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SECURITIES AND EXCHANGE COMMISSION
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Indiana | 35-1140070 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania | 19087 | |
(Address of principal executive offices) | (Zip Code) |
Title of each class | Name of each exchange on which registered | |
Common Stock | New York and Chicago | |
$3.00 Cumulative Convertible Preferred Stock, Series A | New York and Chicago | |
6.75% Capital Securities | New York | |
6.75% Trust Preferred Securities, Series F(1) | New York |
(1) | Issued by Lincoln National Capital VI. Payments of distributions and payments on liquidation or redemption are guaranteed by Lincoln National Corporation. |
Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller reporting companyo |
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Business | Corresponding Segments | |
Retirement Solutions | Annuities | |
Defined Contribution (formerly Retirement Products) | ||
Insurance Solutions | Life Insurance (including Executive Benefits business) | |
Group Protection | ||
Investment Management | Investment Management | |
Lincoln UK | Lincoln UK |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Operating revenues: | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | 2,610 | $ | 2,533 | $ | 2,060 | ||||||
Defined Contribution | 936 | 986 | 988 | |||||||||
Total Retirement Solutions | 3,546 | 3,519 | 3,048 | |||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 4,250 | 4,189 | 3,470 | |||||||||
Group Protection | 1,640 | 1,500 | 1,032 | |||||||||
Total Insurance Solutions | 5,890 | 5,689 | 4,502 | |||||||||
Investment Management | 438 | 590 | 564 | |||||||||
Lincoln UK | 327 | 370 | 308 | |||||||||
Other Operations | 439 | 473 | 444 | |||||||||
Excluded realized gain (loss), pre-tax | (760 | ) | (175 | ) | 12 | |||||||
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax | 3 | 9 | 1 | |||||||||
Total revenues | $ | 9,883 | $ | 10,475 | $ | 8,879 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Deposits | ||||||||||||
Variable portion of variable annuity | $ | 6,690 | $ | 9,135 | $ | 7,251 | ||||||
Fixed portion of variable annuity | 3,433 | 2,795 | 2,090 | |||||||||
Total variable annuity | 10,123 | 11,930 | 9,341 | |||||||||
Fixed indexed annuity | 1,078 | 755 | 717 | |||||||||
Other fixed annuity | 529 | 772 | 698 | |||||||||
Total deposits | $ | 11,730 | $ | 13,457 | $ | 10,756 | ||||||
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• | An A-share has a front-end sales charge and no back-end contingent deferred sales charge, also known as a surrender charge. The net premium (premium less front-end charge) is invested in the contract, resulting in full liquidity and lower mortality and expense assessments over the long term than those in other share classes. |
• | A B-share has a seven-year surrender charge that is only paid if the account is surrendered or withdrawals are in excess of contractual free withdrawals within the contract’s specified surrender charge period. The entire premium is invested in the contract, but it offers limited liquidity during the surrender charge period. |
• | A C-share has no front-end sales charge or back-end surrender charge. Accordingly, it offers maximum liquidity but mortality and expense assessments are higher than those for A-share or B-share during the surrender charge period. A persistency credit is applied beginning in year eight so that the total charge to the customer is consistent with B-share levels. |
• | An L-share has a four to five year surrender charge that is only paid if the account is surrendered or withdrawals are in excess of contractual free withdrawals within the contract’s specified surrender charge period. The differences between the L-share and the B-share are the length of the surrender charge period and the fee structure. L-shares have a shorter surrender charge period, so for the added liquidity, mortality and expense assessments are higher. We offer L-share annuity products with persistency credits that are applied in all years after surrender charges are no longer applicable so that the total charge to the customer is consistent with B-share levels. |
• | A bonus annuity is a variable annuity contract that offers a bonus credit to a contract based on a specified percentage (typically ranging from 2% to 5%) of each deposit. The entire premium plus the bonus are invested in the sub-accounts supporting the contract. It has a seven to nine-year surrender charge. The expenses are slightly more than those for a B-share. We offer bonus annuity products with persistency credits that are applied in all years after surrender charges are no longer applicable so that the total charge to the customer is consistent with B-share levels. |
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• | The Performance Triggered Indexed Account pays a specified rate, declared at the beginning of the indexed term, if the S&P 500 value at the end of the indexed term is the same or greater than the S&P 500 value at the beginning of the indexed term; |
• | The Point to Point Indexed Account compares the value of the S&P 500 at the end of the indexed term to the S&P 500 value at the beginning of the term. If the S&P 500 at the end of the indexed term is higher than the S&P 500 value at the beginning of the term, then the percentage change, up to the declared indexed interest cap, is credited to the indexed account; |
• | The Monthly Cap Indexed Account reflects the monthly changes in the S&P 500 value over the course of the indexed term. Each month, the percentage change in the S&P 500 value is calculated, subject to a monthly indexed cap that is declared at the beginning of the indexed term. At the end of the indexed term, all of the monthly change percentages are summed to determine the rate of indexed interest that will be credited to the account; and |
• | The Monthly Average Indexed Account compares the average monthly value of the S&P 500 to the S&P 500 value at the beginning of the term. The average of the S&P 500 values at the end of each of the twelve months in the indexed term is calculated. The percentage change of the average S&P 500 value to the starting S&P 500 value is calculated. From that amount, the indexed interest spread, which is declared at the beginning of the indexed term, is subtracted. The resulting rate is used to calculate the indexed interest that will be credited to the account. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Deposits | ||||||||||||
