UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
(Exact name of registrant as specified in its charter)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 Section 13(a) of the Exchange Act. [ ]
Item 2.02. Results of Operations and Financial Condition.
On May 6, 2020, Lincoln National Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended March 31, 2020, a copy of which is attached as Exhibit 99.1 and is incorporated herein by reference. The Company’s statistical supplement for the quarter ended March 31, 2020, is attached as Exhibit 99.2 and is incorporated herein by reference.
The information, including exhibits attached hereto, furnished under this Item 2.02 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as otherwise expressly stated in such filing.
Item 7.01. Regulation FD Disclosure.
On May 6, 2020, in connection with the Company’s first quarter 2020 earnings conference call scheduled for May 7, 2020, the Company made available on its website a supplemental investment portfolio presentation, a copy of which is attached hereto as Exhibit 99.3 and is incorporated herein by reference.
This presentation is being furnished under this Item 7.01 and shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section. The information in Exhibit 99.3 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act, except as otherwise expressly stated in such filing.
Item 9.01. Financial Statements and Exhibits.
(d)Exhibits.
The following exhibits are being furnished with this Form 8-K.
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Exhibit Number | Description |
99.1 | |
99.2 | Lincoln National Corporation Statistical Supplement for the quarter ended March 31, 2020. |
99.3 | First Quarter 2020 Investment Portfolio Supplement dated May 6, 2020. |
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 hereunto duly authorized.
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| LINCOLN NATIONAL CORPORATION | |
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| By | /s/ Christine A. Janofsky |
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| Name: | Christine A. Janofsky |
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| Title: | Senior Vice President and |
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| Chief Accounting Officer |
Date: May 6, 2020
FOR IMMEDIATE RELEASE
Lincoln Financial Group reports FIRST QUARTER 2020 RESULTS
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Net income EPS of $0.15, down 88% and adjusted operating EPS of $2.24, up 5%
Net income ROE, including AOCI, of 1.1% and adjusted operating ROE, excluding AOCI, of 13.5%
BVPS, including AOCI, of $85.79, up 6%; BVPS, excluding AOCI, of $70.24, up 2%
$304 million of capital returned to shareholders in the quarter
Radnor, PA, May 6, 2020 – Lincoln Financial Group (NYSE: LNC) today reported net income for the first quarter of 2020 of $52 million, or $0.15 per diluted share available to common stockholders, compared to net income in the first quarter of 2019 of $252 million, or $1.22 per diluted share available to common stockholders. First quarter adjusted income from operations was $465 million, or $2.24 per diluted share available to common stockholders, compared to adjusted income from operations of $441 million, or $2.14 per diluted share available to common stockholders, in the first quarter of 2019.
“First quarter operating results were strong during a period of rapid change,” said Dennis R. Glass, president and CEO of Lincoln Financial Group. “We have been focused on doing what is best for all our external stakeholders and employees by prioritizing health and safety while ensuring our businesses operations and customer service are strong. We came into this environment very well capitalized and are confident that the strategies we have in place combined with actions we are taking will drive long-term shareholder value.”
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As of or For the |
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Three Months Ended |
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March 31, |
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(in millions, except per share data) |
2020 |
2019 |
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Net Income (Loss) |
$ |
52 |
$ |
252 | |
Net Income (Loss) Available to Common Stockholders |
29 | 252 | |||
Net Income (Loss) per Diluted Share Available to Common Stockholders |
0.15 | 1.22 | |||
Revenues |
4,425 | 3,965 | |||
Adjusted Income (Loss) from Operations |
465 | 441 | |||
Adjusted Income (Loss) from Operations per Diluted Share Available to |
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Common Stockholders |
2.24 | 2.14 | |||
Average Diluted Shares |
197.3 | 206.0 | |||
Return on Equity (ROE), Including Accumulated Other Comprehensive |
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Income (AOCI) (Net Income) |
1.1% | 6.6% | |||
Adjusted Operating ROE, Excluding AOCI (Income from Operations) |
13.5% | 12.6% | |||
Book Value per Share, Including AOCI |
$ |
85.79 |
$ |
80.88 | |
Book Value per Share, Excluding AOCI |
70.24 | 68.79 |
Operating Highlights – First Quarter 2020 vs First Quarter 2019
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Adjusted income from operations of $465 million, up 5% |
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Adjusted operating revenues of $4.5 billion, up 3% |
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Total Annuity sales of $3.7 billion, up 5%, with positive net flows of $528 million in the quarter |
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Retirement Plan Services deposits of $2.8 billion, up 11% |
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Life Insurance operating revenues of $1.8 billion, up 7% |
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Group Protection insurance premiums of $1.1 billion, up 7% |
There were no notable items within adjusted income from operations for the current quarter or the prior-year quarter.
First Quarter 2020 – Segment Results
Annuities reported income from operations of $261 million, up 4% from the prior-year quarter. This increase was primarily driven by growth in average account values.
Total annuity deposits of $3.7 billion were up 5% from the prior-year quarter. Variable annuity sales were up 37% versus the prior-year quarter primarily driven by growth in indexed-variable annuity sales. Fixed annuity sales decreased 33% over the same period.
Net flows were $528 million in the quarter, which included positive flows from both variable and fixed annuities. Average account values of $138 billion were up 8% over the prior-year quarter while end-of-period account values decreased 3%.
Retirement Plan Services
Retirement Plan Services reported income from operations of $40 million compared to $39 million in the prior-year quarter driven by strong expense management.
Total deposits for the quarter of $2.8 billion were up 11% driven by 5% growth in first-year sales and a 15% increase in recurring deposits.
Net flows totaled $671 million in the quarter compared to $381 million of outflows in the prior-year quarter. Average account values of $76 billion were up 8% over the prior-year quarter while end-of-period account values decreased 3%.
Life Insurance
Life Insurance reported income from operations of $171 million, up 9% compared to the prior-year quarter. This increase was primarily driven by growth in new business. Mortality was favorable in both the current period and the prior-year quarter.
Total Life Insurance sales were $169 million compared to $191 million in the prior-year quarter. Strong growth in IUL and term was offset by declines in all other individual life insurance products and executive benefits.
Total Life Insurance in-force of $843 billion grew 10% over the prior-year quarter, and average account values of $53 billion increased 5% over the same period.
Group Protection
Group Protection income from operations was $40 million in the quarter compared to $55 million in the prior-year period. The decrease was primarily driven by unfavorable risk results.
The total loss ratio was 79% in the current quarter compared to 74% in the prior-year quarter.
Group Protection sales were $102 million compared to $119 million in the prior-year quarter driven by a decline in life sales. Employee-paid sales represented 60% of total sales. Insurance premiums of $1.1 billion were up 7%.
Other Operations
Other Operations reported a loss from operations of $47 million versus a loss of $60 million in the prior-year quarter.
Realized Gains and Losses / Impacts to Net Income
Realized gains/losses and impacts to net income (after-tax) in the quarter were primarily driven by:
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A $30 million realized loss related to financial assets, which includes $16 million of credit loss expense on other financial assets. |
Unrealized Gains and Losses
The company reported a net unrealized gain of $6.4 billion, pre-tax, on its available-for-sale securities at March 31, 2020. This compares to a net unrealized gain of $5.2 billion at March 31, 2019, with the year-over-year increase primarily driven by lower treasury rates.
Capital
The quarter’s average diluted share count of 197.3 million was down 4% from the first quarter of 2019, the result of repurchasing 10.3 million shares of stock at a cost of $625 million since March 31, 2019.
Book Value
As of March 31, 2020, book value per share, including AOCI, increased 6% from the prior-year period to $85.79. Book value per share, excluding AOCI, increased 2% from the prior-year period to $70.24.
The tables attached to this release define and reconcile the non-GAAP measures adjusted income from operations, adjusted operating ROE and BVPS, excluding AOCI, to net income, ROE and BVPS, including AOCI, calculated in accordance with GAAP. The tables also include a reconciliation of adjusted operating EPS excluding notable items to adjusted operating EPS.
This press release may contain statements that are forward-looking, and actual results may differ materially. Please see the Forward Looking Statements – Cautionary Language at the end of this release for factors that may cause actual results to differ materially from our current expectations.
For other financial information, please refer to the company’s first quarter 2020 statistical supplement and investment portfolio supplement available on its website, www.lfg.com/investor.
Lincoln Financial Group will discuss the company’s first quarter results with investors in a conference call beginning at 10:00 a.m. Eastern Time on Thursday, May 7, 2020. The conference call will be broadcast live through the company website at www.lfg.com/webcast. Please log on at least fifteen minutes prior to the call to register and download any
necessary streaming media software. To participate via phone: (866) 394-4575 (U.S./Canada) or (678) 509-7536 (International). Ask for the Lincoln National Conference Call.
A replay of the call will be available by 1:00 p.m. Eastern Time on May 7, 2020 at www.lfg.com/webcast. Audio replay will be available from 1:00 p.m. Eastern Time on May 7, 2020 through 12:00 p.m. Eastern Time on May 14, 2020. To access the re-broadcast, dial: (855) 859-2056 (Domestic) or (404) 537-3406 (International). Enter conference code: 9338535.
About Lincoln Financial Group
Lincoln Financial Group provides advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. Today, more than 17 million customers trust our retirement, insurance and wealth protection expertise to help address their lifestyle, savings and income goals, as well as to guard against long-term care expenses. Headquartered in Radnor, Pennsylvania, Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. The company had $247 billion in end-of-period account values as of March 31, 2020. Lincoln Financial Group is a committed corporate citizen included on major sustainability indices including the Dow Jones Sustainability Index North America and FTSE4Good. Dedicated to diversity and inclusion, Lincoln earned perfect 100 percent scores on the Corporate Equality Index and the Disability Equality Index. Lincoln has also been recognized in Newsweek’s Most Responsible Companies and is among Forbes’ World’s Best Employers, Best Large Employers, Best Employers for Diversity, Best Employers for Women and ranked on the JUST 100 list. Learn more at: www.LincolnFinancial.com. Follow us on Facebook, Twitter, LinkedIn, and Instagram. Sign up for email alerts at http://newsroom.lfg.com.
Contacts: |
Chris Giovanni |
Scott Sloat |
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(484) 583-1793 |
(484) 583-1625 |
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Investor Relations |
Media Relations |
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InvestorRelations@LFG.com |
scott.sloat@LFG.com |
Explanatory Notes on Use of Non-GAAP Measures
Management believes that adjusted income from operations (adjusted operating income), adjusted operating return on equity, adjusted operating revenues, and adjusted operating EPS better explain 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. Management also believes that using book value excluding accumulated other comprehensive income (“AOCI”) enables investors to analyze the amount of our net worth that is primarily attributable to our business operations. Book value per share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates.
For the historical periods, reconciliations of non-GAAP measures used in this press release to the most directly comparable GAAP measure may be included in this Appendix to the press release and/or are included in the Statistical Reports for the corresponding periods contained in the Earnings section of the Investor Relations page on our website: www.lfg.com/investor.
Definitions of Non-GAAP Measures Used in this Press Release
Adjusted income (loss) from operations, adjusted operating revenues and adjusted operating return on equity (including and excluding average goodwill within average equity), excluding AOCI, using annualized adjusted income (loss) from operations are financial measures we use to evaluate and assess our results. Adjusted income (loss) from operations, adjusted operating revenues and adjusted operating return on equity (“ROE”), as used in the press release, are non-GAAP financial measures and do not replace GAAP net income (loss), revenues and ROE, the most directly comparable GAAP measures.
Adjusted Income (Loss) from Operations
Adjusted income (loss) from operations is GAAP net income (loss) excluding the after-tax effects of the following items, as applicable:
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Realized gains and losses associated with the following (“excluded realized gain (loss)”): |
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Sales or disposals and impairments of financial assets; |
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Changes in the fair value of equity securities; |
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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”); |
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Changes in the fair value of the derivatives we own to hedge our guaranteed death benefit (“GDB”) riders within our variable annuities; |
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Changes in the fair value of the embedded derivatives of our guaranteed living benefit (“GLB”) riders reflected within variable annuity net derivative results accounted for at fair value; |
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Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; and |
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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 options”); |
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Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”); |
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Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; |
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Gains (losses) on early extinguishment of debt; |
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Losses from the impairment of intangible assets; |
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Income (loss) from discontinued operations; |
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Acquisition and integration costs related to mergers and acquisitions; and |
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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. |
Adjusted Operating Revenues
Adjusted operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:
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Excluded realized gain (loss); |
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Revenue adjustments from the initial adoption of new accounting standards; |
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Amortization of deferred front-end loads (“DFEL”) arising from changes in GDB and GLB benefit ratio unlocking; and |
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Amortization of deferred gains arising from reserve changes on business sold through reinsurance. |
Adjusted Operating Return on Equity
Adjusted operating return on equity measures how efficiently we generate profits from the resources provided by our net assets.
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It is calculated by dividing annualized adjusted income (loss) from operations by average equity, excluding accumulated other comprehensive income (loss) ("AOCI"). |
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Management evaluates return on equity by both including and excluding average goodwill within average equity. |
Definition of Notable Items
Adjusted income (loss) from operations, excluding notable items, is a non-GAAP measure that excludes items which, in management’s view, do not reflect the company’s normal, ongoing operations.
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We believe highlighting notable items included in adjusted income (loss) from operations enables investors to better understand the fundamental trends in its results of operations and financial condition. |
Book Value Per Share, Excluding AOCI
Book value per share, excluding AOCI is calculated based upon a non-GAAP financial measure.
