quarter
Premium Impacts by Source | 3Q 2008 | 3Q 2009 | 3Q 2010 | 3Q 2011 |
New Sales | 18.5% | 16.5% | 18.5% | 15.5% |
Lapses | -14.5% | -14.0% | -13.0% | -13.5% |
In-force Change | 6.5% | 0.5% | 3.5% | 5.0% |
TOTAL | 10.5% | 3.0% | 9.0% | 7.0% |
Strategic Investments
Positioning Group Protection for Growth
Positioning Group Protection for Growth
Strategic Spend
2011
2012
2013
$20M
$40M
$60M
Sales Growth | Retention | Cost Effectiveness | Profitability Management | |
Technology & Service | P | P | P | P |
Distribution | P | P | ||
Employee Education & Advice | P | P | ||
Employer Solutions | P | P | P |
Results
• Top 5 in Voluntary sales
Accelerate Growth and Enhance Service
Investments
• Distribution to accelerate
growth
growth
– 2012 sales growth outpacing
the industry
the industry
– $500 million + of new sales
by 2014
by 2014
• Service to enhance ease of
doing business and improve
efficiency
doing business and improve
efficiency
– Employee focused services
and systems
and systems
– “Hassle-free” support for
employers
employers
– Reduced manual effort
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Lincoln Retirement Plan Services
Executing for Growth
Executing for Growth
Chuck Cornelio
President, Lincoln Retirement Plan Services
President, Lincoln Retirement Plan Services
Retirement Plan Services
Consistent Strategy - Focused on Execution
Consistent Strategy - Focused on Execution
Focus: Target markets with the fastest asset growth characteristics
Market | AUM | Takeover | Asset Growth |
Small Market ($0 - $10M) | $520B | $40B | 7.5% |
Mid-Large Market ($10M - $500M) | $725B | $53B | 7.5% |
Healthcare | $130B | $14B | 6.0% |
1 LIMRA not-for-profit survey as of June 30, 2011
2 As of September 30, 2011
Deposits by Market
Mid-Large Market
Small Market
Multi-Fund and Other
Snapshot:
• Ranked #3 in Healthcare (by AUM)1
• 1.4M participants2
• 23,000 Plan Sponsors2
• $37B in AUM2
Source: Spark 2010
Retirement Plan Services
Actions to Capture Market Share
Actions to Capture Market Share
• New Platform LIVE with New Business
• Wholesaler Expansion completed
• Leveraging strong worksite presence to
improve asset retention and rollover
capabilities
improve asset retention and rollover
capabilities
• Expanding solutions (product and services)
for both plan sponsors and participants
for both plan sponsors and participants
Recordkeeping
& Web
& Web
Participant &
Plan Sponsor
Experience
Plan Sponsor
Experience
Distribution
Expansion
Expansion
Product
Expansion
Expansion
Marketing and
Communications
Communications
Strategic Investments
Positioning Retirement Plan Services for Growth
Positioning Retirement Plan Services for Growth
Sales Growth | Asset Retention | Expense Efficiencies | |
Recordkeeping Platform & Web | P | P | P |
Distribution | P | P | |
Product | P | P | |
Participant & Plan Sponsor Experience | P | P | P |
Strategic Spend
2011
2012
2013
$30M
$35M
$15M
Improving Sales
Focused Execution Translating to Growth
Focused Execution Translating to Growth
Total Deposits
Growth through new sales AND improved retention on existing block
GOAL: Reach $9B in Sales by 2014
$6B
$7B
• 50% of wholesalers hired within
last 15 months; not yet at target
productivity
last 15 months; not yet at target
productivity
• Upgraded technology solution
has gone live for new sales since
October
has gone live for new sales since
October
• Product offering expansion
increasing Lincoln’s
competitiveness
increasing Lincoln’s
competitiveness
Bifocal Vision
Short-term Results AND Long-term Market Success
Short-term Results AND Long-term Market Success
• Implementing strategy focused on targeted growth markets
• Executing on strategic investments to increase competitiveness
and deliver cost efficiencies
and deliver cost efficiencies
• Capitalizing on competitive advantages to continue to win new
business
business