Variable portion of variable annuity | $ | 2,170 | $ | 2,355 | $ | 2,525 | ||||||
Fixed portion of variable annuity | 369 | 351 | 441 | |||||||||
Total variable annuity | 2,539 | 2,706 | 2,966 | |||||||||
Fixed annuity | 812 | 754 | 506 | |||||||||
Mutual funds | 2,196 | 2,090 | 1,113 | |||||||||
Total deposits | $ | 5,547 | $ | 5,550 | $ | 4,585 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Sales by Product | ||||||||||||
UL: | ||||||||||||
ExcludingMoneyGuard® | $ | 525 | $ | 597 | $ | 436 | ||||||
MoneyGuard® | 50 | 40 | 31 | |||||||||
Total UL | 575 | 637 | 467 | |||||||||
VUL | 54 | 77 | 61 | |||||||||
COLI and BOLI | 84 | 91 | 83 | |||||||||
Term/whole life | 28 | 32 | 43 | |||||||||
Total sales | $ | 741 | $ | 837 | $ | 654 | ||||||
As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
In-Force Face Amount | ||||||||||||
UL and other | $ | 310,198 | $ | 299,598 | $ | 282,874 | ||||||
Term insurance | 235,023 | 235,919 | 234,148 | |||||||||
Total in-force face amount | $ | 545,221 | $ | 535,517 | $ | 517,022 | ||||||
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Interest-sensitive Life Insurance (Primarily UL)
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Insurance Premiums by Product Line | ||||||||||||
Life | $ | 541 | $ | 494 | $ | 334 | ||||||
Disability | 672 | 601 | 407 | |||||||||
Dental | 150 | 136 | 95 | |||||||||
Total non-medical | 1,363 | 1,231 | 836 | |||||||||
Medical | 154 | 149 | 113 | |||||||||
Total insurance premiums | $ | 1,517 | $ | 1,380 | $ | 949 | ||||||
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As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Assets Under Management | ||||||||||||
Retail — equity | $ | 15,222 | $ | 31,598 | $ | 31,705 | ||||||
Retail — fixed | 10,453 | 10,801 | 8,790 | |||||||||
Total retail | 25,675 | 42,399 | 40,495 | |||||||||
Institutional — equity | 11,203 | 21,751 | 21,977 | |||||||||
Institutional — fixed(1) | 9,696 | 11,536 | 21,105 | |||||||||
Total institutional | 20,899 | 33,287 | 43,082 | |||||||||
Inter-segment assets | 73,648 | 77,088 | 81,166 | |||||||||
Total assets under management | $ | 120,222 | $ | 152,774 | $ | 164,743 | ||||||
Total sub-advised assets, included above(2) | $ | 10,227 | $ | 20,789 | $ | 22,671 | ||||||
(1) | In the fourth quarter of 2007, the Investment Management segment sold a portion of our institutional fixed-income business to an unaffiliated investment management company. | |
(2) | Effective May 1, 2007, the investment advisory role for the Lincoln Variable Insurance Trust, a product within our Retirement Solutions segment, transitioned from Investment Management to another internal advisor. In the role of investment advisor, Investment Management provided investment performance and compliance oversight on third-party investment managers in exchange for a fee. Investment Management is continuing to manage certain of the assets as a sub-advisor. As a result of this change, the Investment Management assets under management decreased by $3.2 billion, with a corresponding reduction in investment advisory fees — inter-segment and associated expenses. |
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One Year | Three Year | Five Year | ||||||||||
Number of institutional composites outperforming their respective benchmarks(1) | 4 of 8 | 3 of 8 | 4 of 7 | |||||||||
Number of managed account styles outperforming their respective benchmarks(2) | 3 of 7 | 2 of 7 | 3 of 5 |
(1) | Represents the largest composites based on assets under management. The returns for these composites are Global Investment Performance Standards (GIPS®) compliant and the benchmarks are industry standards. | |
(2) | Represents Delaware Investments’ managed account styles that have associated benchmarks for the respective length of time. |
One Year | Three Year | Five Year | ||||||||||
Number of funds out of Delaware’s top 25 retail mutual funds in top half of their Lipper category(1) | 19 of 25 | 16 of 25 | 15 of 25 | |||||||||
Number of all retail mutual funds in top half of their Lipper category(1) | 28 of 41 | 25 of 41 | 27 of 40 |
(1) | For these purposes, Delaware Investments’ family of funds does not include variable insurance product funds or mutual funds managed by Delaware Investments for certain of our affiliates or other third parties. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Product Revenues | ||||||||||||
Life products | $ | 106 | $ | 121 | $ | 95 | ||||||
Pension products | 136 | 160 | 131 | |||||||||
Other products | 6 | 8 | 11 | |||||||||
Total product revenues | $ | 248 | $ | 289 | $ | 237 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Operating Revenues | ||||||||||||
Insurance premiums | $ | 4 | $ | 3 | $ | 9 | ||||||
Net investment income | 358 | 372 | 373 | |||||||||
Amortization of deferred gain on business sold through reinsurance | 74 | 74 | 75 | |||||||||
Media revenues (net) | 85 | 107 | 85 | |||||||||
Other revenues and fees | — | 4 | (1 | ) | ||||||||
Inter-segment elimination of investment advisory fees | (82 | ) | (87 | ) | (97 | ) | ||||||
Total operating revenues | $ | 439 | $ | 473 | $ | 444 | ||||||
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• | A.M. Best — A++ to S |
• | Fitch — AAA to C |
• | Moody’s — Aaa to C |
• | S&P — AAA to R |
A. M. Best | Fitch | Moody’s | S&P | |||||||||||||
The Lincoln National Life Insurance Co. | A+ | AA | Aa3 | AA- | ||||||||||||
(“LNL”) | (2nd of 16) | (3rd of 21) | (4th of 21) | (4th of 21) | ||||||||||||
Lincoln Life & Annuity Co. of New York | A+ | AA | Aa3 | AA- | ||||||||||||
(“LLANY”) | (2nd of 16) | (3rd of 21) | (4th of 21) | (4th of 21) | ||||||||||||
First Penn-Pacific Life Insurance Co. (“FPP”) | A+ | AA | A1 | A+ | ||||||||||||
(2nd of 16) | (3rd of 21) | (5th of 21) | (5th of 21) |
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• | A.M. Best — aaa to rs |
• | Fitch — AAA to D |
• | Moody’s — Aaa to C |
• | S&P — AAA to D |
A. M. Best | Fitch | Moody’s | S&P | |||
a- | A | A3 | A- | |||
(7th of 23) | (6th of 21) | (7th of 21) | (7th of 22) |
• | A.M. Best — AMB-1+ to d |
• | Fitch — F1+ to D |
• | Moody’s — P-1 to NP |
• | S&P — A-1+ to D |
A. M. Best | Fitch | Moody’s | S&P | |||
AMB-1 | F1 | P-2 | A-2 | |||