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It is calculated by dividing (a) stockholders' equity, excluding AOCI by (b) common shares outstanding. |
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We provide book value per share excluding AOCI to enable investors to analyze the amount of our net worth that is primarily attributable to our business operations. |
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Management believes book value per share, excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. |
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Book value per share is the most directly comparable GAAP measure. |
Special Note
Sales
Sales as reported consist of the following:
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Annuities and Retirement Plan Services – deposits from new and existing customers; |
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MoneyGuard® – 15% of total expected premium deposits; |
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Universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”) – first-year commissionable premiums plus 5% of excess premiums received; |
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Executive Benefits – single premium bank-owned UL and VUL, 15% of single premium deposits, and corporate-owned UL and VUL, first-year commissionable premiums plus 5% of excess premium received; |
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Term – 100% of annualized first-year premiums; and |
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Group Protection – annualized first-year premiums from new policies. |
Lincoln National Corporation
Reconciliation of Net Income to Adjusted Income from Operations
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For the |
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(in millions, except per share data) |
Three Months Ended |
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March 31, |
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2020 |
2019 |
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Total Revenues |
$ |
4,425 |
$ |
3,965 | |
Less: |
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Excluded realized gain (loss) |
(75) | (400) | |||
Amortization of DFEL on benefit ratio unlocking |
(9) | 3 | |||
Total Adjusted Operating Revenues |
$ |
4,509 |
$ |
4,362 | |
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Net Income (Loss) Available to Common |
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Stockholders – Diluted |
$ |
29 |
$ |
252 | |
Less: |
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Adjustment for deferred units of LNC stock in our |
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deferred compensation plans (1) |
(23) |
- |
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Net Income (Loss) |
52 | 252 | |||
Less: |
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Excluded realized gain (loss), after-tax |
(60) | (316) | |||
Benefit ratio unlocking, after-tax |
(349) | 142 | |||
Acquisition and integration costs related to mergers |
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and acquisitions, after-tax |
(4) | (15) | |||
Total adjustments |
(413) | (189) | |||
Adjusted Income (Loss) from Operations |
$ |
465 |
$ |
441 | |
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Earnings (Loss) Per Common Share – Diluted |
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Net income (loss) |
$ |
0.15 |
$ |
1.22 | |
Adjusted income (loss) from operations |
2.24 | 2.14 | |||
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Average Stockholders' Equity |
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Average equity, including average AOCI |
$ |
18,132 |
$ |
15,384 | |
Average AOCI |
4,338 | 1,430 | |||
Average equity, excluding AOCI |
13,794 | 13,954 | |||
Average goodwill |
1,778 | 1,780 | |||
Average equity, excluding AOCI and goodwill |
$ |
12,016 |
$ |
12,174 | |
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Return on Equity, Including AOCI |
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Net income (loss) with average equity including goodwill |
1.1% | 6.6% | |||
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Adjusted Operating Return on Equity, Excluding AOCI |
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Adjusted income (loss) from operations with average equity |
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including goodwill |
13.5% | 12.6% | |||
Adjusted income (loss) from operations with average equity |
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excluding goodwill |
15.5% | 14.5% | |||
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(1) The numerator used in the calculation of our diluted EPS is adjusted to remove the mark-to-market adjustment for deferred units of LNC |
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stock in our deferred compensation plans if the effect of equity classification would result in a more dilutive EPS. |
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Lincoln National Corporation
Reconciliation of Book Value per Share
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As of March 31, |
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2020 |
2019 |
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Book value per share, including AOCI |
$ |
85.79 |
$ |
80.88 | |
Per share impact of AOCI |
15.55 | 12.09 | |||
Book value per share, excluding AOCI |
70.24 | 68.79 |
Lincoln National Corporation
Digest of Earnings
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For the |
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(in millions, except per share data) |
Three Months Ended |
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March 31, |
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2020 |
2019 |
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Revenues |
$ |
4,425 |
$ |
3,965 | |
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Net Income (Loss) |
$ |
52 |
$ |
252 | |
Adjustment for deferred units of LNC stock in our |
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deferred compensation plans (1) |
(23) |
- |
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Net Income (Loss) Available to Common |
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Stockholders – Diluted |
$ |
29 |
$ |
252 | |
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Earnings (Loss) per Common Share – Basic |
$ |
0.27 |
$ |
1.23 | |
Earnings (Loss) per Common Share – Diluted |
0.15 | 1.22 | |||
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Average Shares – Basic |
195,076,797 | 204,290,759 | |||
Average Shares – Diluted |
197,264,842 | 205,961,663 | |||
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(1) The numerator used in the calculation of our diluted EPS is adjusted to remove the mark-to-market adjustment for deferred units of LNC |
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stock in our deferred compensation plans if the effect of equity classification would be more dilutive to our diluted EPS. |
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Forward Looking Statements — Cautionary Language
Certain statements made in this press release and in other written or oral statements made by Lincoln or on Lincoln's behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements are intended to enhance the reader’s ability to assess our future financial performance. 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 Lincoln's businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. Lincoln claims 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:
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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; |
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Continued deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels and claims experience; |
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Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; |
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Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; |
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Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries' products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees; the impact of U.S. Federal tax reform legislation on our business, earnings and capital; and the impact of any “best interest” standards of care adopted by the Securities and Exchange Commission (“SEC”) or other regulations adopted by federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker dealers; |
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Actions taken by reinsurers to raise rates on in-force business; |
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Continued declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits and demand for our products; |
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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; |
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Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular; |
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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; |
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A continued decline in the equity markets causing a reduction in the sales of our subsidiaries' products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs ("DAC"), value of business acquired ("VOBA"), deferred sales inducements ("DSI") and deferred front-end loads ("DFEL"); and an increase in liabilities related to guaranteed benefit features of our subsidiaries' variable annuity products; |
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Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; |
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A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries' products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; |
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Changes in accounting principles that may affect our financial statements; |
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Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; |
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Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; |
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Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk requiring that we realize losses on financial assets; |
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Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; |
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Interruption in telecommunication, information technology or other operational systems, or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; |
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The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including the successful implementation of integration strategies or the achievement of anticipated synergies and operational efficiencies related to an acquisition; |
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The adequacy and collectability of reinsurance that we have purchased; |
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The continuation of the COVID-19 pandemic, or future outbreaks of COVID-19 or other 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; |
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Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; |
· |
The unknown effect on our subsidiaries' 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.
Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, Lincoln disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this press release.
The reporting of Risk Based Capital (“RBC”) measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.
|
Lincoln Financial Group |
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|
Table of Contents |
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|
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|
Analyst Coverage and Credit Ratings |
1 | |
|
Notes |
2 | |
|
Consolidated |
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|
Consolidated Statements of Income (Loss) |
3 | |
|
Consolidated Balance Sheets |
4 | |
|
Earnings, Shares and Return on Equity |
5 | |
|
Key Stakeholder Metrics |
6 | |
|
Segment and Sources of Earnings |
7 | |
|
Select Earnings Drivers By Segment |
8 | |
|
Sales By Segment |
9 | |
|
Operating Revenues and General and Administrative Expenses By Segment |
10 | |
|
Operating Commissions and Other Expenses |
11 | |
|
Interest Rate Yields and Spreads By Segment |
12 | |
|
Select Earnings and Operational Data from Business Segments |