• Adding diversity to Lincoln business mix with lower capital
requirements and lower risks
requirements and lower risks
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Individual Annuities
Growth on Our Terms
Growth on Our Terms
Mark Konen
President, Insurance and Retirement Solutions
President, Insurance and Retirement Solutions
Growing the Business while Protecting Margins
Growth
Diverse solutions
Multi-channel distribution
Multi-channel distribution
Disciplined
approach
approach
Balanced, proactive
and consistent
and consistent
Managing risk
Proven track record
Diverse Products and
Multi-Channel Distribution Strategy
Multi-Channel Distribution Strategy
• Consistent product offerings
• Multi-channel distribution strategy
• Continued expansion
– Primerica
– Fee-based advisors
– Partner-specific solutions
Annuity Sales by Channel
1 As of September 30, 2011
YTD 20111 - $8.3 Billion ($6.7B VA, $1.6B FA)
Responding to Market Conditions
Variable Annuities Market Share and Rankings1
1 Morningstar VARDS as of June 30, 2011; Rankings and Market Share based upon Total Flow
2 Morningstar VARDS reported sales YTD 2011 versus YTD 2009 as of June 30
2006 - 2Q 2008 |
Calm and Growing Market Growing S&P Index Low Volatility |
Escalating Roll-ups: 5% to 7-10% Step-up Frequency: Annual to Daily |
Our First GLWB 5% Roll-up Investment Requirements |
3Q 2008 - 2009 |
Subprime Crisis - Capital Markets Frozen Significant S&P Drop High Volatility |
Firms Exit VA Market Raised Fees / Reduced Roll-ups Asset Transfer Programs |
Consistent Market Presence De-risked GLWB Enforced Investment Requirements Retroactively |
2010 - 2011 |
Europe Sovereign Debt Crisis Sustained Low Interest Rates Elevated Volatility |
Rising Roll-ups Funds with Volatility Management Wide Adoption of Asset Transfer Programs |
Simplified Products / More Capital Efficient Design Raised Fees 4Q 2011 Risk Managed Funds |
Market |
Industry |
Lincoln |
30% sales2 growth since 2009
6.6%
7.1%
7.2%
6.4%
6.6%
6.2%
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
Ranked
#5
#5
Product Design Mitigates Policyholder Behavior Risk
i4LIFE is a Compelling Solution for Clients
• Guaranteed income with strong upside
potential
potential
• Tax advantaged income for non-qualified
• Flexibility, control, and death benefit
Risk Management Advantages
• Fewer immediate income buyers in GLWB
• i4LIFE has less policyholder behavior risk,
more certainty around assumptions
more certainty around assumptions
– Known income start time
– Known income start amount
– Stable persistency
Source: Guaranteed Living Benefit Utilization Study - 2009 Data, LIMRA 2011
1 Based on 1,278,546 variable annuity contracts with a guaranteed lifetime withdrawal benefit (GLWB) rider still in force at the end of 2009. The
number of contracts from Lincoln Financial accounted for 9 percent of all GLWB in-force contracts in the study, in which 19 companies participated.
number of contracts from Lincoln Financial accounted for 9 percent of all GLWB in-force contracts in the study, in which 19 companies participated.
Better product design and positioning leads to better risk management
i4LIFE designed and positioned as
immediate income solution
immediate income solution
Oliver Wyman Industry Study Agrees
• Manage behavior risk through prudent
product design
product design
• Lincoln’s GLWB economics are less
sensitive than most peers to changes in
policyholder behavior
sensitive than most peers to changes in
policyholder behavior
• Lower sensitivity supports more
predictable financial results
predictable financial results
Source: Oliver Wyman analysis of 19 GLWB and GMIB designs based on September 30, 2011 market conditions.
Note: Figures based on a normalized measure of the sensitivity of total contract economic value to adverse behavior assumptions. All peer products
are weighted equally.
are weighted equally.