(2nd of 6) | (2nd of 7) | (2nd of 4) | (3rd of 10) |
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Category | Name | Description | ||
Asset risk — affiliates | C-0 | Risk of assets’ default for certain affiliated investments | ||
Asset risk — other | C-1 | Risk of assets’ default of principal and interest or fluctuation in fair value | ||
Insurance risk | C-2 | Risk of underestimating liabilities from business already written or inadequately pricing business to be written in the future | ||
Interest rate risk, health credit risk and market risk | C-3 | Risk of losses due to changes in interest rate levels, risk that health benefits prepaid to providers become the obligation of the health insurer once again and risk of loss due to changes in market levels associated with variable products with guarantees | ||
Business risk | C-4 | Risk of general business |
• | “Company action level” — If the RBC ratio is between 75% and 100%, then the insurer must submit a plan to the regulator detailing corrective action it proposes to undertake; |
• | “Regulatory action level” — If the RBC ratio is between 50% and 75%, then the insurer must submit a plan, but a regulator may also issue a corrective order requiring the insurer to comply within a specified period; |
• | “Authorized control level” — If the RBC ratio is between 35% and 50%, then the regulatory response is the same as at the “Regulatory action level,” but in addition, the regulator may take action to rehabilitate or liquidate the insurer; and |
• | “Mandatory control level” — If the RBC ratio is less than 35%, then the regulator must rehabilitate or liquidate the insurer. |
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• | Fixed maturity and equity securities are classified as available-for-sale, except for those designated as trading securities, and are reported at their estimated fair value. The difference between the estimated fair value and amortized cost of such securities (i.e. unrealized investment gains and losses) are recorded as a separate component of other comprehensive income or loss, net of adjustments to DAC, policyholder related amounts and deferred income taxes; |
• | Fixed maturity and equity securities designated as trading securities, which support certain reinsurance arrangements, are recorded at fair value with subsequent changes in fair value recognized in realized gain (loss). However, offsetting the changes to fair value of the trading securities are corresponding changes in the fair value of the embedded derivative liability associated with the underlying reinsurance arrangement. In other words, the investment results for the trading securities, including gains and losses from sales, are passed directly to the reinsurers through the contractual terms of the reinsurance arrangements; |
• | Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value; |
• | Mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances; |
• | Policy loans are stated at unpaid principal balances; |
• | Real estate joint ventures and other limited partnership interests are carried using the equity method of accounting; and |
• | Other invested assets consist principally of derivatives with positive fair values. Derivatives are carried at fair value with changes in fair value reflected in income from non-qualifying derivatives and derivatives in fair value hedging relationships. Derivatives in cash flow hedging relationships are reflected as a separate component of other comprehensive income or loss. |
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1. | LNL’s RBC ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or |
2. | (i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative, and (ii) our consolidated stockholders’ equity (excluding accumulated other comprehensive income and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter) (“adjusted stockholders’ equity”) as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter (the “benchmark quarter”). |
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• | Standards of minimum capital requirements and solvency, including RBC measurements; |
• | Restrictions of certain transactions between our insurance subsidiaries and their affiliates; |
• | Restrictions on the nature, quality and concentration of investments; |
• | Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations; |
• | Limitations on the amount of dividends that insurance subsidiaries can pay; |
• | The existence and licensing status of the company under circumstances where it is not writing new or renewal business; |
• | Certain required methods of accounting; |
• | Reserves for unearned premiums, losses and other purposes; and |
• | Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies. |
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Name | Age(2) | Position with LNC and Business Experience During the Past Five Years | ||||
Dennis R. Glass | 59 | President, Chief Executive Officer and Director (since July 2007). President, Chief Operating Officer and Director (April 2006 — July 2007). President and Chief Executive Officer, Jefferson-Pilot (2004 — April 2006). President and Chief Operating Officer, Jefferson-Pilot (2001 — April 2006). | ||||
Lisa M. Buckingham | 43 | Senior Vice President, Chief Human Resources Officer (since December 2008). Senior Vice President, Global Talent, Thomson Reuters, a provider of information and services for businesses and professionals (April 2008 — November 2008). Senior Vice President, Human Resources, Thomson Corporation (2002 — April 2008). | ||||
Charles C. Cornelio | 49 | Executive Vice President, Chief Administrative Officer (since November 2008). Senior Vice President, Shared Services and Chief Information Officer (April 2006 — November 2008). Executive Vice President, Technology and Insurance Services, Jefferson-Pilot (2004 — April 2006). Senior Vice President, Jefferson-Pilot (1997 — 2004). | ||||
Patrick P. Coyne | 45 | President of Lincoln National Investment Companies, Inc.(1)and Delaware Management Holdings, Inc. (1) (since July 2006). Executive Vice President and Chief Investment Officer, Lincoln National Investment Company, Inc. and Delaware Management Holdings, Inc. (2003 — July 2006). | ||||
Frederick J. Crawford | 45 | Executive Vice President and Chief Financial Officer (since November 2008). Senior Vice President and Chief Financial Officer (2005 — November 2008). Vice President and Treasurer (2001 — 2004). | ||||