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|
Annuities |
13 | |
|
Retirement Plan Services |
14 | |
|
Life Insurance |
15 | |
|
Group Protection |
16 | |
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Other Operations |
17 | |
|
DAC & Account Value Rollforwards |
||
|
Consolidated DAC, VOBA, DSI and DFEL Roll Forwards |
18 | |
|
Account Value Roll Forwards: |
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|
Annuities |
19 | |
|
Retirement Plan Services |
20 | |
|
Life Insurance |
21 | |
|
Other Information |
||
|
Select Investment Data |
22 | |
|
Realized Gain (Loss) and Benefit Ratio Unlocking, After-DAC |
23 | |
|
Select GAAP to Non-GAAP Reconciliations |
24 | |
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|
Lincoln Financial Group |
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|
Analyst Coverage and Credit Ratings |
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|
Firm |
Analyst |
Phone Number |
|||||||
|
Autonomous Research U.S., L.P. |
Erik Bass |
646-561-6248 |
|||||||
|
B. Riley FBR |
Randy Binner |
703-312-1890 |
|||||||
|
Citi Research |
Suneet Kamath |
212-816-3457 |
|||||||
|
Credit Suisse |
Andrew Kligerman |
212-325-5069 |
|||||||
|
Dowling & Partners |
Humphrey Lee |
860-676-7324 |
|||||||
|
Evercore |
Thomas Gallagher |
212-446-9439 |
|||||||
|
Goldman Sachs |
Alex Scott |
917-343-7160 |
|||||||
|
J.P. Morgan Securities |
Jimmy Bhullar |
212-622-6397 |
|||||||
|
Keefe, Bruyette & Woods, Inc. |
Ryan Krueger |
860-722-5930 |
|||||||
|
Morgan Stanley |
Nigel Dally |
212-761-4132 |
|||||||
|
Piper Sandler & Co. |
John Barnidge |
312-281-3412 |
|||||||
|
RBC Capital Markets |
Mark Dwelle |
804-782-4008 |
|||||||
|
Wells Fargo |
Elyse Greenspan |
212-214-8031 |
|||||||
|
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|
This list is provided for informational purposes only. Lincoln Financial Group does not endorse the analyses, conclusions or recommendations contained in any report issued by these |
|||||||||
|
or any other analysts. |
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|
||||||||||
|
Ratings as of May 6, 2020 |
|||||||||
|
Standard |
|||||||||
|
A.M Best |
Fitch |
Moody's |
& Poor's |
||||||
|
Senior Debt Ratings |
a- |
BBB+ |
Baa1 |
A- |
|||||
|
Financial Strength Ratings |
|||||||||
|
The Lincoln National Life Insurance Company |
A+ |
A+ |
A1 |
AA- |
|||||
|
First Penn-Pacific Life Insurance Company |
A |
A+ |
A1 |
A- |
|||||
|
Lincoln Life & Annuity Company of New York |
A+ |
A+ |
A1 |
AA- |
|||||
|
Lincoln Life Assurance Company of Boston |
A+ |
AA- |
|||||||
|
||||||||||
|
Investor Inquiries May Be Directed To: |
|||||||||
|
Chris Giovanni, Senior Vice President, Corporate Treasurer |
|||||||||
|
Email: Christopher.Giovanni@lfg.com |
|||||||||
|
Phone: 484-583-1793 |
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Page 1 |
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Lincoln Financial Group |
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Notes |
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Computations |
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• The quarterly financial information for the current year may not sum to the corresponding year-to-date amount as both are rounded to millions. |
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• The financial ratios reported herein are calculated using whole dollars instead of dollars rounded to millions. |
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• If the effect of equity classification would result in a more dilutive Earnings Per Share (“EPS”), the numerator used in the calculation of our diluted EPS is adjusted to remove the mark-to-market |
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|
adjustment for deferred units of LNC stock in our deferred compensation plans. In addition, for any period where a net loss is experienced, shares used in the diluted EPS calculation represent |
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|
basic shares, as the use of diluted shares would result in a lower loss per share. |
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• Return on equity (“ROE”) measures how efficiently we generate profits from the resources provided by our net assets. ROE is calculated by dividing annualized net income (loss) (or adjusted income (loss) |
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|
from operations) by average equity, excluding accumulated other comprehensive income (loss) (“AOCI”). Management evaluates consolidated ROE by both including and excluding the effect |
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|
of average goodwill. |
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|
• Book value per share, excluding AOCI, is calculated by dividing stockholders’ equity, excluding AOCI, by common shares outstanding. We provide book value per share, excluding AOCI, to enable |
|||||||||||||||||||||||||
|
investors to analyze the amount of our net worth that is attributable primarily to our business operations. Management believes book value per share excluding AOCI is useful to investors because |
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|
it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per share is the most directly comparable GAAP measure. |
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|
• Pre-tax net margin is calculated by dividing adjusted income (loss) from operations before taxes by net revenue, which is defined as total adjusted operating revenues less interest credited. |
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|
Definitions |
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|
Holding company available liquidity consists of cash and invested cash, excluding cash held as collateral, and certain short-term investments that can be readily converted into cash, net of commercial |
|||||||||||||||||||||||||
|
paper outstanding. |
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Sales as reported consist of the following: |
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|
• Annuities and Retirement Plan Services – deposits from new and existing customers; |
|||||||||||||||||||||||||
|
• MoneyGuard®, our linked-benefit product – 15% of total expected premium deposits; |
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|
• Universal life (“UL”), indexed universal life (“IUL”), variable universal life (“VUL”) – first-year commissionable premiums plus 5% of excess premiums received; |
|||||||||||||||||||||||||
|
• Executive Benefits – single premium bank-owned UL and VUL, 15% of single premium deposits, and corporate-owned UL and VUL, first-year commissionable premiums plus 5% of excess |
|||||||||||||||||||||||||
|
premium received; |
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|
• Term – 100% of annualized first-year premiums; and |
|||||||||||||||||||||||||
|
• Group Protection – annualized first-year premiums from new policies. |
|||||||||||||||||||||||||
|
Throughout the document, “after-DAC” refers to the associated amortization expense of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) |
|||||||||||||||||||||||||
|
and deferred front-end loads (“DFEL”) and changes in other contract holder funds. |
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Page 2a |
|
Lincoln Financial Group |
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Notes |
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|
Sources of earnings are defined as follows: |
|||||||||||||||||||||||||
|
• Investment spread earnings consist primarily of net investment income, net of interest credited earned on the underlying general account investments supporting our fixed products less related |
|||||||||||||||||||||||||
|
expenses. |
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|
• Mortality/morbidity earnings result from mortality margins, morbidity margins, and certain expense assessments and related fees that are a function of the rates priced into the product and level |
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|
of insurance in force. |
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• Fees on assets under management (“AUM”) earnings results consist primarily of asset-based fees charged based on variable account values less associated benefits and related expenses. |
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|
• Variable annuity (“VA”) riders earnings consist of fees charged to the contract holder related to guaranteed benefit rider features, less the net valuation premium and associated change in |
|||||||||||||||||||||||||
|
benefit reserves and related expenses. |
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||||||||||||||||||||||||||
|
Non-GAAP Performance Measures |
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|
Non-GAAP measures do not replace the most directly comparable GAAP measures, and we have included detailed reconciliations herein. |
|||||||||||||||||||||||||
|
Adjusted 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”); |
|||||||||||||||||||||||||
|
▪ Changes in the fair value of the derivatives we own to hedge our guaranteed death benefit (“GDB”) riders within our variable annuities; |
|||||||||||||||||||||||||
|
▪ Changes in the fair value of the embedded derivatives of our guaranteed living benefit (“GLB”) riders reflected within variable annuity net derivative results accounted for at fair value; |
|||||||||||||||||||||||||
|
▪ Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; and |
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|
▪ 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 options”); |
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|
• Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”); |
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|
• Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; |
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• Gains (losses) on early extinguishment of debt; |
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• Losses from the impairment of intangible assets; |
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• Income (loss) from discontinued operations; |
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|
• Acquisition and integration costs related to mergers and acquisitions; and |
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|
• 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. |
|||||||||||||||||||||||||
|
Adjusted 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; |
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|
• Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and |
|||||||||||||||||||||||||
|
• Amortization of deferred gains arising from reserve changes on business sold through reinsurance. |
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Page 2b |
|
Lincoln Financial Group |
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|
Notes |
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||||||||||||||||||||||||||
|
||||||||||||||||||||||||||
|
Management believes that the non-GAAP performance measures previously discussed explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying |
|||||||||||||||||||||||||
|
trends in our current business as the excluded items 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 adjusted operating revenues and adjusted |
|||||||||||||||||||||||||
|
income from operations provide investors with more valuable measures of our performance as they better reveal trends in our business. |
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|
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|
Due to reporting a net loss for the three months ended September 30, 2019, basic shares were used in the diluted earnings per share calculation for that period as the use of diluted shares would have |
|||||||||||||||||||||||||
|
resulted in a lower loss per share. |
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|
||||||||||||||||||||||||||
|
Statistical Supplement is Dated |
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|
The financial data in this document is dated May 6, 2020, and has not been updated since that date. Lincoln Financial Group does not intend to update this document. |
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Page 2c |
|
Lincoln Financial Group |
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|
Consolidated Statements of Income (Loss) |
|||||||||||||||||
|
Unaudited (millions of dollars, except per share data) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Revenues |
|||||||||||||||||
|
Insurance premiums |
$ |
1,446 |
$ |
1,398 |
$ |
1,325 |
$ |
1,344 |
$ |
1,373 |
-5.0% |
||||||
|
Fee income |