Least
Sensitive
Sensitive
25%
Percentile
Percentile
Average
75%
Percentile
Percentile
Most
Sensitive
Sensitive
Sensitivity to Utilization Behavior
Least
Sensitive
Sensitive
25%
Percentile
Percentile
Average
75%
Percentile
Percentile
Most
Sensitive
Sensitive
Sensitivity to Dynamic Lapse
Effective Equity Risk Management
Strong Linkage Between Pricing and
Hedging
Hedging
• All living and death benefit riders hedged
• Hedging strategy established and validated
prior to all living benefit launches
prior to all living benefit launches
• Strategy is regularly monitored and
changed with updates in actuarial
assumptions and capital markets
changed with updates in actuarial
assumptions and capital markets
Hedge Program Focused on Economics
• Recognized by Moody’s as a strong hedge
program
program
– 3-Greek (market, rates, implied volatilities)
• Consistent performance through economic
cycles
cycles
– In 3Q 2011 the hedge program was over
90% effective
90% effective
4Q 2008
2Q 2009
4Q 2009
2Q 2010
4Q 2010
2Q 2011
4Q 2008
2Q 2009
4Q 2009
2Q 2010
4Q 2010
2Q 2011
• New business rate setting based on
new money rates not portfolio rates
new money rates not portfolio rates
• Earnings impact from prolonged low
interest rates mitigated by
interest rates mitigated by
– Proactive renewal rate actions
– In-force crediting rate cushion to
guarantee ~ 105bps
guarantee ~ 105bps
– Effective asset liability matching
– Pricing based on new money rate with
low guarantee (1.00%)
low guarantee (1.00%)
• Upcoming changes in 1Q 2012
• Interest rate caps mitigate risk of rising
interest rates
interest rates
Annuity Revenue Mix1
Actions to Protect Margins
Effective Interest Rate Risk Management
1 As of September 30, 2011
Quality Business with Quality Earnings
In-force ROE
2007 | 2008 | 2009 | 2010 | 2011 YTD1 |
20% | 8% | 15% | 19% | 23% |
Average = 17% |
VA New Business ROE
1Q 2011 | 2Q 2011 | 3Q 2011 |
21% | 20% | 14% |
YTD = 18% |
• Consistently strong ROE on in-force
business
business
• Healthy VA new business ROE
throughout 2011
throughout 2011
– Writing business on our terms
– Solid 3Q ROE despite capital markets
Actions to Protect Margins
• 1Q 2011 launched LINC2.0 and
simplified i4LIFE
simplified i4LIFE
• Increased M&E on L-share
• Upcoming changes in 1Q 2012
1 As of September 30, 2011. Reflects reported un-leveraged returns excluding goodwill.
Growth on Our Terms
Income protection solutions that
resonate with consumers
resonate with consumers
Multi-channel distribution
Effective protection of margins
• Variable Annuity i4LIFE
• Fixed Index Annuity GLWB (LINC Edge)
• Funds with volatility management and
capital protection
capital protection
• LTC combination products
• Breadth and depth of current platform
• Continued expansion
– Primerica
– Fee-based advisors
• Product design
• Equity risk management
• Interest rate risk management
Appendix
Disclosures/Endnotes
Source: Internal Competitive Intelligence, Morningstar Ratings, Comparisons done against competitors most
popular living benefit riders, Compared against top 10 companies based on YTD 2011 sales excluding
captive agency sales
popular living benefit riders, Compared against top 10 companies based on YTD 2011 sales excluding
captive agency sales
1 Fee reflects cost for single life version of living benefit riders
2 Income calculation based upon living benefit rider issue at 60, and beginning income at age 65
3 Based upon Morningstar Ratings of investment choices offered within variable annuity products; for each
subaccount whose underlying investment has at least a three-year history, Morningstar calculates a
Morningstar RatingTM based on a Morningstar Risk-Adjusted Return measure that accounts for variation
in a subaccount’s monthly performance, placing more emphasis on downward variation and rewarding
consistent performance. The top 10% of subaccounts in each category receive 5 stars, the next 22.5%
receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive
1 star.
subaccount whose underlying investment has at least a three-year history, Morningstar calculates a
Morningstar RatingTM based on a Morningstar Risk-Adjusted Return measure that accounts for variation
in a subaccount’s monthly performance, placing more emphasis on downward variation and rewarding
consistent performance. The top 10% of subaccounts in each category receive 5 stars, the next 22.5%
receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive
1 star.