Robert W. Dineen | 59 | Chairman and CEO, Lincoln Financial Advisors (1) (since 2002). Senior Vice President, Managed Asset Group, Merrill Lynch & Co., a diversified financial services company (2001 — 2002). | ||||
Heather C. Dzielak | 40 | Senior Vice President, Chief Marketing Officer (since January 2009). Senior Vice President, Retirement Income Security Ventures (September 2006 — January 2009). Vice President, Lincoln National Life Insurance Company (1) (December 2003 — September 2006). | ||||
Wilford H. Fuller | 38 | President and CEO of Lincoln Financial Distributors (1) (since February 2009). Head, Distribution, Global Wealth Management, Merrill Lynch & Co., a diversified financial services company (2007-2009). Head, Distribution, Managed Solutions Group, Merrill Lynch & Co. (2005-2007). National Sales Manager, Merrill Lynch & Co. (2000-2005). | ||||
Mark E. Konen | 49 | President, Insurance Solutions (since July 2008). President, Individual Markets (April 2006 — July 2008). Executive Vice President, Life and Annuity Manufacturing, Jefferson-Pilot (2004 — April 2006). Executive Vice President, Product/Financial Management, Jefferson-Pilot (2002 — 2004). | ||||
Dennis L. Schoff | 49 | Senior Vice President, LNC and General Counsel (since 2002). Vice President and Deputy General Counsel (2001 — 2002). | ||||
Michael Tallett-Williams | 55 | President and Managing Director, Lincoln National (UK) (1) (since 2000). |
(1) | Denotes an affiliate of LNC. | |
(2) | Age shown is based on the officer’s age as of February 20, 2009. |
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1st Qtr | 2nd Qtr | 3rd Qtr | 4th Qtr | |||||||||||||
2008 | ||||||||||||||||
High | $ | 58.11 | $ | 56.80 | $ | 59.99 | $ | 45.50 | ||||||||
Low | 45.50 | 45.18 | 39.83 | 4.76 | ||||||||||||
Dividend declared | 0.415 | 0.415 | 0.415 | 0.210 | ||||||||||||
2007 | ||||||||||||||||
High | $ | 71.18 | $ | 74.72 | $ | 72.28 | $ | 70.66 | ||||||||
Low | 64.29 | 66.90 | 54.40 | 55.84 | ||||||||||||
Dividend declared | 0.395 | 0.395 | 0.395 | 0.415 |
(a) Total | (c) Total Number | (d) Approximate Dollar | ||||||||||||||
Number | (b) Average | of Shares (or Units) | Value of Shares (or | |||||||||||||
of Shares | Price Paid | Purchased as Part of | Units) that May Yet Be | |||||||||||||
(or Units) | per Share | Publicly Announced | Purchased Under the | |||||||||||||
Period | Purchased | (or Unit) | Plans or Programs(2) | Plans or Programs(3) | ||||||||||||
10/1/08 – 10/31/08 | — | $ | — | — | $ | 1,204 | ||||||||||
11/1/08 – 11/30/08 | — | — | — | 1,204 | ||||||||||||
12/1/08 – 12/31/08 | 1,741 | (1) | 17.45 | — | 1,204 |
(1) | Represents shares withheld for taxes on the vesting of restricted stock. | |
(2) | On February 23, 2007, our Board approved a $2 billion increase to our existing securities repurchase authorization, bringing the total authorization at that time to $2.6 billion. At December 31, 2008, our security repurchase authorization was $1.2 billion. The security repurchase authorization does not have an expiration date. However, the amount and timing of share repurchase depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. In the fourth quarter of 2008, we announced a suspension of share repurchases under this program. The shares repurchased in connection with the awards described in footnote (1) are not included in our security repurchase. | |
(3) | As of the last day of the applicable month. |
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For the Years Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Total revenues | $ | 9,883 | $ | 10,475 | $ | 8,879 | $ | 5,459 | $ | 5,351 | ||||||||||
Income from continuing operations | 62 | 1,321 | 1,295 | 831 | 732 | |||||||||||||||
Net income | 57 | 1,215 | 1,316 | 831 | 707 | |||||||||||||||
Per share data(1): | ||||||||||||||||||||
Income from continuing operations — basic | $ | 0.24 | $ | 4.89 | $ | 5.13 | $ | 4.80 | $ | 4.15 | ||||||||||
Income from continuing operations — diluted | 0.24 | 4.82 | 5.05 | 4.72 | 4.09 | |||||||||||||||
Net income — basic | 0.22 | 4.50 | 5.21 | 4.80 | 4.01 | |||||||||||||||
Net income — diluted | 0.22 | 4.43 | 5.13 | 4.72 | 3.95 | |||||||||||||||
Common stock dividends | 1.455 | 1.600 | 1.535 | 1.475 | 1.415 |
As of December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Assets | $ | 163,136 | $ | 191,435 | $ | 178,495 | $ | 124,860 | $ | 116,219 | ||||||||||
Long-term debt | 4,731 | 4,618 | 3,458 | 1,333 | 1,389 | |||||||||||||||
Stockholders’ equity | 7,977 | 11,718 | 12,201 | 6,384 | 6,176 | |||||||||||||||
Per share data(1): | ||||||||||||||||||||
Stockholders’ equity including accumulated other comprehensive income(2) | $ | 31.15 | $ | 44.32 | $ | 44.21 | $ | 36.69 | $ | 35.53 | ||||||||||
Stockholders’ equity excluding accumulated other comprehensive income(2) | 42.10 | 43.46 | 41.99 | 33.66 | 30.17 | |||||||||||||||
Market value of common stock | 18.84 | 58.22 | 66.40 | 53.03 | 46.68 |
(1) | Per share amounts were affected by the issuance of 112.3 million shares for the acquisition of Jefferson-Pilot in 2006 and the retirement of 9.3 million, 15.4 million, 16.9 million, 2.3 million and 7.6 million shares of common stock during the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively. | |
(2) | Per share amounts are calculated under the assumption that preferred stock has been converted to common stock. |
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• | Realized gains and losses associated with the following (“excluded realized gain (loss)”): |
• | Sale or disposal of securities; |
• | Impairments of securities; |
• | Change in the fair value of embedded derivatives within certain reinsurance arrangements and the change in the fair value of related trading securities; |
• | Change in the fair value of the embedded derivatives of our guaranteed living benefits (“GLB”) within our variable annuities net of the change in the fair value of the derivatives we own to hedge the changes in the embedded derivative; |
• | Net difference between the benefit ratio unlocking of Statement of Position (“SOP”) No. 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”) reserves on our guaranteed death benefit (“GDB”) riders within our variable annuities and the change in the fair value of the derivatives excluding our expected cost of purchasing the hedging instruments; and |
• | Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products as required under Statements of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) and SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). |
• | Income (loss) from the initial adoption of changes in accounting principles; |
• | Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance; |
• | Losses on early retirement of debt, including subordinated debt; |
• | Losses from the impairment of intangible assets; and |
• | Income (loss) from discontinued operations. |
• | Excluded realized gain (loss); |
• | Amortization of deferred gains arising from the reserve changes on business sold through reinsurance; and |
• | Revenue adjustments from the initial impact of the adoption of changes in accounting principles. |
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• | Continued deterioration in general economic and business conditions, both domestic and foreign, that may affect foreign exchange rates, premium levels, claims experience, the level of pension benefit costs and funding and investment results; |
• | Continued economic declines and credit market illiquidity could cause us to realize additional impairments on investments and certain intangible assets, including goodwill and a 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; |
• | Uncertainty about the impact of the U.S. Treasury’s Troubled Asset Relief Program (“TARP”) on the economy, and LNC’s ability to participate in the program; |
• | Legislative, regulatory or tax changes, both domestic and foreign, that affect the cost of, or demand for, LNC’s products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserves and/or risk-based capital (“RBC”) requirements related to secondary guarantees under universal life and variable annuity products such as Actuarial Guideline 43 (also known as “VACARVM”); restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. Federal tax reform; |
• | The initiation of legal or regulatory proceedings against LNC or its subsidiaries, 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 LNC and its subsidiaries compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and extra-contractual and class action damage cases; new decisions that result in changes in law; and unexpected trial court rulings; |
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• | Changes in interest rates causing a reduction of investment income, the margins of LNC’s fixed annuity and life insurance businesses and demand for LNC’s products; |
• | A decline in the equity markets causing a reduction in the sales of LNC’s products, a reduction of asset-based fees that LNC charges on various investment and insurance products, an acceleration of amortization of DAC, VOBA, DSI and DFEL and an increase in liabilities related to guaranteed benefit features of LNC’s variable annuity products; |
• | Ineffectiveness of LNC’s various hedging strategies used to offset the impact of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; |
• | A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from LNC’s assumptions used in pricing its products, in establishing related insurance reserves and in the amortization of intangibles that may result in an increase in reserves and a decrease in net income, including as a result of stranger-originated life insurance business; |
• | Changes in GAAP that may result in unanticipated changes to LNC’s net income; |
• | Lowering of one or more of LNC’s debt ratings issued by nationally recognized statistical rating organizations and the adverse impact such action may have on LNC’s ability to raise capital and on its liquidity and financial condition; |
• | Lowering of one or more of the insurer financial strength ratings of LNC’s insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of its insurance subsidiaries and liquidity; |
• | Significant credit, accounting, fraud or corporate governance issues that may adversely affect the value of certain investments in the portfolios of LNC’s companies requiring that LNC realize losses on such investments; |
• | The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including LNC’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; |
• | The adequacy and collectibility of reinsurance that LNC has purchased; |
• | Acts of terrorism, war or other man-made and natural catastrophes that may adversely affect LNC’s 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 LNC can charge for its products; |
• | The unknown impact on LNC’s business resulting from changes in the demographics of LNC’s client base, as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life; and |
• | Loss of key management, portfolio managers in the Investment Management segment, financial planners or wholesalers. |
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• | Continuation of volatility in the equity markets, resulting in hedge breakage and possible additional erosion in variable account values; |
• | Continuation of illiquid credit markets and impact on spreads and on other-than-temporary securities impairments; |
• | Continuation of the current credit and capital markets, restricting our ability to access capital; |
• | Continuation of the low interest rate environment, which creates a challenge for our products that generate investment margin profits, such as fixed annuities and UL; |
• | Possible additional intangible asset impairments, such as goodwill, if the financial performance of our reporting units does not improve, our market capitalization remains below book value for a prolonged period of time or business valuation assumptions (such as discount rates and equity market volatility) deteriorate further; |
• | Continuation of the recession and other challenges in the economy; |
• | Achieving success in our portfolio of products, marketplace acceptance of new variable annuity features and maintaining management and wholesalers that will help maintain our competitive position; and |
• | Continuation of focus by the government on tax reform including potential changes in company dividends-received deduction (“DRD”) calculations, which may impact our products and overall earnings. |
• | Continue near term product development in our manufacturing units and future product development initiatives, with particular focus on further reducing risk related to guaranteed benefit riders offered with certain variable annuities; |