1,475 | 1,517 | 1,934 | 1,572 | 1,539 | 4.3% | |||||||||||
|
Net investment income |
1,251 | 1,355 | 1,235 | 1,381 | 1,375 | 9.9% | |||||||||||
|
Realized gain (loss): |
|||||||||||||||||
|
Other-than-temporary impairment (“OTTI”) |
(8) | (4) | (2) | (1) |
- |
100.0% | |||||||||||
|
Realized gain (loss), excluding OTTI |
(354) | (113) | (9) | (118) | (24) | 93.2% | |||||||||||
|
Total realized gain (loss) |
(362) | (117) | (11) | (119) | (24) | 93.4% | |||||||||||
|
Amortization of deferred gains on business |
|||||||||||||||||
|
sold through reinsurance |
8 | 8 | 8 | 7 | 11 | 37.5% | |||||||||||
|
Other revenues |
147 | 149 | 147 | 159 | 151 | 2.7% | |||||||||||
|
Total revenues |
3,965 | 4,310 | 4,638 | 4,344 | 4,425 | 11.6% | |||||||||||
|
||||||||||||||||||
|
Expenses |
|||||||||||||||||
|
Interest credited |
678 | 680 | 705 | 717 | 725 | 6.9% | |||||||||||
|
Benefits |
1,757 | 1,852 | 2,502 | 1,768 | 2,501 | 42.3% | |||||||||||
|
Commissions and other expenses |
1,176 | 1,272 | 1,552 | 1,288 | 1,085 |
-7.7% |
|||||||||||
|
Interest and debt expense |
71 | 70 | 113 | 72 | 68 |
-4.2% |
|||||||||||
|
Strategic digitization expense |
15 | 15 | 16 | 18 | 12 |
-20.0% |
|||||||||||
|
Total expenses |
3,697 | 3,889 | 4,888 | 3,863 | 4,391 | 18.8% | |||||||||||
|
Income (loss) before taxes |
268 | 421 | (250) | 481 | 34 |
-87.3% |
|||||||||||
|
Federal income tax expense (benefit) |
16 | 58 | (89) | 50 | (18) |
NM |
|||||||||||
|
Net income (loss) |
252 | 363 | (161) | 431 | 52 |
-79.4% |
|||||||||||
|
Adjustment for LNC stock units in our |
|||||||||||||||||
|
deferred compensation plans |
- |
- |
(3) | (1) | (23) |
NM |
|||||||||||
|
Net income (loss) available to common |
|||||||||||||||||
|
stockholders – diluted |
$ |
252 |
$ |
363 |
$ |
(164) |
$ |
430 |
$ |
29 |
-88.5% |
||||||
|
||||||||||||||||||
|
Earnings (Loss) Per Common Share – Diluted |
|||||||||||||||||
|
Net income (loss) |
$ |
1.22 |
$ |
1.79 |
$ |
(0.83) |
$ |
2.15 |
$ |
0.15 |
-87.7% |
||||||
|
||||||||||||||||||
|
ROE, including AOCI |
|||||||||||||||||
|
Net income (loss) |
6.6% | 8.3% |
-3.4% |
8.7% | 1.1% | ||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 3 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Consolidated Balance Sheets |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
As of |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
ASSETS |
|||||||||||||||||
|
Investments: |
|||||||||||||||||
|
Fixed maturity available-for-sale (“AFS”) securities, net of allowances for |
|||||||||||||||||
|
credit losses ("ACL"): |
|||||||||||||||||
|
Corporate bonds |
$ |
83,208 |
$ |
84,790 |
$ |
87,910 |
$ |
88,716 |
$ |
85,797 | 3.1% | ||||||
|
U.S. government bonds |
423 | 430 | 438 | 435 | 482 | 13.9% | |||||||||||
|
State and municipal bonds |
5,569 | 5,669 | 5,800 | 5,884 | 5,906 | 6.1% | |||||||||||
|
Foreign government bonds |
453 | 440 | 444 | 393 | 389 |
-14.1% |
|||||||||||
|
Residential mortgage-backed securities |
3,414 | 3,292 | 3,287 | 3,241 | 3,271 |
-4.2% |
|||||||||||
|
Commercial mortgage-backed securities |
885 | 965 | 1,033 | 1,083 | 1,119 | 26.4% | |||||||||||
|
Asset-backed securities |
3,484 | 3,542 | 4,172 | 4,889 | 5,086 | 46.0% | |||||||||||
|
Hybrid and redeemable preferred securities |
614 | 605 | 575 | 559 | 556 |
-9.4% |
|||||||||||
|
Total fixed maturity AFS securities, net of ACL |
98,050 | 99,733 | 103,659 | 105,200 | 102,606 | 4.6% | |||||||||||
|
Trading securities |
3,314 | 4,522 | 4,691 | 4,673 | 4,019 | 21.3% | |||||||||||
|
Equity securities |
153 | 196 | 158 | 103 | 83 |
-45.8% |
|||||||||||
|
Mortgage loans on real estate, net of ACL |
13,997 | 15,090 | 15,947 | 16,339 | 16,791 | 20.0% | |||||||||||
|
Policy loans |
2,498 | 2,484 | 2,475 | 2,477 | 2,571 | 2.9% | |||||||||||
|
Derivative investments |
981 | 1,510 | 2,201 | 1,911 | 4,417 |
NM |
|||||||||||
|
Other investments |
2,752 | 2,845 | 3,389 | 2,994 | 4,765 | 73.1% | |||||||||||
|
Total investments |
121,745 | 126,380 | 132,520 | 133,697 | 135,252 | 11.1% | |||||||||||
|
Cash and invested cash |
1,593 | 3,314 | 2,939 | 2,563 | 6,202 | 289.3% | |||||||||||
|
DAC and VOBA |
9,441 | 8,588 | 7,492 | 7,694 | 9,212 |
-2.4% |
|||||||||||
|
Premiums and fees receivable |
607 | 553 | 440 | 465 | 562 |
-7.4% |
|||||||||||
|
Accrued investment income |
1,184 | 1,146 | 1,182 | 1,148 | 1,185 | 0.1% | |||||||||||
|
Reinsurance recoverables, net of ACL |
17,660 | 17,481 | 17,353 | 17,144 | 16,923 |
-4.2% |
|||||||||||
|
Reinsurance related embedded derivatives |
- |
- |
- |
- |
137 |
NM |
|||||||||||
|
Funds withheld reinsurance assets |
549 | 548 | 543 | 536 | 535 |
-2.6% |
|||||||||||
|
Goodwill |
1,778 | 1,778 | 1,778 | 1,778 | 1,778 | 0.0% | |||||||||||
|
Other assets |
16,373 | 16,196 | 15,939 | 16,170 | 16,246 |
-0.8% |
|||||||||||
|
Separate account assets |
143,369 | 146,275 | 145,092 | 153,566 | 130,617 |
-8.9% |
|||||||||||
|
Total assets |
$ |
314,299 |
$ |
322,259 |
$ |
325,278 |
$ |
334,761 |
$ |
318,649 | 1.4% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 4a |
|
Lincoln Financial Group |
|||||||||||||||||
|
Consolidated Balance Sheets |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
As of |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||||||
|
Liabilities |
|||||||||||||||||
|
Future contract benefits |
$ |
34,009 |
$ |
34,890 |
$ |
36,108 |
$ |
36,420 |
$ |
37,100 | 9.1% | ||||||
|
Other contract holder funds |
93,959 | 94,947 | 95,283 | 98,018 | 99,508 | 5.9% | |||||||||||
|
Short-term debt |
300 | 300 | 300 | 300 |
- |
-100.0% |
|||||||||||
|
Long-term debt by rating agency leverage definitions: |
|||||||||||||||||
|
Operating (see note (2) on page 6 for details) |
866 | 866 | 866 | 866 | 866 | 0.0% | |||||||||||
|
Financial |
4,706 | 4,755 | 5,204 | 5,201 | 5,882 | 25.0% | |||||||||||
|
Reinsurance related embedded derivatives |
177 | 310 | 339 | 327 |
- |
-100.0% |
|||||||||||
|
Funds withheld reinsurance liabilities |
1,762 | 1,796 | 1,817 | 1,810 | 1,843 | 4.6% | |||||||||||
|
Payables for collateral on investments |
5,362 | 5,632 | 5,528 | 5,082 | 8,434 | 57.3% | |||||||||||
|
Other liabilities |
13,372 | 14,033 | 14,742 | 13,482 | 17,824 | 33.3% | |||||||||||
|
Separate account liabilities |
143,369 | 146,275 | 145,092 | 153,566 | 130,617 |
-8.9% |
|||||||||||
|
Total liabilities |
297,882 | 303,804 | 305,279 | 315,072 | 302,074 | 1.4% | |||||||||||
|
||||||||||||||||||
|
Stockholders’ Equity |
|||||||||||||||||
|
Common stock |
5,285 | 5,241 | 5,192 | 5,162 | 5,071 |
-4.0% |
|||||||||||
|
Retained earnings |
8,679 | 8,878 | 8,559 | 8,854 | 8,500 |
-2.1% |
|||||||||||
|
AOCI: |
|||||||||||||||||
|
Unrealized investment gains (losses) |
2,773 | 4,658 | 6,572 | 6,017 | 3,348 | 20.7% | |||||||||||
|
Foreign currency translation adjustment |
(20) | (24) | (29) | (17) | (27) |
-35.0% |
|||||||||||
|
Funded status of employee benefit plans |
(300) | (298) | (295) | (327) | (317) |
-5.7% |
|||||||||||
|
Total AOCI |
2,453 | 4,336 | 6,248 | 5,673 | 3,004 | 22.5% | |||||||||||
|
Total stockholders’ equity |
16,417 | 18,455 | 19,999 | 19,689 | 16,575 | 1.0% | |||||||||||
|
Total liabilities and stockholders’ equity |
$ |
314,299 |
$ |
322,259 |
$ |
325,278 |
$ |
334,761 |
$ |
318,649 | 1.4% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 4b |
|
Lincoln Financial Group |
|||||||||||||||||
|
Earnings, Shares and Return on Equity |
|||||||||||||||||
|
Unaudited (millions of dollars, except per share data) |
|||||||||||||||||
|
||||||||||||||||||
|
As of or For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Income (Loss) |
|||||||||||||||||
|
Net income (loss) |
$ |
252 |
$ |
363 |
$ |
(161) |
$ |
431 |
$ |
52 |
-79.4% |
||||||
|
Pre-tax adjusted income (loss) from operations |
507 | 566 | (104) | 566 | 558 | 10.1% | |||||||||||
|
After-tax adjusted income (loss) from operations (1) |
441 | 478 | (46) | 482 | 465 | 5.4% | |||||||||||
|
Adjusted operating tax rate |
13.0% | 15.5% | 55.8% | 14.8% | 16.5% | ||||||||||||
|
||||||||||||||||||
|
Average Stockholders’ Equity |
|||||||||||||||||
|
Average equity, including AOCI |
$ |
15,384 |
$ |
17,436 |
$ |
19,227 |
$ |
19,844 |
$ |
18,132 | 17.9% | ||||||
|
Average AOCI |
1,430 | 3,394 | 5,292 | 5,961 | 4,338 | 203.4% | |||||||||||
|
Average equity, excluding AOCI |
$ |
13,954 |
$ |
14,042 |
$ |
13,935 |
$ |
13,883 |
$ |
13,794 |
-1.1% |
||||||
|
||||||||||||||||||
|
ROE, Excluding AOCI |
|||||||||||||||||
|
Net income (loss) |
7.2% | 10.4% |
-4.6% |
12.4% | 1.5% | ||||||||||||
|
Adjusted income (loss) from operations |
12.6% | 13.6% |
-1.3% |
13.9% | 13.5% | ||||||||||||
|
||||||||||||||||||
|
Per Share |
|||||||||||||||||
|
Net income (loss) (diluted) |
$ |
1.22 |
$ |
1.79 |
$ |
(0.83) |
$ |
2.15 |
$ |
0.15 |
-87.7% |
||||||
|
Adjusted income (loss) from operations (diluted) |
2.14 | 2.36 | (0.25) | 2.41 | 2.24 | 4.7% | |||||||||||
|
Dividends declared during the period |
0.37 | 0.37 | 0.37 | 0.40 | 0.40 | 8.1% | |||||||||||
|
||||||||||||||||||
|
Book value, including AOCI |
$ |
80.88 |
$ |
91.92 |
$ |
100.84 |
$ |
100.11 |
$ |
85.79 | 6.1% | ||||||
|
Per share impact of AOCI |
12.09 | 21.60 | 31.51 | 28.84 | 15.55 | 28.6% | |||||||||||
|
Book value, excluding AOCI |
$ |
68.79 |
$ |
70.32 |
$ |
69.33 |
$ |
71.27 |
$ |
70.24 | 2.1% | ||||||
|
||||||||||||||||||
|
Shares |
|||||||||||||||||
|
Repurchased during the period |
3.9 | 2.3 | 2.5 | 1.7 | 3.8 |
-2.6% |
|||||||||||
|
End-of-period – basic |
203.0 | 200.8 | 198.3 | 196.7 | 193.2 |
-4.8% |
|||||||||||
|
End-of-period – diluted |
204.2 | 202.2 | 200.7 | 199.2 | 195.0 |
-4.5% |
|||||||||||
|
Average for the period – diluted |
206.0 | 202.9 | 201.6 | 200.0 | 197.3 |
-4.2% |
|||||||||||
|
||||||||||||||||||
|
(1) See reconciliation to net income (loss) on page 24. |
|||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 5 |
|
Lincoln Financial Group |
||||||||||||||||||
|
Key Stakeholder Metrics |
||||||||||||||||||
|
Unaudited (millions of dollars, except per share data) |
||||||||||||||||||
|
|||||||||||||||||||
|
As of or For the Three Months Ended |
||||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
|||||||||||||
|
Cash Returned to Common Stockholders |
||||||||||||||||||
|
Shares repurchased |
$ |
240 |
$ |
150 |
$ |
150 |
$ |
100 |
$ |
225 |
-6.3% |
|||||||
|
Common dividends |
76 | 75 | 74 | 73 | 79 | 3.9% | ||||||||||||
|
Total cash returned to common stockholders |
$ |
316 |
$ |
225 |
$ |
224 |
$ |
173 |
$ |
304 |
-3.8% |
|||||||
|
|||||||||||||||||||
|
Leverage Ratio |
||||||||||||||||||
|
Short-term debt |
$ |
300 |
$ |
300 |
$ |
300 |
$ |
300 |
$ |
- |
-100.0% |
|||||||
|
Long-term debt |
5,572 | 5,621 | 6,070 | 6,067 | 6,748 | 21.1% | ||||||||||||
|
Total debt (1) |
5,872 | 5,921 | 6,370 | 6,367 | 6,748 | 14.9% | ||||||||||||
|
Less: |
||||||||||||||||||
|
Operating debt (2) |
866 | 866 | 866 | 866 | 866 | 0.0% | ||||||||||||
|
25% of capital securities |
302 | 302 | 302 | 302 | 302 | 0.0% | ||||||||||||
|
Carrying value of fair value hedges and other items |
222 | 270 | 331 | 278 | 459 | 106.8% | ||||||||||||
|
Total numerator |
$ |
4,482 |
$ |
4,483 |
$ |
4,871 |
$ |
4,921 |
$ |
5,121 | 14.3% | |||||||
|
|||||||||||||||||||
|
Stockholders’ equity, excluding unrealized |
||||||||||||||||||
|
investment gains (losses) |
$ |
13,644 |
$ |
13,797 |
$ |
13,427 |
$ |
13,672 |
$ |
13,227 |
-3.1% |
|||||||
|
Add: 25% of capital securities |
302 | 302 | 302 | 302 | 302 | 0.0% | ||||||||||||
|
Total numerator |
4,482 | 4,483 | 4,871 | 4,921 | 5,121 | 14.3% | ||||||||||||
|
Total denominator |
$ |
18,428 |
$ |
18,582 |
$ |
18,600 |
$ |
18,895 |
$ |
18,650 | 1.2% | |||||||
|
|||||||||||||||||||
|
Leverage ratio |
24.3% | 24.1% | 26.2% | 26.0% | 27.5% | |||||||||||||
|
|||||||||||||||||||
|
Holding Company Available Liquidity |
$ |
481 |
$ |
474 |
$ |
765 |
$ |
702 |
$ |
760 | 58.0% | |||||||
|
|||||||||||||||||||
|
(1) Excludes obligations under finance leases and certain financing arrangements of $388 million that are reported in other liabilities on our Consolidated Balance Sheets. |
||||||||||||||||||
|
(2) We have categorized as operating debt the senior notes issued in October 2007 and June 2010 because the proceeds were used as a long-term structured solution to reduce the strain |
||||||||||||||||||
|
on increasing statutory reserves associated with secondary guarantee UL and term policies. |
||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
Page 6 |
|
Lincoln Financial Group |
|||||||||||||||||||||||||
|
Segment and Sources of Earnings |
|||||||||||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||
|
For the Three Months Ended |
For the Three Months Ended |
||||||||||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
3/31/19 |
3/31/20 |