The Overall Morningstar Rating for a subaccount is derived from a weighted average of the performance
figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. As of
September 30, 2011, 17,618 U.S.-domiciled subaccounts received a Morningstar Rating of 5 stars, and
47,498 subaccounts received a Morningstar Rating of 4 stars. Past performance is no guarantee of future
results.
figures associated with its three-, five- and ten-year (if applicable) Morningstar Rating metrics. As of
September 30, 2011, 17,618 U.S.-domiciled subaccounts received a Morningstar Rating of 5 stars, and
47,498 subaccounts received a Morningstar Rating of 4 stars. Past performance is no guarantee of future
results.
2011 Conference for
Analysts, Investors
and Bankers
Analysts, Investors
and Bankers
November 15, 2011 l New York, NY
Financial Overview
Randy Freitag
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Financial Officer
Confidence in the Future
• Strong business fundamentals driving top and bottom
line growth
line growth
• Capital well protected in low rate environment
• Defensively positioned around key risks
• Solid balance sheet well positioned for stressed environments
ROE1
10%
20%
Strong Momentum Across Businesses
1 Adjusted for notable items. See appendix at the end of this presentation for a definition and reconciliation of operating revenues to revenues,
income from operations to net income, a reconciliation of return on average equity and schedules of notable items
income from operations to net income, a reconciliation of return on average equity and schedules of notable items
• YTD operating revenues up 7%
• In-force Life Insurance up 3% to
$574 billion
$574 billion
• 3Q Group net earned premium up
7% to $410 million
7% to $410 million
• 3Q Retirement deposits: VA up 7%
and DC up 15%
and DC up 15%
• YTD expense growth less than
revenue growth
revenue growth
3Q Income From Operations1
Earnings Drivers
$282
$315
Life Insurance
Group Protection
Annuities
Defined
Contribution
Contribution
Other Operations
15%
Life
Annuities
GP
DC
YTD 2011
11%
+12%
Earnings Impact | |
2012 | $50M |
2013 | $100M |
2014 | $150M |
Earnings growth rate reduced by 3-4% |
Manageable Impact to GAAP Results from Low Rates
• Minimal reserve impact absent
changes to long-term earned rate
assumption (reflected in earnings
impact)
changes to long-term earned rate
assumption (reflected in earnings
impact)
• 100 bps long-term earned rate
assumption reduction, has an
estimated $200-250 million impact
assumption reduction, has an
estimated $200-250 million impact
Impact of 10-year Treasury at 2.0% for 10 years on
GAAP Results
GAAP Results
Earnings growth continues despite low rate environment
Strong Statutory Reserve Adequacy
Impact of 10-year Treasury at 2.0% for 10 years on
Statutory Reserve Adequacy
Statutory Reserve Adequacy
Cash Flow Testing Reserve Adequacy ($ billions) | ||
Base Case | Low Rate Scenario | |
Life1 | $4 | $3 |
Annuity | $4 | $3 |
Total1 | $8 | $6 |
Statutory Reserves
• Prescribed conservative assumptions that
are fixed at issue
are fixed at issue
• Adequacy tested annually with cash flow
testing
testing
• Increased if cash flow testing deficiency exists
Results of Cash Flow Testing
• $8 billion of reserve sufficiency
• $6 billion in low rate scenario
– Potential for up to $500 million reserve
increase from standalone analysis of SG UL
in ‘out’ years
increase from standalone analysis of SG UL
in ‘out’ years
1 Excludes financed reserves
Significant statutory reserve adequacy in low rate environment
VA Hedge Program Protects Capital
• Hedge assets have
exceeded economic and
statutory reserves at all
points
exceeded economic and
statutory reserves at all
points
• Hedge program focused
on economics
on economics
• All guaranteed living and
death benefits covered
by hedge program
death benefits covered
by hedge program
• No additional capital has
been required in these
volatile markets