• | Evaluate and potentially pursue the sale of non-core businesses and other options to raise additional capital; |
• | Manage our expenses aggressively and utilize cost reduction initiatives and continue embedding financial and execution discipline throughout our operations by using technology and making other investments to improve operating effectiveness and lower unit costs; and |
• | Substantially complete the remaining platform and system consolidations necessary to achieve the final portion of integration cost saves as well as prepare us for more effective customer interaction in the future. |
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Retirement Solutions | Insurance Solutions | |||||||||||||||||||||||||||
Defined | Life | Group | Lincoln | Other | ||||||||||||||||||||||||
Annuities | Contribution | Insurance | Protection | UK | Operations | Total | ||||||||||||||||||||||
DAC and VOBA | $ | 2,977 | $ | 883 | $ | 7,383 | $ | 146 | $ | 534 | $ | 13 | $ | 11,936 | ||||||||||||||
DSI | 261 | 2 | — | — | — | — | 263 | |||||||||||||||||||||
Total | 3,238 | 885 | 7,383 | 146 | 534 | 13 | 12,199 | |||||||||||||||||||||
DFEL | 130 | — | 890 | — | 262 | — | 1,282 | |||||||||||||||||||||
Net total | $ | 3,108 | $ | 885 | $ | 6,493 | $ | 146 | $ | 272 | $ | 13 | $ | 10,917 | ||||||||||||||
Note: | The above table includes DAC and VOBA amortized in accordance with SFAS No. 60, “Accounting and Reporting by Insurance Enterprises (“SFAS 60”).” Under SFAS 60, acquisition costs for traditional life insurance and Insurance Solutions — Group Protection’s products, which include whole life and term life insurance policies and group life, dental and disability policies, are amortized over periods of 10 to 30 years for life products and up to 15 years for group products on either a straight-line basis or as a level percent of premium of the related policies depending on the block of business. No DAC is being amortized under SFAS 60 for fixed and variable payout annuities. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Insurance fees: | ||||||||||||
Retirement Solutions — Annuities | $ | (1 | ) | $ | (1 | ) | $ | (3 | ) | |||
Insurance Solutions — Life Insurance | (28 | ) | 26 | (1 | ) | |||||||
Lincoln UK | (1 | ) | 5 | (12 | ) | |||||||
Total insurance fees | (30 | ) | 30 | (16 | ) | |||||||
Realized gain (loss): | ||||||||||||
Indexed annuity forward-starting option | — | 1 | — | |||||||||
GLB | 48 | 2 | — | |||||||||
Total realized gain (loss) | 48 | 3 | — | |||||||||
Total revenues | 18 | 33 | (16 | ) | ||||||||
Interest credited: | ||||||||||||
Retirement Solutions — Annuities | — | (1 | ) | (1 | ) | |||||||
Total interest credited | — | (1 | ) | (1 | ) | |||||||
Benefits: | ||||||||||||
Retirement Solutions — Annuities | — | 2 | (3 | ) | ||||||||
Insurance Solutions — Life Insurance | 85 | — | 15 | |||||||||
Total benefits | 85 | 2 | 12 | |||||||||
Underwriting, acquisition, insurance and other expenses: | ||||||||||||
Retirement Solutions — Annuities | (2 | ) | (12 | ) | (1 | ) | ||||||
Retirement Solutions — Defined Contribution | — | 3 | (7 | ) | ||||||||
Insurance Solutions — Life Insurance | (81 | ) | 21 | 14 | ||||||||
Lincoln UK | 4 | 2 | (3 | ) | ||||||||
Total underwriting, acquisition, insurance and other expenses | (79 | ) | 14 | 3 | ||||||||
Total benefits and expenses | 6 | 15 | 14 | |||||||||
Income (loss) from continuing operations before taxes | 12 | 18 | (30 | ) | ||||||||
Federal income taxes | 4 | 6 | (11 | ) | ||||||||
Income (loss) from continuing operations | $ | 8 | $ | 12 | $ | (20 | ) | |||||
Note: | The 2006 amounts reflect our harmonization of several assumptions and related processes as a result of our merger with Jefferson-Pilot. The effects varied by segment and are discussed further in the respective segment discussions below. |
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For the Three | ||||
Months Ended | ||||
December 31, | ||||
2008 | ||||
Insurance fees: | ||||
Retirement Solutions — Annuities | $ | 26 | ||
Insurance Solutions — Life Insurance | 16 | |||
Total insurance fees | 42 | |||
Realized gain (loss): | ||||
GLB | 70 | |||
Total realized gain (loss) | 70 | |||
Total revenues | 112 | |||
Interest credited: | ||||
Retirement Solutions — Annuities | 37 | |||
Total interest credited | 37 | |||
Benefits: | ||||
Retirement Solutions — Annuities | 8 | |||
Retirement Solutions — Defined Contribution | 1 | |||
Total benefits | 9 | |||
Underwriting, acquisition, insurance and other expenses: | ||||
Retirement Solutions — Annuities | 305 | |||
Retirement Solutions — Defined Contribution | 39 | |||
Insurance Solutions — Life Insurance | 65 | |||
Total underwriting, acquisition, insurance and other expenses | 409 | |||
Total benefits and expenses | 455 | |||
Income (loss) from continuing operations before taxes | (343 | ) | ||
Federal income taxes | (120 | ) | ||
Income (loss) from continuing operations | $ | (223 | ) | |
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Hypothetical | ||||||
Hypothetical | Impact to | |||||
Actual Experience Differs | Impact to | Net Income | ||||
From Those Our Model | Net Income | for DAC(1) | ||||
Projections Assume | for EGPs | Amortization | Description of Expected Impact | |||
Higher equity markets | Favorable | Favorable | Increase to fee income and decrease to changes in reserves. | |||
Lower equity markets | Unfavorable | Unfavorable | Decrease to fee income and increase to changes in reserves. | |||
Higher investment margins | Favorable | Favorable | Increase to interest rate spread on our fixed product line, including fixed portion of variable. | |||
Lower investment margins | Unfavorable | Unfavorable | Decrease to interest rate spread on our fixed product line, including fixed portion of variable. | |||
Higher credit losses | Unfavorable | Unfavorable | Decrease to realized gains on investments. | |||
Lower credit losses | Favorable | Favorable | Increase to realized gains on investments. | |||
Higher lapses | Unfavorable | Unfavorable | Decrease to fee income, partially offset by decrease to benefits due to shorter contract life. | |||
Lower lapses | Favorable | Favorable | Increase to fee income, partially offset by increase to benefits due to longer contract life. | |||