Change |
|||||||||||||||||
|
Income (Loss) from Operations, Pre-Tax |
|||||||||||||||||||||||||
|
Annuities |
$ |
287 |
$ |
309 |
$ |
185 |
$ |
312 |
$ |
302 | 5.2% |
$ |
287 |
$ |
302 | 5.2% | |||||||||
|
Retirement Plan Services |
43 | 49 | 49 | 54 | 45 | 4.7% | 43 | 45 | 4.7% | ||||||||||||||||
|
Life Insurance |
195 | 207 | (318) | 222 | 209 | 7.2% | 195 | 209 | 7.2% | ||||||||||||||||
|
Group Protection |
70 | 86 | 78 | 68 | 50 |
-28.6% |
70 | 50 |
-28.6% |
||||||||||||||||
|
Other Operations |
(88) | (85) | (98) | (90) | (48) | 45.5% | (88) | (48) | 45.5% | ||||||||||||||||
|
Adjusted income (loss) from operations, before |
|||||||||||||||||||||||||
|
income taxes |
$ |
507 |
$ |
566 |
$ |
(104) |
$ |
566 |
$ |
558 | 10.1% |
$ |
507 |
$ |
558 | 10.1% | |||||||||
|
||||||||||||||||||||||||||
|
Income (Loss) from Operations, After-Tax |
|||||||||||||||||||||||||
|
Annuities |
$ |
250 |
$ |
266 |
$ |
169 |
$ |
269 |
$ |
261 | 4.4% |
$ |
250 |
$ |
261 | 4.4% | |||||||||
|
Retirement Plan Services |
39 | 42 | 44 | 47 | 40 | 2.6% | 39 | 40 | 2.6% | ||||||||||||||||
|
Life Insurance |
157 | 168 | (245) | 179 | 171 | 8.9% | 157 | 171 | 8.9% | ||||||||||||||||
|
Group Protection |
55 | 68 | 61 | 54 | 40 |
-27.3% |
55 | 40 |
-27.3% |
||||||||||||||||
|
Other Operations |
(60) | (66) | (75) | (67) | (47) | 21.7% | (60) | (46) | 23.3% | ||||||||||||||||
|
Adjusted income (loss) from operations |
$ |
441 |
$ |
478 |
$ |
(46) |
$ |
482 |
$ |
465 | 5.4% |
$ |
441 |
$ |
465 | 5.4% | |||||||||
|
||||||||||||||||||||||||||
|
For the Three Months Ended |
For the Trailing Twelve Months |
||||||||||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
3/31/19 |
3/31/20 |
Change |
|||||||||||||||||
|
Sources of Earnings, Pre-Tax |
|||||||||||||||||||||||||
|
Investment spread |
$ |
151 |
$ |
164 |
$ |
(126) |
$ |
173 |
$ |
151 | 0.0% |
$ |
654 |
$ |
362 |
-44.6% |
|||||||||
|
Mortality/morbidity |
179 | 196 | (119) | 189 | 165 |
-7.8% |
717 | 432 |
-39.7% |
||||||||||||||||
|
Fees on AUM |
243 | 269 | 262 | 275 | 290 | 19.3% | 1,036 | 1,094 | 5.6% | ||||||||||||||||
|
VA riders |
22 | 22 | (23) | 19 |
- |
-100.0% |
131 | 17 |
-87.0% |
||||||||||||||||
|
Total sources of earnings, before income taxes |
595 | 651 | (6) | 656 | 606 | 1.8% | 2,538 | 1,905 |
-24.9% |
||||||||||||||||
|
Other Operations |
(88) | (85) | (98) | (90) | (48) | 45.5% | (330) | (321) | 2.7% | ||||||||||||||||
|
Adjusted income (loss) from operations, before |
|||||||||||||||||||||||||
|
income taxes |
$ |
507 |
$ |
566 |
$ |
(104) |
$ |
566 |
$ |
558 | 10.1% |
$ |
2,208 |
$ |
1,584 |
-28.3% |
|||||||||
|
||||||||||||||||||||||||||
|
Sources of Earnings, Pre-Tax, Percentage By Component |
|||||||||||||||||||||||||
|
Investment spread |
25.5% | 25.2% | 1829.1% | 26.4% | 25.0% | 25.8% | 19.0% | ||||||||||||||||||
|
Mortality/morbidity |
30.1% | 30.2% | 1720.6% | 28.8% | 27.3% | 28.2% | 22.7% | ||||||||||||||||||
|
Fees on AUM |
40.7% | 41.1% |
-3785.1% |
42.0% | 47.8% | 40.8% | 57.4% | ||||||||||||||||||
|
VA riders |
3.7% | 3.5% | 335.4% | 2.8% |
-0.1% |
5.2% | 0.9% | ||||||||||||||||||
|
Total |
100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | ||||||||||||||||||
|
||||||||||||||||||||||||||
|
Page 7 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Select Earnings Drivers By Segment |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Annuities |
|||||||||||||||||
|
Operating revenues |
$ |
1,174 |
$ |
1,156 |
$ |
1,117 |
$ |
1,153 |
$ |
1,129 |
-3.8% |
||||||
|
Deposits |
3,508 | 3,654 | 3,461 | 3,902 | 3,697 | 5.4% | |||||||||||
|
Net flows |
492 | 377 | 253 | 729 | 528 | 7.3% | |||||||||||
|
Average account values |
127,185 | 131,675 | 133,922 | 137,817 | 137,922 | 8.4% | |||||||||||
|
||||||||||||||||||
|
Retirement Plan Services |
|||||||||||||||||
|
Operating revenues |
$ |
293 |
$ |
299 |
$ |
298 |
$ |
310 |
$ |
297 | 1.4% | ||||||
|
Deposits |
2,496 | 2,073 | 2,234 | 2,663 | 2,779 | 11.3% | |||||||||||
|
Net flows |
(381) | 307 | 272 | 422 | 671 | 276.1% | |||||||||||
|
Average account values |
69,977 | 72,612 | 74,201 | 76,478 | 75,845 | 8.4% | |||||||||||
|
||||||||||||||||||
|
Life Insurance |
|||||||||||||||||
|
Operating revenues |
$ |
1,700 |
$ |
1,802 |
$ |
2,098 |
$ |
1,838 |
$ |
1,821 | 7.1% | ||||||
|
Deposits |
1,537 | 1,683 | 1,685 | 2,413 | 1,450 |
-5.7% |
|||||||||||
|
Net flows |
1,020 | 1,217 | 1,227 | 1,957 | 963 |
-5.6% |
|||||||||||
|
Average account values |
50,355 | 51,495 | 52,050 | 53,243 | 52,866 | 5.0% | |||||||||||
|
Average in-force face amount |
753,441 | 772,231 | 790,667 | 814,865 | 836,488 | 11.0% | |||||||||||
|
||||||||||||||||||
|
Group Protection |
|||||||||||||||||
|
Operating revenues |
$ |
1,138 |
$ |
1,155 |
$ |
1,137 |
$ |
1,158 |
$ |
1,224 | 7.6% | ||||||
|
Insurance premiums |
1,023 | 1,032 | 1,024 | 1,035 | 1,094 | 6.9% | |||||||||||
|
||||||||||||||||||
|
Consolidated |
|||||||||||||||||
|
Adjusted operating revenues (1) |
$ |
4,362 |
$ |
4,470 |
$ |
4,700 |
$ |
4,513 |
$ |
4,509 | 3.4% | ||||||
|
Deposits |
7,541 | 7,410 | 7,380 | 8,978 | 7,926 | 5.1% | |||||||||||
|
Net flows |
1,131 | 1,901 | 1,752 | 3,108 | 2,162 | 91.2% | |||||||||||
|
Average account values |
247,517 | 255,782 | 260,173 | 267,538 | 266,633 | 7.7% | |||||||||||
|
||||||||||||||||||
|
(1) See reconciliation to total revenues on page 24. |
|||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 8 |
|
Lincoln Financial Group |
||||||||||||||||||
|
Sales By Segment |
||||||||||||||||||
|
Unaudited (millions of dollars) |
||||||||||||||||||
|
|||||||||||||||||||
|
For the Three Months Ended |
||||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
|||||||||||||
|
Sales |
||||||||||||||||||
|
Annuities: |
||||||||||||||||||
|
With guaranteed living benefits |
$ |
1,060 |
$ |
1,241 |
$ |
1,243 |
$ |
1,428 |
$ |
1,185 | 11.8% | |||||||
|
Without guaranteed living benefits |
864 | 1,115 | 1,191 | 1,298 | 1,454 | 68.3% | ||||||||||||
|
Variable |
1,924 | 2,356 | 2,434 | 2,726 | 2,639 | 37.2% | ||||||||||||
|
Fixed |
1,584 | 1,298 | 1,027 | 1,176 | 1,058 |
-33.2% |
||||||||||||
|
Total Annuities |
$ |
3,508 |
$ |
3,654 |
$ |
3,461 |
$ |
3,902 |
$ |
3,697 | 5.4% | |||||||
|
|||||||||||||||||||
|
Retirement Plan Services: |
||||||||||||||||||
|
First-year sales |
$ |
829 |
$ |
610 |
$ |
723 |
$ |
1,227 |
$ |
867 | 4.6% | |||||||
|
Recurring deposits |
1,667 | 1,463 | 1,511 | 1,436 | 1,912 | 14.7% | ||||||||||||
|
Total Retirement Plan Services |
$ |
2,496 |
$ |
2,073 |
$ |
2,234 |
$ |
2,663 |
$ |
2,779 | 11.3% | |||||||
|
|||||||||||||||||||
|
Life Insurance: |
||||||||||||||||||
|
UL |
$ |
11 |
$ |
15 |
$ |
11 |
$ |
20 |
$ |
9 |
-18.2% |
|||||||
|
MoneyGuard® |
51 | 56 | 67 | 124 | 34 |
-33.3% |
||||||||||||
|
IUL |
16 | 25 | 37 | 76 | 21 | 31.3% | ||||||||||||
|
VUL |
52 | 53 | 54 | 107 | 44 |
-15.4% |
||||||||||||
|
Term |
30 | 37 | 37 | 39 | 35 | 16.7% | ||||||||||||
|
Total individual life insurance |
160 | 186 | 206 | 366 | 143 |
-10.6% |
||||||||||||
|
Executive Benefits |
31 | 24 | 28 | 81 | 26 |
-16.1% |
||||||||||||
|
Total Life Insurance |
$ |
191 |
$ |
210 |
$ |
234 |
$ |
447 |
$ |
169 |
-11.5% |
|||||||
|
|||||||||||||||||||
|
Group Protection: |
||||||||||||||||||
|
Life |
$ |
64 |
$ |
42 |
$ |
131 |
$ |
108 |
$ |
50 |
-21.9% |
|||||||
|
Disability |
42 | 40 | 96 | 140 | 42 | 0.0% | ||||||||||||
|
Dental |
13 | 13 | 15 | 49 | 10 |
-23.1% |
||||||||||||
|
Total Group Protection |
$ |
119 |
$ |
95 |
$ |
242 |
$ |
297 |
$ |
102 |
-14.3% |
|||||||
|
Percent employee-paid |
52.6% | 45.8% | 41.5% | 37.6% | 59.9% | |||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
Page 9 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Operating Revenues and General and Administrative Expenses By Segment |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Operating Revenues |
|||||||||||||||||
|
Annuities |
$ |
1,174 |
$ |
1,156 |
$ |
1,117 |
$ |
1,153 |
$ |
1,129 |
-3.8% |
||||||
|
Retirement Plan Services |
293 | 299 | 298 | 310 | 297 | 1.4% | |||||||||||
|
Life Insurance |
1,700 | 1,802 | 2,098 | 1,838 | 1,821 | 7.1% | |||||||||||
|
Group Protection |
1,138 | 1,155 | 1,137 | 1,158 | 1,224 | 7.6% | |||||||||||
|
Other Operations |
57 | 58 | 50 | 54 | 38 |
-33.3% |
|||||||||||
|
Total segment operating revenues |
$ |
4,362 |
$ |
4,470 |
$ |
4,700 |
$ |
4,513 |
$ |
4,509 | 3.4% | ||||||
|
||||||||||||||||||
|
General and Administrative Expenses, |
|||||||||||||||||
|
Net of Amounts Capitalized (1) |
|||||||||||||||||
|
Annuities |
117 |
$ |
126 |
$ |
118 |
$ |
132 |
$ |
120 | 2.6% | |||||||
|
Retirement Plan Services |
75 | 76 | 73 | 78 | 72 |
-4.0% |
|||||||||||
|
Life Insurance |
121 | 131 | 123 | 145 | 121 | 0.0% | |||||||||||
|
Group Protection |
156 | 167 | 162 | 174 | 154 |
-1.3% |
|||||||||||
|
Other Operations |
40 | 37 | 25 | 43 | (4) |
NM |
|||||||||||
|
Total |
$ |
509 |
$ |
537 |
$ |
501 |
$ |
572 |
$ |
463 |
-9.0% |
||||||
|
||||||||||||||||||
|
General and Administrative Expenses, |
|||||||||||||||||
|
Net of Amounts Capitalized, as a Percentage |
|||||||||||||||||
|
of Operating Revenues |
|||||||||||||||||
|
Annuities |
10.0% | 10.9% | 10.6% | 11.4% | 10.7% | ||||||||||||
|
Retirement Plan Services |
25.5% | 25.4% | 24.6% | 25.3% | 24.4% | ||||||||||||
|
Life Insurance |
7.1% | 7.3% | 5.9% | 7.9% | 6.7% | ||||||||||||
|
Group Protection |
13.7% | 14.4% | 14.1% | 15.0% | 12.5% | ||||||||||||
|
Other Operations |
69.9% | 64.3% | 49.6% | 81.8% |
-10.0% |
||||||||||||
|
Total |
11.7% | 12.0% | 10.7% | 12.7% | 10.3% | ||||||||||||
|
||||||||||||||||||
|
(1) See page 11 for general and administrative expenses capitalized. |
|||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 10 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Operating Commissions and Other Expenses |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Operating Commissions and Other Expenses Incurred |
|||||||||||||||||
|
General and administrative expenses |
$ |
563 |
$ |
593 |
$ |
569 |
$ |
663 |
$ |
520 |
-7.6% |
||||||
|
Commissions |
649 | 689 | 707 | 867 | 706 | 8.8% | |||||||||||
|
Taxes, licenses and fees |
100 | 74 | 86 | 87 | 90 |
-10.0% |
|||||||||||
|
Interest and debt expense |
71 | 70 | 71 | 72 | 68 |
-4.2% |
|||||||||||
|
Expenses associated with reserve financing |
|||||||||||||||||
|
and unrelated letters of credit |
22 | 22 | 22 | 23 | 23 | 4.5% | |||||||||||
|
Total operating commissions and other expenses incurred |
1,405 | 1,448 | 1,455 | 1,712 | 1,407 | 0.1% | |||||||||||
|
||||||||||||||||||
|
Less Amounts Capitalized |
|||||||||||||||||
|
General and administrative expenses |
(54) | (56) | (68) | (91) | (57) |
-5.6% |
|||||||||||
|
Commissions |
(326) | (348) | (374) | (523) | (362) |
-11.0% |
|||||||||||
|
Taxes, licenses and fees |
(15) | (15) | (14) | (26) | (13) | 13.3% | |||||||||||
|
Total amounts capitalized |
(395) | (419) | (456) | (640) | (432) |
-9.4% |
|||||||||||
|
Total expenses incurred, net of amounts |
|||||||||||||||||
|
capitalized, excluding amortization |
1,010 | 1,029 | 999 | 1,072 | 975 |
-3.5% |
|||||||||||
|
||||||||||||||||||
|
Amortization |
|||||||||||||||||
|
Amortization of DAC, VOBA and other intangibles |
209 | 280 | 601 | 261 | 247 | 18.2% | |||||||||||
|
Total operating commissions and other expenses |
$ |
1,219 |
$ |
1,309 |
$ |
1,600 |
$ |
1,333 |
$ |
1,222 | 0.2% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 11 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Interest Rate Yields and Spreads By Segment |
|||||||||||||||||
|
Unaudited |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Annuities |
|||||||||||||||||
|
Earned rate on reserves |
3.97% | 4.09% | 4.04% | 3.84% | 3.73% | (24) | |||||||||||
|
Variable investment income on reserves (1) |
0.05% | 0.09% | 0.09% | 0.20% | 0.03% | (2) | |||||||||||
|
Net investment income yield on reserves |
4.02% | 4.18% | 4.13% | 4.04% | 3.76% | (26) | |||||||||||
|
Interest rate credited to contract holders |
2.41% | 2.35% | 2.46% | 2.47% | 2.31% | (10) | |||||||||||
|
Interest rate spread |
1.61% | 1.83% | 1.67% | 1.57% | 1.45% | (16) | |||||||||||
|
Base spreads excluding variable investment income |
1.56% | 1.74% | 1.58% | 1.37% | 1.42% | (14) | |||||||||||
|
||||||||||||||||||
|
Retirement Plan Services |
|||||||||||||||||
|
Earned rate on reserves |
4.18% | 4.13% | 4.13% | 4.07% | 3.95% | (23) | |||||||||||
|
Variable investment income on reserves (1) |
0.05% | 0.07% | 0.16% | 0.24% | 0.05% |
- |
|||||||||||
|
Net investment income yield on reserves |
4.23% | 4.20% | 4.29% | 4.31% | 4.00% | (23) | |||||||||||
|
Interest rate credited to contract holders |
2.92% | 2.90% | 2.90% | 2.89% | 2.87% | (5) | |||||||||||
|
Interest rate spread |
1.31% | 1.30% | 1.39% | 1.42% | 1.13% | (18) | |||||||||||