been required in these
volatile markets
Hedge assets in excess of statutory requirements at all points
Strong Statutory Capital and
Holding Company Liquidity Positions
Holding Company Liquidity Positions
• Strong statutory earnings
generation
generation
• Upstreamed $1.7 billion to
HoldCo after funding new
business needs
HoldCo after funding new
business needs
• Strong liquidity position at
HoldCo
HoldCo
– $770 million at 9/30/11
– $1.5 billion increase since
12/31/08
12/31/08
Statutory Capital
Stat Op Income/ Res Financing
Dividends
Other
$5.1
$7.6
~500%
RBC
393%
General Account Strategy
A “Risk-Off” Position Since 2008
A “Risk-Off” Position Since 2008
• Purchases biased towards higher quality
securities - 70% of purchases NAIC 1
securities - 70% of purchases NAIC 1
• Reduced Risk Assets2 by over $2 billion
• Sold $400 million of European holdings
exposed to risk of contagion
exposed to risk of contagion
– Recently reduced EU banking exposure
by $92 million and added $50 million of
CDS protection
by $92 million and added $50 million of
CDS protection
Net unrealized gains/losses ($ billions)
Below Investment Grade1 Trends
9.2%
7.5%
5.8%
Product | Sep-08 | Sep-09 | Sep-10 | Sep-11 |
Life | -$2.2 | $0.2 | $3.4 | |
Annuities | -$0.7 | $0.2 | $1.2 | |
Surplus & Other | -$1.4 | -$0.3 | $1.5 | $1.7 |
Total | -$4.3 | $0.1 | $5.1 | $6.3 |
C1 capital down 20% since
2009 on $6 billion increase
in invested assets
30% reduction in risk profile
2009 on $6 billion increase
in invested assets
30% reduction in risk profile
1 AFS & Trading based on NAIC ratings, GAAP book values, and includes CLNs
2 Includes Corporate High Yield, alternative investments, 05’-07’ vintage RMBS, leveraged CMBS, common and preferred equity, CDO and real
estate equity
estate equity
European Exposure Reduced & Well-Positioned
1 Defined as sovereign and banking exposure to Portugal, Ireland, Italy, Greece and Spain
2 Debt and preferred stock issued by companies domiciled in EU member countries
$84 million of direct EU peripheral1 exposure,
mostly non-European subsidiaries of large Spanish Banks
mostly non-European subsidiaries of large Spanish Banks
$775M Indirect Exposure to Peripheral EU
Sector Exposure
Spain
48%
48%
Ireland
28%
Italy
19%
Portugal
5%
Greece
0%
Capital
Goods
35%
Goods
35%
Utility
37%
37%
Financial
Institutions
4%
Institutions
4%
Transportation
5%
5%
Communications
19%
19%
Country Composition
$6.6B of EU Exposure2
Utilities &
Industrials
78%
Industrials
78%
Financials
21%
21%
Sovereigns
1%
• $775M indirect exposure in a net gain position
• 96% in defensive sectors / 4% financial
• Approximately 80% in
diversified defensive sectors
diversified defensive sectors
• Net unrealized gain of $500M
Strong Capital Margin Above Rigorous Threshold
Assumptions (2012/2013/2014) | Moderate Stress | Severe Stress |
GDP Growth | 2% / 2% / 2% | -2% / -1% / 0% |
Unemployment | 9% / 9% / 9% | 10% / 11% / 10% |
Housing Price Change | -3% / -3% / -3% | -5% / -5% / -5% |
Interest Rates (10-year Treasury) | 2.0% / 2.5% / 3.0% | 1.5% / 1.75% / 2.0% |
S&P 500 (YE2011 / 2012 / 2013 / 2014) | 1135 / 1175 / 1225 / 1275 | 1135 / 800 / 825 / 875 |
Cumulative Credit Related Impacts ($B) | $0.6 | $1.7 |
Projected Capital Margin ($B) >400% RBC >$500M HoldCo cash | $1.5 / $1.7 / $1.9 | $0.8 / $0.8 / $0.7 |
Confidence in the Future
• Strong balance sheet and capital generation
• Well positioned to withstand low interest rate environment
from both Statutory and GAAP perspective
from both Statutory and GAAP perspective
• Effective risk management reduces exposure to credit and
equity markets risks
equity markets risks
• Strong capital margin positions Lincoln for economic stress and
continued return of capital to shareholders
continued return of capital to shareholders
– 60% increase in dividend
– $375 million of share repurchases year-to-date
Appendix
Income (loss) from operations and ROE are non-GAAP financial measures and are not substitutes for net income (loss) and ROE,