Higher death claims | Unfavorable | Unfavorable | Decrease to fee income and increase to changes in reserves due to shorter contract life. | |||
Lower death claims | Favorable | Favorable | Increase to fee income and decrease to changes in reserves due to longer contract life. |
(1) | DAC refers to the associated amortization of expense of DAC, VOBA, DSI and DFEL and changes in future contract benefits. |
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• | Prolonged period of our book value exceeding our market capitalization; |
• | Valuations of mergers or acquisitions of companies or blocks of business that would provide relevant market-based inputs for our impairment assessment that could support different conclusions than our income approach; |
• | Deterioration in key assumptions used in our income approach estimates of fair value, such as higher discount rates from higher stock market volatility, widening credit spreads or a further decline in interest rates; |
• | Lower earnings projections due to spread compression, lower account values from unfavorable equity markets and significantly lower expectations for future sales which would reduce future earnings expectations; |
• | Higher than expected impairments of invested assets; and |
• | Prolonged inability to execute future valuation of Life Insurance Policies Model Regulation (“XXX”) or AG38 reinsurance transactions for our life insurance business due to unavailability of financing resulting in higher capital requirements. |
Retirement | Insurance Solutions | |||||||||||
Solutions - | Life | Group | ||||||||||
Annuities | Insurance | Protection | ||||||||||
Carrying value as of December 31, 2008: | ||||||||||||
Goodwill | $ | 1,040 | $ | 2,188 | $ | 274 | ||||||
Net assets(1) | 4,043 | 7,395 | 894 | |||||||||
Estimated fair value as of December 31, 2008 (in billions) | 4.5 to 5.0 | 8.4 to 9.3 | 1.3 to 1.5 | |||||||||
Hypothetical estimated reduction in implied fair value attributable to: | ||||||||||||
100 basis point increase in discount rate | 600 | 1,000 | 200 | |||||||||
100 basis point decline in long term growth rate | 300 | 400 | 100 | |||||||||
10% decline in forecasted operating earnings growth rate | 100 | 300 | 100 |
(1) | Includes unrealized gains and losses included in accumulated other comprehensive income. |
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• | Level 1 — inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. “Blockage discounts” for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available for an identical asset or liability in an active market are prohibited; |
• | Level 2 — inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and |
• | Level 3 — inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability, including assumptions regarding risk. |
As of December 31, 2008 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Priced by third party pricing services | $ | 317 | $ | 42,550 | $ | — | $ | 42,867 | ||||||||
Priced by independent broker quotations | — | — | 3,750 | 3,750 | ||||||||||||
Priced by matrices | — | 6,497 | — | 6,497 | ||||||||||||
Priced by other methods(1) | — | — | 1,839 | 1,839 | ||||||||||||
Total | $ | 317 | $ | 49,047 | $ | 5,589 | $ | 54,953 | ||||||||
Percent of total | 1 | % | 89 | % | 10 | % | 100 | % |
(1) | Represents primarily securities for which pricing models were used to compute the fair values. |
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As of December 31, 2008 | ||||||||||||||||
Total | ||||||||||||||||
Fair | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Future contract benefits (embedded derivatives) | 0 | % | 0 | % | 100 | % | 100 | % |
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In-Force Sensitivities | ||||||||||||||||
-20% | -10% | -5% | 5% | |||||||||||||
Equity market return | $ | (36 | ) | $ | (8 | ) | $ | (2 | ) | $ | (2 | ) |
-50 bps | -25 bps | +25 bps | +50 bps | |||||||||||||
Interest rates | $ | (4 | ) | $ | — | $ | (3 | ) | $ | (10 | ) |
-4% | -2% | 2% | 4% | |||||||||||||
Implied volatilities | $ | — | $ | — | $ | — | $ | (1 | ) |
Assumptions of Changes In | Hypothetical | |||||||||||||||
Equity | Interest | Market | Impact to | |||||||||||||
Market | Rate | Implied | Net | |||||||||||||
Return | Yields | Volatilities | Income | |||||||||||||
Scenario 1 | -5 | % | -12.5 bps | +1 | % | $ | (3 | ) | ||||||||
Scenario 2 | -10 | % | -25.0 bps | +2 | % | (13 | ) | |||||||||
Scenario 3 | -20 | % | -50.0 bps | +4 | % | (60 | ) |
• | The analysis is only valid as of this particular business day, due to changing market conditions, contract holder activity, hedge positions and other factors; |
• | The analysis assumes instantaneous shifts in the capital market factors and no ability to rebalance hedge positions prior to the market changes; |
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• | Assumptions regarding shifts in the market factors, such as assuming parallel shifts in interest rate and implied volatility term structures, may be overly simplistic and not indicative of actual market behavior in stress scenarios; |
• | It is very unlikely that one capital market sector (e.g. equity markets) will sustain such a large instantaneous movement without affecting other capital market sectors; and |
• | The analysis assumes that there is no tracking or basis risk between the funds and/or indices affecting the GLBs and the instruments utilized to hedge these exposures. |
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U.S. | U.S. Other | |||||||
Pension | Postretirement | |||||||
Plans | Benefits | |||||||
The Effect of Changes in the Rate of Return on Plan Assets | ||||||||
Increase (decrease) by 100 basis points | $ | 6 | $ | — | ||||
The Effect of Changes in the Discount Rate on Net Periodic Benefit Expense | ||||||||
Increase (decrease) by 100 basis points | 3 | 1 |
Retirement Solutions | Insurance Solutions | |||||||||||||||||||||||||||
Defined | Life | Group | Investment | Other | ||||||||||||||||||||||||
Annuities | Contribution | Insurance | Protection | Management | Operations | Total | ||||||||||||||||||||||
2008 | $ | (3 | ) | $ | (1 | ) | $ | (3 | ) | $ | (1 | ) | $ | (1 | ) | $ | (2 | ) | $ | (11 | ) | |||||||
2009 | 11 | 7 | 12 | 7 | (1 | ) | 1 | 37 | ||||||||||||||||||||
Expected increase | $ | 14 | $ | 8 | $ | 15 | $ | 8 | $ | — | $ | 3 | $ | 48 | ||||||||||||||
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Note 3.