|
Base spreads excluding variable investment income |
1.26% | 1.23% | 1.23% | 1.18% | 1.08% | (18) | |||||||||||
|
||||||||||||||||||
|
Life Insurance – Interest-Sensitive |
|||||||||||||||||
|
Earned rate on reserves |
4.85% | 4.87% | 4.86% | 4.84% | 4.77% | (8) | |||||||||||
|
Variable investment income on reserves (1) |
0.06% | 0.46% |
-0.38% |
0.33% | 0.31% | 25 | |||||||||||
|
Net investment income yield on reserves |
4.91% | 5.33% | 4.48% | 5.17% | 5.08% | 17 | |||||||||||
|
Interest rate credited to contract holders |
3.69% | 3.68% | 3.71% | 3.71% | 3.80% | 11 | |||||||||||
|
Interest rate spread |
1.22% | 1.65% | 0.77% | 1.46% | 1.28% | 6 | |||||||||||
|
Base spreads excluding variable investment income |
1.16% | 1.19% | 1.15% | 1.13% | 0.97% | (19) | |||||||||||
|
||||||||||||||||||
|
Total (2) |
|||||||||||||||||
|
Earned rate (3) |
4.33% | 4.35% | 4.39% | 4.33% | 4.29% | (4) | |||||||||||
|
Variable investment income (1) (3) |
0.06% | 0.32% |
-0.19% |
0.28% | 0.19% | 13 | |||||||||||
|
Net investment income yield (3) |
4.39% | 4.67% | 4.20% | 4.61% | 4.48% | 9 | |||||||||||
|
||||||||||||||||||
|
(1) Variable investment income consists of commercial mortgage loan prepayment and bond make-whole premiums and investment income on alternative investments. |
|||||||||||||||||
|
(2) Includes the results of all of our business segments and Other Operations. |
|||||||||||||||||
|
(3) Includes investment yields on reserves and surplus. |
|||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 12 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Annuities – Select Earnings and Operational Data |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
As of or For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Income (Loss) from Operations |
|||||||||||||||||
|
Operating revenues: |
|||||||||||||||||
|
Insurance premiums |
$ |
208 |
$ |
137 |
$ |
79 |
$ |
78 |
$ |
53 |
-74.5% |
||||||
|
Fee income |
568 | 586 | 596 | 606 | 593 | 4.4% | |||||||||||
|
Net investment income |
257 | 286 | 287 | 309 | 326 | 26.8% | |||||||||||
|
Operating realized gain (loss) |
41 | 46 | 51 | 53 | 54 | 31.7% | |||||||||||
|
Amortization of deferred gain |
8 | 8 | 8 | 7 | 8 | 0.0% | |||||||||||
|
Other revenues |
92 | 93 | 96 | 100 | 95 | 3.3% | |||||||||||
|
Total operating revenues |
1,174 | 1,156 | 1,117 | 1,153 | 1,129 |
-3.8% |
|||||||||||
|
Operating expenses: |
|||||||||||||||||
|
Interest credited |
162 | 163 | 183 | 190 | 192 | 18.5% | |||||||||||
|
Benefits |
284 | 219 | 273 | 163 | 170 |
-40.1% |
|||||||||||
|
Commissions incurred |
268 | 287 | 295 | 322 | 311 | 16.0% | |||||||||||
|
Other expenses incurred |
230 | 244 | 240 | 257 | 250 | 8.7% | |||||||||||
|
Amounts capitalized |
(147) | (161) | (175) | (198) | (191) |
-29.9% |
|||||||||||
|
Amortization |
90 | 95 | 116 | 107 | 95 | 5.6% | |||||||||||
|
Total operating expenses |
887 | 847 | 932 | 841 | 827 |
-6.8% |
|||||||||||
|
Income (loss) from operations before taxes |
287 | 309 | 185 | 312 | 302 | 5.2% | |||||||||||
|
Federal income tax expense (benefit) |
37 | 43 | 16 | 43 | 41 | 10.8% | |||||||||||
|
Income (loss) from operations |
$ |
250 |
$ |
266 |
$ |
169 |
$ |
269 |
$ |
261 | 4.4% | ||||||
|
||||||||||||||||||
|
Effective Federal Income Tax Rate |
12.8% | 13.9% | 8.4% | 13.9% | 13.4% | ||||||||||||
|
||||||||||||||||||
|
Average Equity, Excluding Goodwill and AOCI |
$ |
4,785 |
$ |
4,741 |
$ |
4,846 |
$ |
4,883 |
$ |
4,887 | 2.1% | ||||||
|
||||||||||||||||||
|
ROE, Excluding Goodwill and AOCI |
20.9% | 22.5% | 14.0% | 22.0% | 21.4% | ||||||||||||
|
||||||||||||||||||
|
Return on Average Account Values |
79 | 81 | 51 | 78 | 76 | (3) | |||||||||||
|
||||||||||||||||||
|
Income (Loss) from Operations |
|||||||||||||||||
|
Variable annuity |
214 | 232 | 198 | 233 | 232 | 8.4% | |||||||||||
|
Fixed annuity |
36 | 34 | (29) | 36 | 29 |
-19.4% |
|||||||||||
|
||||||||||||||||||
|
Account Values |
|||||||||||||||||
|
Variable annuity account values: |
|||||||||||||||||
|
Average |
$ |
113,785 |
$ |
117,254 |
$ |
118,680 |
$ |
121,632 |
$ |
120,972 | 6.3% | ||||||
|
End-of-period |
116,514 | 119,005 | 118,424 | 125,492 | 108,689 |
-6.7% |
|||||||||||
|
Fixed annuity account values: |
|||||||||||||||||
|
Average |
13,400 | 14,421 | 15,242 | 16,185 | 16,950 | 26.5% | |||||||||||
|
End-of-period |
13,944 | 14,839 | 15,611 | 16,636 | 17,208 | 23.4% | |||||||||||
|
||||||||||||||||||
|
Page 13 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Retirement Plan Services – Select Earnings and Operational Data |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
As of or For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Income (Loss) from Operations |
|||||||||||||||||
|
Operating revenues: |
|||||||||||||||||
|
Fee income |
$ |
61 |
$ |
62 |
$ |
63 |
$ |
66 |
$ |
61 | 0.0% | ||||||
|
Net investment income |
226 | 231 | 229 | 239 | 229 | 1.3% | |||||||||||
|
Other revenues |
6 | 6 | 6 | 5 | 7 | 16.7% | |||||||||||
|
Total operating revenues |
293 | 299 | 298 | 310 | 297 | 1.4% | |||||||||||
|
Operating expenses: |
|||||||||||||||||
|
Interest credited |
145 | 145 | 147 | 148 | 150 | 3.4% | |||||||||||
|
Benefits |
- |
1 | 1 | 1 |
- |
NM |
|||||||||||
|
Commissions incurred |
19 | 19 | 20 | 20 | 19 | 0.0% | |||||||||||
|
Other expenses incurred |
85 | 83 | 80 | 86 | 82 |
-3.5% |
|||||||||||
|
Amounts capitalized |
(5) | (5) | (5) | (7) | (6) |
-20.0% |
|||||||||||
|
Amortization |
6 | 7 | 6 | 8 | 7 | 16.7% | |||||||||||
|
Total operating expenses |
250 | 250 | 249 | 256 | 252 | 0.8% | |||||||||||
|
Income (loss) from operations before taxes |
43 | 49 | 49 | 54 | 45 | 4.7% | |||||||||||
|
Federal income tax expense (benefit) |
4 | 7 | 5 | 7 | 5 | 25.0% | |||||||||||
|
Income (loss) from operations |
$ |
39 |
$ |
42 |
$ |
44 |
$ |
47 |
$ |
40 | 2.6% | ||||||
|
||||||||||||||||||
|
Effective Federal Income Tax Rate |
8.5% | 14.3% | 9.3% | 13.7% | 11.3% | ||||||||||||
|
||||||||||||||||||
|
Average Equity, Excluding Goodwill and AOCI |
$ |
1,402 |
$ |
1,429 |
$ |
1,447 |
$ |
1,440 |
$ |
1,415 | 0.9% | ||||||
|
||||||||||||||||||
|
ROE, Excluding Goodwill and AOCI |
11.2% | 11.7% | 12.2% | 13.0% | 11.2% | ||||||||||||
|
||||||||||||||||||
|
Pre-tax Net Margin |
29.1% | 31.7% | 32.4% | 33.6% | 30.4% | ||||||||||||
|
||||||||||||||||||
|
Return on Average Account Values |
22 | 23 | 24 | 25 | 21 | (1) | |||||||||||
|
||||||||||||||||||
|
Net Flows by Market |
|||||||||||||||||
|
Small Market |
189 | 25 | 117 | 118 | 141 |
-25.4% |
|||||||||||
|
Mid - Large Market |
(283) | 532 | 436 | 651 | 790 |
NM |
|||||||||||
|
Multi-Fund® and Other |
(287) | (250) | (281) | (347) | (260) | 9.4% | |||||||||||
|
||||||||||||||||||
|
Net Flows – Trailing Twelve Months |
$ |
1,702 |
$ |
1,510 |
$ |
371 |
$ |
620 |
$ |
1,672 |
-1.8% |
||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 14 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Life Insurance – Select Earnings and Operational Data |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
As of or For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Income (Loss) from Operations |
|||||||||||||||||
|
Operating revenues: |
|||||||||||||||||
|
Insurance premiums |
$ |
213 |
$ |
224 |
$ |
219 |
$ |
228 |
$ |
224 | 5.2% | ||||||
|
Fee income |
844 | 868 | 1,275 | 898 | 893 | 5.8% | |||||||||||
|
Net investment income |
643 | 707 | 601 | 706 | 697 | 8.4% | |||||||||||
|
Operating realized gain (loss) |
(3) | (2) | (1) | (1) | (3) | 0.0% | |||||||||||
|
Amortization of deferred gain on |
|||||||||||||||||
|
business sold through reinsurance |
- |
- |
- |
- |
3 |
NM |
|||||||||||
|
Other revenues |
3 | 5 | 4 | 7 | 7 | 133.3% | |||||||||||
|
Total operating revenues |
1,700 | 1,802 | 2,098 | 1,838 | 1,821 | 7.1% | |||||||||||
|
Operating expenses: |
|||||||||||||||||
|
Interest credited |
354 | 355 | 360 | 364 | 371 | 4.8% | |||||||||||
|
Benefits |
902 | 913 | 1,426 | 942 | 954 | 5.8% | |||||||||||
|
Commissions incurred |
186 | 197 | 212 | 337 | 191 | 2.7% | |||||||||||
|
Other expenses incurred |
212 | 214 | 215 | 256 | 209 |
-1.4% |
|||||||||||
|
Amounts capitalized |
(220) | (232) | (246) | (397) | (216) | 1.8% | |||||||||||
|
Amortization |
71 | 148 | 449 | 114 | 103 | 45.1% | |||||||||||
|
Total operating expenses |
1,505 | 1,595 | 2,416 | 1,616 | 1,612 | 7.1% | |||||||||||
|
Income (loss) from operations before taxes |
195 | 207 | (318) | 222 | 209 | 7.2% | |||||||||||
|
Federal income tax expense (benefit) |
38 | 39 | (73) | 43 | 38 | 0.0% | |||||||||||
|
Income (loss) from operations |
$ |
157 |
$ |
168 |
$ |
(245) |
$ |
179 |
$ |
171 | 8.9% | ||||||
|
||||||||||||||||||
|
Effective Federal Income Tax Rate |
19.6% | 19.1% | 22.9% | 19.2% | 18.1% | ||||||||||||
|
||||||||||||||||||
|
Average Equity, Excluding Goodwill and AOCI |
$ |
8,399 |
$ |
8,697 |
$ |
8,601 |
$ |
8,502 |
$ |
8,798 | 4.8% | ||||||
|
||||||||||||||||||
|
ROE, Excluding Goodwill and AOCI |
7.5% | 7.7% |
-11.4% |
8.4% | 7.8% | ||||||||||||
|
||||||||||||||||||
|
Average Account Values |
$ |
50,355 |
$ |
51,495 |
$ |
52,050 |
$ |
53,243 |
$ |
52,866 | 5.0% | ||||||
|
||||||||||||||||||
|
In-Force Face Amount |
|||||||||||||||||
|
UL and other |
$ |
346,292 |
$ |
347,674 |
$ |
348,836 |
$ |
357,726 |
$ |
356,889 | 3.1% | ||||||
|
Term insurance |
416,789 | 433,706 | 451,117 | 472,050 | 486,311 | 16.7% | |||||||||||
|
Total in-force face amount |
$ |
763,081 |
$ |
781,380 |
$ |
799,953 |
$ |
829,776 |
$ |
843,200 | 10.5% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 15 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Group Protection – Select Earnings and Operational Data |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Income (Loss) from Operations |
|||||||||||||||||
|
Operating revenues: |
|||||||||||||||||
|
Insurance premiums |
$ |
1,023 |
$ |
1,032 |
$ |
1,024 |
$ |
1,035 |
$ |
1,094 | 6.9% | ||||||
|
Net investment income |
74 | 81 | 72 | 81 | 81 | 9.5% | |||||||||||
|
Other revenues |
41 | 42 | 41 | 42 | 49 | 19.5% | |||||||||||
|
Total operating revenues |
1,138 | 1,155 | 1,137 | 1,158 | 1,224 | 7.6% | |||||||||||
|
Operating expenses: |
|||||||||||||||||
|
Interest credited |
1 | 1 | 2 | 1 | 2 | 100.0% | |||||||||||
|
Benefits |
753 | 758 | 756 | 768 | 862 | 14.5% | |||||||||||
|
Commissions incurred |
92 | 92 | 88 | 95 | 87 |
-5.4% |
|||||||||||
|
Other expenses incurred |
203 | 208 | 212 | 232 | 200 |
-1.5% |
|||||||||||
|
Amounts capitalized |
(23) | (20) | (29) | (38) | (19) | 17.4% | |||||||||||
|
Amortization |
42 | 30 | 30 | 32 | 42 | 0.0% | |||||||||||
|
Total operating expenses |
1,068 | 1,069 | 1,059 | 1,090 | 1,174 | 9.9% | |||||||||||
|
Income (loss) from operations before taxes |
70 | 86 | 78 | 68 | 50 |
-28.6% |
|||||||||||
|
Federal income tax expense (benefit) |
15 | 18 | 17 | 14 | 10 |
-33.3% |
|||||||||||
|
Income (loss) from operations |
$ |
55 |
$ |
68 |
$ |
61 |
$ |
54 |
$ |
40 |
-27.3% |
||||||
|
||||||||||||||||||
|
Effective Federal Income Tax Rate |
21.0% | 21.0% | 21.0% | 21.0% | 21.0% | ||||||||||||
|
||||||||||||||||||
|
Average Equity, Excluding Goodwill and AOCI |
$ |
2,165 |
$ |
2,360 |
$ |
2,492 |
$ |
2,554 |
$ |
2,601 | 20.1% | ||||||
|
||||||||||||||||||
|
ROE, Excluding Goodwill and AOCI |
10.1% | 11.5% | 9.9% | 8.4% | 6.1% | ||||||||||||
|
||||||||||||||||||
|
Loss Ratios by Product Line |
|||||||||||||||||
|
Life |
71.4% | 71.2% | 70.5% | 65.7% | 79.4% | ||||||||||||
|
Disability |
75.4% | 74.9% | 76.4% | 80.5% | 78.3% | ||||||||||||
|
Dental |
72.2% | 75.0% | 73.4% | 70.7% | 74.6% | ||||||||||||
|
Total |
73.7% | 73.6% | 74.1% | 74.4% | 78.5% | ||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 16 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Other Operations – Select Earnings and Operational Data |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Other Operations |
|||||||||||||||||
|
Operating revenues: |
|||||||||||||||||
|
Insurance premiums |
$ |
2 |
$ |
5 |
$ |
3 |
$ |
4 |
$ |
2 | 0.0% | ||||||
|
Net investment income |
51 | 50 | 46 | 46 | 42 |
-17.6% |
|||||||||||
|
Other revenues |
4 | 3 | 1 | 4 | (6) |
NM |
|||||||||||
|
Total operating revenues |
57 | 58 | 50 | 54 | 38 |
-33.3% |
|||||||||||
|
Operating expenses: |
|||||||||||||||||
|
Interest credited |
15 | 15 | 14 | 14 | 12 |
-20.0% |
|||||||||||
|
Benefits |
20 | 25 | 42 | 23 | 16 |
-20.0% |
|||||||||||
|
Commissions and other expenses |
24 | 18 | 5 | 17 | (22) |
NM |
|||||||||||
|
Interest and debt expenses |
71 | 70 | 71 | 72 | 68 |
-4.2% |
|||||||||||
|
Strategic digitization expense |
15 | 15 | 16 | 18 | 12 |
-20.0% |
|||||||||||
|
Total operating expenses |
145 | 143 | 148 | 144 | 86 |
-40.7% |
|||||||||||
|
Income (loss) from operations before taxes |