calculated using GAAP measures. We exclude the after-tax effects of the following items from GAAP net income (loss) to arrive at
income (loss) from operations: realized gains and losses associated with the following ("excluded realized gain (loss)"): sale or
disposal of securities; impairments of securities; change in the fair value of derivative investments; embedded derivatives within
certain reinsurance arrangements; trading securities; change in the fair value of the derivatives we own to hedge our guaranteed
death benefit ("GDB") riders within our variable annuities, which is referred to as "GDB derivatives results"; change in the fair
value of the embedded derivatives of our guaranteed living benefit (“GLB”) riders within our variable annuities accounted for
under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC (“embedded
derivative reserves”), net of the change in the fair value of the derivatives we own to hedge the changes in the embedded
derivative reserves, the net of which is referred to as “GLB net derivative results”; and changes in the fair value of the embedded
derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations
applicable to future reset periods for our indexed annuity products accounted for under the Derivatives and Hedging and the Fair
Value Measurements and Disclosures Topics of the FASB ASC (“indexed annuity forward-starting option”); change in reserves
accounted for under the Financial Services - Insurance - Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB
ASC resulting from benefit ratio unlocking on our GDB and GLB riders ("benefit ratio unlocking"); income (loss) from the initial
adoption of new accounting standards; income (loss) from reserve changes (net of related amortization) on business sold through
reinsurance; gain (loss) on early extinguishment of debt; losses from the impairment of intangible assets; and income (loss) from
discontinued operations.
calculated using GAAP measures. We exclude the after-tax effects of the following items from GAAP net income (loss) to arrive at
income (loss) from operations: realized gains and losses associated with the following ("excluded realized gain (loss)"): sale or
disposal of securities; impairments of securities; change in the fair value of derivative investments; embedded derivatives within
certain reinsurance arrangements; trading securities; change in the fair value of the derivatives we own to hedge our guaranteed
death benefit ("GDB") riders within our variable annuities, which is referred to as "GDB derivatives results"; change in the fair
value of the embedded derivatives of our guaranteed living benefit (“GLB”) riders within our variable annuities accounted for
under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC (“embedded
derivative reserves”), net of the change in the fair value of the derivatives we own to hedge the changes in the embedded
derivative reserves, the net of which is referred to as “GLB net derivative results”; and changes in the fair value of the embedded
derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations
applicable to future reset periods for our indexed annuity products accounted for under the Derivatives and Hedging and the Fair
Value Measurements and Disclosures Topics of the FASB ASC (“indexed annuity forward-starting option”); change in reserves
accounted for under the Financial Services - Insurance - Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB
ASC resulting from benefit ratio unlocking on our GDB and GLB riders ("benefit ratio unlocking"); income (loss) from the initial
adoption of new accounting standards; income (loss) from reserve changes (net of related amortization) on business sold through
reinsurance; gain (loss) on early extinguishment of debt; losses from the impairment of intangible assets; and income (loss) from
discontinued operations.