(88) | (85) | (98) | (90) | (48) | 45.5% | |||||||||||
|
Federal income tax expense (benefit) |
(28) | (19) | (23) | (23) | (1) | 96.4% | |||||||||||
|
Income (loss) from operations |
$ |
(60) |
$ |
(66) |
$ |
(75) |
$ |
(67) |
$ |
(47) | 21.7% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 17 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Consolidated – DAC, VOBA, DSI and DFEL Roll Forwards |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
DAC, VOBA and DSI |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
10,512 |
$ |
9,689 |
$ |
8,832 |
$ |
7,731 |
$ |
7,928 |
-24.6% |
||||||
|
Business acquired (sold) through reinsurance |
- |
- |
- |
- |
(10) |
NM |
|||||||||||
|
Cumulative effect from adoption of new accounting standard |
- |
- |
- |
- |
5 |
NM |
|||||||||||
|
Deferrals |
406 | 427 | 459 | 643 | 435 | 7.1% | |||||||||||
|
Operating amortization |
(209) | (279) | (604) | (262) | (243) |
-16.3% |
|||||||||||
|
Deferrals, net of operating amortization |
197 | 148 | (145) | 381 | 192 |
-2.5% |
|||||||||||
|
Amortization associated with benefit ratio unlocking |
(25) | (7) | 3 | (16) | 66 |
NM |
|||||||||||
|
Adjustment related to realized (gains) losses |
31 | 11 | (9) | 22 | 58 | 87.1% | |||||||||||
|
Adjustment related to unrealized (gains) losses |
(1,026) | (1,009) | (950) | (190) | 1,218 | 218.7% | |||||||||||
|
Balance as of end-of-period |
$ |
9,689 |
$ |
8,832 |
$ |
7,731 |
$ |
7,928 |
$ |
9,457 |
-2.4% |
||||||
|
||||||||||||||||||
|
DFEL |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
2,769 |
$ |
2,203 |
$ |
1,647 |
$ |
482 |
$ |
650 |
-76.5% |
||||||
|
Cumulative effect from adoption of new accounting standard |
- |
- |
- |
- |
4 |
NM |
|||||||||||
|
Deferrals |
217 | 245 | 264 | 368 | 240 | 10.6% | |||||||||||
|
Operating amortization |
(112) | (142) | (547) | (163) | (160) |
-42.9% |
|||||||||||
|
Deferrals, net of operating amortization |
105 | 103 | (283) | 205 | 80 |
-23.8% |
|||||||||||
|
Amortization associated with benefit ratio unlocking |
(3) | (1) |
- |
(2) | 8 |
NM |
|||||||||||
|
Adjustment related to realized (gains) losses |
3 | (3) | (3) | 3 | 17 |
NM |
|||||||||||
|
Adjustment related to unrealized (gains) losses |
(671) | (655) | (879) | (38) | 620 | 192.4% | |||||||||||
|
Balance as of end-of-period |
$ |
2,203 |
$ |
1,647 |
$ |
482 |
$ |
650 |
$ |
1,379 |
-37.4% |
||||||
|
||||||||||||||||||
|
DAC, VOBA, DSI and DFEL |
|||||||||||||||||
|
Balance as of End-of-Period, After-Tax |
$ |
5,914 |
$ |
5,676 |
$ |
5,727 |
$ |
5,750 |
$ |
6,382 | 7.9% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 18 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Annuities – Account Value Roll Forwards |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Fixed Annuities |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
21,666 |
$ |
22,941 |
$ |
23,836 |
$ |
24,448 |
$ |
25,384 | 17.2% | ||||||
|
Gross deposits |
1,584 | 1,298 | 1,027 | 1,176 | 1,058 |
-33.2% |
|||||||||||
|
Full surrenders and deaths |
(469) | (501) | (441) | (355) | (400) | 14.7% | |||||||||||
|
Other contract benefits |
(151) | (135) | (145) | (170) | (156) |
-3.3% |
|||||||||||
|
Net flows |
964 | 662 | 441 | 651 | 502 |
-47.9% |
|||||||||||
|
Contract holder assessments |
(8) | (10) | (10) | (11) | (13) |
-62.5% |
|||||||||||
|
Reinvested interest credited |
319 | 243 | 181 | 296 | (133) |
NM |
|||||||||||
|
Balance as of end-of-period, gross |
22,941 | 23,836 | 24,448 | 25,384 | 25,740 | 12.2% | |||||||||||
|
Reinsurance ceded |
(8,997) | (8,997) | (8,837) | (8,748) | (8,532) | 5.2% | |||||||||||
|
Balance as of end-of-period, net |
$ |
13,944 |
$ |
14,839 |
$ |
15,611 |
$ |
16,636 |
$ |
17,208 | 23.4% | ||||||
|
||||||||||||||||||
|
Variable Annuities |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
108,536 |
$ |
116,514 |
$ |
119,005 |
$ |
118,424 |
$ |
125,492 | 15.6% | ||||||
|
Gross deposits |
1,924 | 2,356 | 2,434 | 2,726 | 2,639 | 37.2% | |||||||||||
|
Full surrenders and deaths |
(1,458) | (1,722) | (1,711) | (1,642) | (1,602) |
-9.9% |
|||||||||||
|
Other contract benefits |
(938) | (919) | (911) | (1,006) | (1,011) |
-7.8% |
|||||||||||
|
Net flows |
(472) | (285) | (188) | 78 | 26 | 105.5% | |||||||||||
|
Contract holder assessments |
(601) | (619) | (636) | (638) | (632) |
-5.2% |
|||||||||||
|
Change in market value and reinvestment |
9,051 | 3,395 | 243 | 7,628 | (16,197) |
NM |
|||||||||||
|
Balance as of end-of-period, gross and net |
$ |
116,514 |
$ |
119,005 |
$ |
118,424 |
$ |
125,492 |
$ |
108,689 |
-6.7% |
||||||
|
||||||||||||||||||
|
Total |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
130,202 |
$ |
139,455 |
$ |
142,841 |
$ |
142,872 |
$ |
150,876 | 15.9% | ||||||
|
Gross deposits |
3,508 | 3,654 | 3,461 | 3,902 | 3,697 | 5.4% | |||||||||||
|
Full surrenders and deaths |
(1,927) | (2,223) | (2,152) | (1,997) | (2,002) |
-3.9% |
|||||||||||
|
Other contract benefits |
(1,089) | (1,054) | (1,056) | (1,176) | (1,167) |
-7.2% |
|||||||||||
|
Net flows |
492 | 377 | 253 | 729 | 528 | 7.3% | |||||||||||
|
Contract holder assessments |
(609) | (629) | (646) | (649) | (645) |
-5.9% |
|||||||||||
|
Change in market value and reinvestment |
9,370 | 3,638 | 424 | 7,924 | (16,330) |
NM |
|||||||||||
|
Balance as of end-of-period, gross |
139,455 | 142,841 | 142,872 | 150,876 | 134,429 |
-3.6% |
|||||||||||
|
Reinsurance ceded |
(8,997) | (8,997) | (8,837) | (8,748) | (8,532) | 5.2% | |||||||||||
|
Balance as of end-of-period, net |
$ |
130,458 |
$ |
133,844 |
$ |
134,035 |
$ |
142,128 |
$ |
125,897 |
-3.5% |
||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 19 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Retirement Plan Services – Account Value Roll Forwards |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
General Account |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
19,766 |
$ |
19,914 |
$ |
20,076 |
$ |
20,337 |
$ |
20,558 | 4.0% | ||||||
|
Gross deposits |
458 | 393 | 469 | 663 | 609 | 33.0% | |||||||||||
|
Withdrawals |
(519) | (470) | (490) | (682) | (565) |
-8.9% |
|||||||||||
|
Net flows |
(61) | (77) | (21) | (19) | 44 | 172.1% | |||||||||||
|
Transfers between fixed and variable accounts |
70 | 97 | 136 | 94 | 587 |
NM |
|||||||||||
|
Contract holder assessments |
(3) | (3) | (3) | (3) | (3) | 0.0% | |||||||||||
|
Reinvestment interest credited |
142 | 145 | 149 | 149 | 149 | 4.9% | |||||||||||
|
Balance as of end-of-period |
$ |
19,914 |
$ |
20,076 |
$ |
20,337 |
$ |
20,558 |
$ |
21,335 | 7.1% | ||||||
|
||||||||||||||||||
|
Separate Account and Mutual Funds |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
47,289 |
$ |
51,885 |
$ |
53,938 |
$ |
54,227 |
$ |
58,131 | 22.9% | ||||||
|
Gross deposits |
2,038 | 1,680 | 1,765 | 2,000 | 2,170 | 6.5% | |||||||||||
|
Withdrawals |
(2,358) | (1,296) | (1,472) | (1,559) | (1,543) | 34.6% | |||||||||||
|
Net flows |
(320) | 384 | 293 | 441 | 627 | 295.9% | |||||||||||
|
Transfers between fixed and variable accounts |
(210) | (141) | (190) | (171) | (610) |
NM |
|||||||||||
|
Contract holder assessments |
(51) | (52) | (54) | (55) | (54) |
-5.9% |
|||||||||||
|
Change in market value and reinvestment |
5,177 | 1,862 | 240 | 3,689 | (9,793) |
NM |
|||||||||||
|
Balance as of end-of-period |
$ |
51,885 |
$ |
53,938 |
$ |
54,227 |
$ |
58,131 |
$ |
48,301 |
-6.9% |
||||||
|
||||||||||||||||||
|
Total |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
67,055 |
$ |
71,799 |
$ |
74,014 |
$ |
74,564 |
$ |
78,689 | 17.3% | ||||||
|
Gross deposits |
2,496 | 2,073 | 2,234 | 2,663 | 2,779 | 11.3% | |||||||||||
|
Withdrawals |
(2,877) | (1,766) | (1,962) | (2,241) | (2,108) | 26.7% | |||||||||||
|
Net flows |
(381) | 307 | 272 | 422 | 671 | 276.1% | |||||||||||
|
Transfers between fixed and variable accounts |
(140) | (44) | (54) | (77) | (23) | 83.6% | |||||||||||
|
Contract holder assessments |
(54) | (55) | (57) | (58) | (57) |
-5.6% |
|||||||||||
|
Change in market value and reinvestment |
5,319 | 2,007 | 389 | 3,838 | (9,644) |
NM |
|||||||||||
|
Balance as of end-of-period |
$ |
71,799 |
$ |
74,014 |
$ |
74,564 |
$ |
78,689 |
$ |
69,636 |
-3.0% |
||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
8 |
Page 20 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Life Insurance – Account Value Roll Forwards |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
General Account |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
37,289 |
$ |
37,275 |
$ |
37,438 |
$ |
37,582 |
$ |
38,141 | 2.3% | ||||||
|
Deposits |
1,027 | 1,117 | 1,137 | 1,525 | 996 |
-3.0% |
|||||||||||
|
Withdrawals and deaths |
(331) | (195) | (243) | (156) | (380) |
-14.8% |
|||||||||||
|
Net flows |
696 | 922 | 894 | 1,369 | 616 |
-11.5% |
|||||||||||
|
Contract holder assessments |
(1,043) | (1,107) | (1,094) | (1,184) | (1,075) |
-3.1% |
|||||||||||
|
Reinvested interest credited |
333 | 348 | 344 | 374 | 372 | 11.7% | |||||||||||
|
Balance as of end-of-period, gross |
37,275 | 37,438 | 37,582 | 38,141 | 38,054 | 2.1% | |||||||||||
|
Reinsurance ceded |
(669) | (666) | (660) | (656) | (649) | 3.0% | |||||||||||
|
Balance as of end-of-period, net |
$ |
36,606 |
$ |
36,772 |
$ |
36,922 |
$ |
37,485 |
$ |
37,405 | 2.2% | ||||||
|
||||||||||||||||||
|
Separate Account |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
13,735 |
$ |
15,346 |
$ |
15,941 |
$ |
16,136 |
$ |
17,646 | 28.5% | ||||||
|
Deposits |
510 | 566 | 548 | 888 | 454 |
-11.0% |
|||||||||||
|
Withdrawals and deaths |
(186) | (271) | (215) | (300) | (107) | 42.5% | |||||||||||
|
Net flows |
324 | 295 | 333 | 588 | 347 | 7.1% | |||||||||||
|
Contract holder assessments |
(193) | (195) | (197) | (230) | (204) |
-5.7% |
|||||||||||
|
Change in market value and reinvestment |
1,480 | 495 | 59 | 1,152 | (3,007) |
NM |
|||||||||||
|
Balance as of end-of-period, gross |
15,346 | 15,941 | 16,136 | 17,646 | 14,782 |
-3.7% |
|||||||||||
|
Reinsurance ceded |
(832) | (844) | (829) | (876) | (712) | 14.4% | |||||||||||
|
Balance as of end-of-period, net |
$ |
14,514 |
$ |
15,097 |
$ |
15,307 |
$ |
16,770 |
$ |
14,070 |
-3.1% |
||||||
|
||||||||||||||||||
|
Total |
|||||||||||||||||
|
Balance as of beginning-of-period |
$ |
51,024 |
$ |
52,621 |
$ |
53,379 |
$ |
53,718 |
$ |
55,787 | 9.3% | ||||||
|
Deposits |
1,537 | 1,683 | 1,685 | 2,413 | 1,450 |
-5.7% |
|||||||||||
|
Withdrawals and deaths |
(517) | (466) | (458) | (456) | (487) | 5.8% | |||||||||||
|
Net flows |
1,020 | 1,217 | 1,227 | 1,957 | 963 |
-5.6% |
|||||||||||
|
Contract holder assessments |
(1,236) | (1,302) | (1,291) | (1,414) | (1,279) |
-3.5% |
|||||||||||
|
Change in market value and reinvestment |
1,813 | 843 | 403 | 1,526 | (2,635) |
NM |
|||||||||||
|
Balance as of end-of-period, gross |
52,621 | 53,379 | 53,718 | 55,787 | 52,836 | 0.4% | |||||||||||
|
Reinsurance ceded |
(1,501) | (1,510) | (1,489) | (1,532) | (1,361) | 9.3% | |||||||||||
|
Balance as of end-of-period, net |
$ |
51,120 |
$ |
51,869 |
$ |
52,229 |
$ |
54,255 |
$ |
51,475 | 0.7% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 21 |
|
Lincoln Financial Group |
||||||||||||||||||
|
Select Investment Data |
||||||||||||||||||
|
Unaudited (millions of dollars) |
||||||||||||||||||
|
|||||||||||||||||||
|
As of 3/31/19 |
As of 12/31/19 |
As of 3/31/20 |
||||||||||||||||
|
Amount |
% |
Amount |
% |
Amount |
% |
|||||||||||||
|
Fixed Maturity AFS, Trading and Equity Securities, at Fair Value |
||||||||||||||||||
|
Fixed maturity AFS securities, net of ACL: |
||||||||||||||||||
|
Corporate bonds |
$ |
83,208 | 82.0% |
$ |
88,716 | 80.7% |
$ |
85,797 | 80.3% | |||||||||
|
U.S. government bonds |
423 | 0.4% | 435 | 0.4% | 482 | 0.5% | ||||||||||||
|
State and municipal bonds |
5,569 | 5.5% | 5,884 | 5.4% | 5,906 | 5.5% | ||||||||||||
|
Foreign government bonds |
453 | 0.4% | 393 | 0.4% | 389 | 0.4% | ||||||||||||
|
Residential mortgage-backed securities |
3,414 | 3.4% | 3,241 | 2.9% | 3,271 | 3.1% | ||||||||||||
|
Commercial mortgage-backed securities |
885 | 0.9% | 1,083 | 1.0% | 1,119 | 1.0% | ||||||||||||
|
Asset-backed securities |
3,484 | 3.4% | 4,889 | 4.4% | 5,086 | 4.8% | ||||||||||||
|
Hybrid and redeemable preferred securities |
614 | 0.6% | 559 | 0.5% | 556 | 0.5% | ||||||||||||
|
Total fixed maturity AFS securities, net of ACL |
98,050 | 96.5% | 105,200 | 95.7% | 102,606 | 96.1% | ||||||||||||
|
Trading securities |
3,314 | 3.3% | 4,673 | 4.2% | 4,019 | 3.8% | ||||||||||||
|
Equity securities |
153 | 0.2% | 103 | 0.1% | 83 | 0.1% | ||||||||||||
|
Total fixed maturity AFS securities, net of ACL, and trading and equity securities |
$ |
101,517 | 100.0% |
$ |
109,976 | 100.0% |
$ |
106,708 | 100.0% | |||||||||
|
|||||||||||||||||||
|
Fixed Maturity AFS, Trading and Equity Securities, at Amortized Cost |
||||||||||||||||||
|
Fixed maturity AFS securities |
$ |
92,894 | 96.6% |
$ |
94,295 | 95.8% |
$ |
96,217 | 96.1% | |||||||||
|
Trading securities |
3,115 | 3.2% | 4,005 | 4.1% | 3,790 | 3.8% | ||||||||||||
|
Equity securities |
164 | 0.2% | 123 | 0.1% | 121 | 0.1% | ||||||||||||
|
Total fixed maturity AFS, trading and equity securities |
$ |
96,173 | 100.0% |
$ |
98,423 | 100.0% |
$ |
100,128 | 100.0% | |||||||||
|
|||||||||||||||||||
|
Percentage of Fixed Maturity AFS Securities, at Amortized Cost |
||||||||||||||||||
|
Investment grade |
96.1% | 96.3% | 95.8% | |||||||||||||||
|
Below investment grade |
3.9% | 3.7% | 4.2% | |||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
|||||||||||||||||||
|
Page 22 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Realized Gain (Loss) and Benefit Ratio Unlocking, After-DAC |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Components of Realized Gain (Loss), Pre-Tax |
|||||||||||||||||
|
Total adjusted operating realized gain (loss) |
$ |
38 |
$ |
44 |
$ |
50 |
$ |
52 |
$ |
51 | 34.2% | ||||||
|
Total excluded realized gain (loss) |
(400) | (161) | (61) | (171) | (75) | 81.3% | |||||||||||
|
Total realized gain (loss), pre-tax |
$ |
(362) |
$ |
(117) |
$ |
(11) |
$ |
(119) |
$ |
(24) | 93.4% | ||||||
|
||||||||||||||||||
|
Reconciliation of Excluded Realized Gain (Loss) |
|||||||||||||||||
|
Net of Benefit Ratio Unlocking, After-Tax |
|||||||||||||||||
|
Total excluded realized gain (loss) |
$ |
(316) |
$ |
(128) |
$ |
(49) |
$ |
(135) |
$ |
(60) | 81.0% | ||||||
|
Benefit ratio unlocking |
142 | 46 | (2) | 91 | (349) |
NM |
|||||||||||
|
Excluded realized gain (loss) net of |
|||||||||||||||||
|
benefit ratio unlocking, after-tax |
$ |
(174) |
$ |
(82) |
$ |
(51) |
$ |
(44) |
$ |
(409) |
NM |
||||||
|
||||||||||||||||||
|
Components of Excluded Realized Gain (Loss) Net |
|||||||||||||||||
|
of Benefit Ratio Unlocking, After-Tax |
|||||||||||||||||
|
Credit loss expense on mortgage loans on real estate |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
(51) |
NM |
||||||
|
Credit loss expense on other financial assets |
- |
- |
- |
- |
(16) |
NM |
|||||||||||
|
OTTI |
(6) | (3) | (2) | (1) |
- |
100.0% | |||||||||||
|
Realized gain (loss) related to certain financial assets |
(15) | (7) | (12) | (11) | 13 | 188.6% | |||||||||||
|
Gain (loss) on the mark-to-market on equity investments |
5 | 1 | (14) | 6 | (14) |
NM |
|||||||||||
|
Gain (loss) on the mark-to-market on certain instruments |
(94) | (28) | 19 | 9 | 38 | 140.4% | |||||||||||
|
Realized gain (loss) related to financial assets, after-tax |
(110) | (37) | (9) | 3 | (30) | 72.7% | |||||||||||
|
Variable annuity net derivative results: |
|||||||||||||||||
|
Hedge program performance, including unlocking |
|||||||||||||||||
|
for GLB reserves hedged |
(15) | (19) | (65) | 2 | (496) |
NM |
|||||||||||
|
GLB non-performance risk component |
(27) | (2) | 43 | (55) | 147 |
NM |
|||||||||||
|
Total variable annuity net derivative results |
(42) | (21) | (22) | (53) | (349) |
NM |
|||||||||||
|
Indexed annuity forward-starting option |
(22) | (24) | (20) | 6 | (30) |
-36.4% |
|||||||||||
|
Excluded realized gain (loss) net of |
|||||||||||||||||
|
benefit ratio unlocking, after-tax |
$ |
(174) |
$ |
(82) |
$ |
(51) |
$ |
(44) |
$ |
(409) |
NM |
||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 23 |
|
Lincoln Financial Group |
|||||||||||||||||
|
Select GAAP to Non-GAAP Reconciliations |
|||||||||||||||||
|
Unaudited (millions of dollars) |
|||||||||||||||||
|
||||||||||||||||||
|
For the Three Months Ended |
|||||||||||||||||
|
3/31/19 |
6/30/19 |
9/30/19 |
12/31/19 |
3/31/20 |
Change |
||||||||||||
|
Revenues |
|||||||||||||||||
|
Total revenues |
$ |
3,965 |
$ |
4,310 |
$ |
4,638 |
$ |
4,344 |
$ |
4,425 | 11.6% | ||||||
|
Less: |
|||||||||||||||||
|
Excluded realized gain (loss) |
(400) | (161) | (61) | (171) | (75) | 81.3% | |||||||||||
|
Amortization of DFEL associated with |
|||||||||||||||||
|
benefit ratio unlocking |
3 | 1 | (1) | 2 | (9) |
NM |
|||||||||||
|
Adjusted operating revenues |
$ |
4,362 |
$ |
4,470 |
$ |
4,700 |
$ |
4,513 |
$ |
4,509 | 3.4% | ||||||
|
||||||||||||||||||
|
Net Income |
|||||||||||||||||
|
Net income (loss) |
$ |
252 |
$ |
363 |
$ |
(161) |
$ |
431 |
$ |
52 |
-79.4% |
||||||
|
Less: |
|||||||||||||||||
|
Excluded realized gain (loss), after-tax |
(316) | (128) | (49) | (135) | (60) | 81.0% | |||||||||||
|
Benefit ratio unlocking, after-tax |
142 | 46 | (2) | 91 | (349) |
NM |
|||||||||||
|
Net impact from the Tax Cuts and Jobs Act |
- |
- |
- |
17 |
- |
NM |
|||||||||||
|
Acquisition and integration costs related to |
|||||||||||||||||
|
mergers and acquisitions, after-tax |
(15) | (33) | (31) | (24) | (4) | 73.3% | |||||||||||
|
Gain (loss) on early extinguishment of debt, after-tax |
- |
- |
(33) |
- |
- |
NM |
|||||||||||
|
Total adjustments |
(189) | (115) | (115) | (51) | (413) |
NM |
|||||||||||
|
Adjusted income (loss) from operations |
$ |
441 |
$ |
478 |
$ |
(46) |
$ |
482 |
$ |
465 | 5.4% | ||||||
|
||||||||||||||||||
|
Earnings (Loss) Per Common Share – Diluted |
|||||||||||||||||
|
Net income (loss) |
$ |
1.22 |
$ |
1.79 |
$ |
(0.83) |
$ |
2.15 |
$ |
0.15 |
-87.7% |
||||||
|
Less: |
|||||||||||||||||
|
Excluded realized gain (loss), after-tax |
(1.54) | (0.63) | (0.24) | (0.68) | (0.30) | 80.5% | |||||||||||
|
Benefit ratio unlocking, after-tax |
0.69 | 0.22 | (0.01) | 0.46 | (1.77) |
NM |
|||||||||||
|
Net impact from the Tax Cuts and Jobs Act |
- |
- |
- |
0.08 |
- |
NM |
|||||||||||
|
Acquisition and integration costs related to mergers |
|||||||||||||||||
|
and acquisitions, after-tax |
(0.07) | (0.16) | (0.16) | (0.12) | (0.02) | 71.4% | |||||||||||
|
Gain (loss) on early extinguishment of debt, after-tax |
- |
- |
(0.17) |
- |
- |
NM |
|||||||||||
|
Adjusted income (loss) from operations |
$ |
2.14 |
$ |
2.36 |
$ |
(0.25) |
$ |
2.41 |
$ |
2.24 | 4.7% | ||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
||||||||||||||||||
|
Page 24 |
This document may not be accurate after its date, and LNC does not undertake to update or keep it accurate after such date. First Quarter 2020 Investment Portfolio Supplement May 6, 2020
Forward looking statements –cautionary language Certain statements made in this presentation and in other written or oral statements made by Lincoln or on Lincoln's behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These forward-looking statements are intended to enhance the reader’s ability to assess our future financial performance. 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 Lincoln's businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. Lincoln claims 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; •Continued deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels and claims experience; •Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; •Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; •Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries' products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees; the impact of U.S. Federal tax reform legislation on our business, earnings and capital; and the impact of any “best interest” standards of care adopted by the Securities and Exchange Commission (“SEC”) or other regulations adopted by federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker dealers; •Actions taken by reinsurers to raise rates on in-force business; •Continued declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits 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; •Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and the financial services sector in particular; •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 continued decline in the equity markets causing a reduction in the sales of our subsidiaries' products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs ("DAC"), value of business acquired("VOBA"), deferred sales inducements ("DSI") and deferred front-end loads ("DFEL"); and an increase in liabilities related to guaranteed benefit features of our subsidiaries' variable annuity products; •Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
Forward looking statements –cautionary language (contd.) •A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries' products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; •Changes in accounting principles that may affect our financial statements; •Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; •Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; •Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk requiring that we realize losses on financial assets; •Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; •Interruption in telecommunication, information technology or other operational systems, or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; •The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including the successful implementation of integration strategies or the achievement of anticipated synergies and operational efficiencies related to an acquisition; •The adequacy and collectability of reinsurance that we have purchased; •The continuation of the COVID-19 pandemic, or future outbreaks of COVID-19 or other 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 our subsidiaries can charge for their products; •The unknown effect on our subsidiaries' 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. Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, Lincoln disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this presentation. The reporting of Risk Based Capital (“RBC”) measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.
Special note regarding data • All information regarding LNC’s investment portfolio excludes assets related to certain modified coinsurance (“Modco”) transactions. The Modco investment portfolio has counterparty protections in place including investment guidelines, as well as additional support through over-collateralization and a letter of credit that were established to meet LNC’s risk management objectives.
Investment portfolio: Diversified and high-quality Diversified across asset classes, sectors and issuers Mortgage loans14% Consumernoncyclical12% Financials12% Utilities11% Structured8% Other(1)7% Capital goods6% Energy5% Consumer cyclical4% Municipal4% Basic industry4% Communications4% Technology3% Transportation3% Alts2% Industrial other, 1% $119B invested assets High-quality portfolio NAIC 1(AAA-A)58% NAIC 2 (BBB)38% NAIC 3-6 (BB and below) 4% 96% investment grade(2) (1) Other asset classes primarily include: quasi-sovereign, cash/collateral, and UST/agency. (2) As a % of rated assets including rated CML assets where CM1=NAIC 1, CM2=NAIC 2, CM3=NAIC 3. Data as of 3/31/2020.
Since 1Q15: Repositioned the portfolio to prepare for next credit cycle New money allocation and de-risking actions reduced BBB-and BIG exposure BBB-as % of rated assets 1Q15 9.3% 1Q20 7.9%(1) BIG as % of rated assets 1Q15 5.3% 1Q20 4.3% Lowered energy exposure Reduced and shifted the mix to subsectors generally less impacted by oil prices 1Q15 Integrated 1.6% Midstream 2.9% Independent and oil field services 5.3% refining 0.2% 1Q20 Integrated 1.0% Midstream 2.2% Independent and oil field services 1.7% refining 0.1% De-risking based on name by name scenario analysis 1Q15 –1Q20 Book value of sales since 1Q15 Total $5.2B~70% of sales were rated BBB-and below 1Q15-4Q18 $3.5B 1Q19-1Q20 $1.7B Data as of 3/31/2015 and 3/31/2020. (1) BBB-exposure was 7.4% of rated assets as of 12/31/2019. (2) BIG exposure was 3.8% of rated assets as of 12/31/2019. 10% 5%
Corporates: Key sectors in focus Energy: $6.0B Midstream43% Independent26% Integrated20% Oil field services 8% Refining, 3% •Reduced energy allocation by ~50% since 1Q15 •63% of energy holdings are in midstream or integrated •91% investment grade Consumer cyclical: $5.3B Retailer34% Auto21% Consumer cyclical services18% Leisure11% Restaurants9% Lodging4% Gaming2% Home construction1% •Sector exposure is well diversified across 140+ issuers with an average position size of $37M •91% investment grade Data as of 3/31/2020.
Other asset classes in focus Collateralized loan obligations (CLO): $3.9B AAA70% AA27% A3% •High-quality portfolio–100% of CLO holdings are NAIC 1–A-Rated CLO holdings are 3% of total CLO portfolio or $135M Commercial mortgage loans (CML): $15.4B Apartment33% Office25% Industrial19% Retail17% Mixed use/ other5% Hotel, <1% •High-quality portfolio –85% CM1 rated; minimal CM3 rated: 0.2%–48% average LTV and 2.4x DSC •Portfolio consists of 17% retail and less than 1% hotel Data as of 3/31/2020.
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