The earnings used to calculate ROE are income (loss) from operations. Income (loss) from operations is an internal measure used
by the company in the management of its operations. Management believes that this performance measure explains the results
of the company's ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company's
current business because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals
or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate
to the operations of the individual segments.
by the company in the management of its operations. Management believes that this performance measure explains the results
of the company's ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company's
current business because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals
or future performance of the business segments, and, in most instances, decisions regarding these items do not necessarily relate
to the operations of the individual segments.
The company uses its prevailing corporate federal income tax rate of 35% while taking into account any permanent differences for
events recognized differently in its financial statements and federal income tax returns when reconciling non-GAAP measures to
the most comparable GAAP measure.
events recognized differently in its financial statements and federal income tax returns when reconciling non-GAAP measures to
the most comparable GAAP measure.
Definition of Income (Loss) From Operations and ROE
Reconciliation of Net Income to Income from Operations
Reconciliation of Operating Revenues to Revenues
Reconciliation of Return on Average Equity
For the Nine Months Ended September 30, 2011
For the Nine Months Ended September 30, 2011
$ millions | Retirement Solutions | Insurance Solutions | Other Operations | ||
Annuities | Group Protection | ||||
Reported | 162 | 41 | 132 | 28 | (45) |
DAC Unlocking | (8) | (4) | 8 | ||
Mortality | 10 | ||||
Traditional Reserves | 4 | ||||
Tax-related items | (22) | (5) | 3 | ||
Guaranty Association Assessments | 9 | ||||
Other (net) | 1 | 1 | |||
Total | 132 | 38 | 150 | 28 | (33) |
3Q 2011 Income From Operations
Schedule of Notable Items
Schedule of Notable Items
$ millions | Retirement Solutions | Insurance Solutions | Other Operations | ||
Annuities | Defined Contributions | Group Protection | |||
Reported | 150 | 42 | 152 | 26 | (22) |
Net Investment Income | (4) | (4) | (5) | (1) | (1) |
DAC Unlocking | (8) | (6) | (1) | ||
Mortality/Morbidity | 6 | (2) | |||
Expense | 2 | (1) | (9) | ||
Tax-related items | (2) | (2) | |||
Other (net) | 4 | ||||
Total | 136 | 40 | 151 | 23 | (36) |
2Q 2011 Income From Operations
Schedule of Notable Items
Schedule of Notable Items
$ millions | Retirement Solutions | Insurance Solutions | Other Operations | ||
Annuities | Defined Contributions | Group Protection | |||
Reported | 147 | 49 | 166 | 24 | (37) |
Net Investment Income | (6) | (7) | (8) | (2) | (4) |
DAC Unlocking | (5) | (2) | (1) | ||
Mortality/Morbidity | (7) | (6) | |||
Expense | (2) | 4 | |||
Tax-related items | |||||
Other (net) | |||||
Total | 129 | 40 | 152 | 19 | (37) |
1Q 2011 Income From Operations
Schedule of Notable Items
Schedule of Notable Items
$ millions | Retirement Solutions | Insurance Solutions | Other operations | ||
Annuities | Defined Contributions | Group Protection1 | |||
Reported | 126 | 50 | 60 | 10 | (40) |
DAC Unlocking | (2) | 11 | (82) | ||
Mortality | (10) | ||||
Expense | (2) | ||||
Tax-related items | 14 | (2) | |||
Other (net) | (3) | ||||
Total | 114 | 39 | 152 | 13 | (36) |
1 Group Protection results do not include adjustment to normalize loss ratios
3Q 2010 Income From Operations
Schedule of Notable Items
Schedule of Notable Items
EITF 09-G Estimated Impact
• Retrospective adoption on 1/1/2012
• Reduces GAAP equity, but no impact on
statutory surplus
statutory surplus
• Pro forma impact on YTD 2011 earnings:
5% to 7%
5% to 7%
EITF 09-G: Estimated Impact
Low | High | |
Pretax DAC Reduction | $1.45b | $1.75 |
% DAC Balance | 16% | 19% |
AT Impact to Equity | $950m | $1.15b |
Impact on BV/Share | ($3.15) | ($3.81) |