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Revenues | ||||||||||||||||||||
Insurance premiums | $ | 2,096 | $ | 1,947 | $ | 1,406 | 8 | % | 38 | % | ||||||||||
Insurance fees | 3,229 | 3,190 | 2,564 | 1 | % | 24 | % | |||||||||||||
Investment advisory fees | 268 | 360 | 328 | -26 | % | 10 | % | |||||||||||||
Net investment income | 4,208 | 4,378 | 3,923 | -4 | % | 12 | % | |||||||||||||
Realized gain (loss) | (537 | ) | (169 | ) | 13 | NM | NM | |||||||||||||
Amortization of deferred gain on business sold through reinsurance | 76 | 83 | 76 | -8 | % | 9 | % | |||||||||||||
Other revenues and fees | 543 | 686 | 569 | -21 | % | 21 | % | |||||||||||||
Total revenues | 9,883 | 10,475 | 8,879 | -6 | % | 18 | % | |||||||||||||
Benefits and Expenses | ||||||||||||||||||||
Interest credited | 2,501 | 2,435 | 2,191 | 3 | % | 11 | % | |||||||||||||
Benefits | 3,157 | 2,562 | 1,906 | 23 | % | 34 | % | |||||||||||||
Underwriting, acquisition, insurance and other expenses | 3,576 | 3,320 | 2,776 | 8 | % | 20 | % | |||||||||||||
Interest and debt expense | 281 | 284 | 228 | -1 | % | 25 | % | |||||||||||||
Impairment of intangibles | 393 | — | — | NM | NM | |||||||||||||||
Total benefits and expenses | 9,908 | 8,601 | 7,101 | 15 | % | 21 | % | |||||||||||||
Income from continuing operations before taxes | (25 | ) | 1,874 | 1,778 | NM | 5 | % | |||||||||||||
Federal income tax expense (benefit) | (87 | ) | 553 | 483 | NM | 14 | % | |||||||||||||
Income from continuing operations | 62 | 1,321 | 1,295 | -95 | % | 2 | % | |||||||||||||
Income (loss) from discontinued operations, net of federal income tax expense (benefit) | (5 | ) | (106 | ) | 21 | 95 | % | NM | ||||||||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | -95 | % | -8 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Revenues | ||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 2,610 | $ | 2,533 | $ | 2,060 | 3 | % | 23 | % | ||||||||||
Defined Contribution | 936 | 986 | 988 | -5 | % | 0 | % | |||||||||||||
Total Retirement Solutions | 3,546 | 3,519 | 3,048 | 1 | % | 15 | % | |||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 4,250 | 4,189 | 3,470 | 1 | % | 21 | % | |||||||||||||
Group Protection | 1,640 | 1,500 | 1,032 | 9 | % | 45 | % | |||||||||||||
Total Insurance Solutions | 5,890 | 5,689 | 4,502 | 4 | % | 26 | % | |||||||||||||
Investment Management | 438 | 590 | 564 | -26 | % | 5 | % | |||||||||||||
Lincoln UK | 327 | 370 | 308 | -12 | % | 20 | % | |||||||||||||
Other Operations | 439 | 473 | 444 | -7 | % | 7 | % | |||||||||||||
Excluded realized gain (loss), pre-tax | (760 | ) | (175 | ) | 12 | NM | NM | |||||||||||||
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax | 3 | 9 | 1 | -67 | % | NM | ||||||||||||||
Total revenues | $ | 9,883 | $ | 10,475 | $ | 8,879 | -6 | % | 18 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Income | ||||||||||||||||||||
Income (loss) from operations: | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 193 | $ | 485 | $ | 399 | -60 | % | 22 | % | ||||||||||
Defined Contribution | 123 | 181 | 204 | -32 | % | -11 | % | |||||||||||||
Total Retirement Solutions | 316 | 666 | 603 | -53 | % | 10 | % | |||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 541 | 719 | 531 | -25 | % | 35 | % | |||||||||||||
Group Protection | 104 | 114 | 99 | -9 | % | 15 | % | |||||||||||||
Total Insurance Solutions | 645 | 833 | 630 | -23 | % | 32 | % | |||||||||||||
Investment Management | 28 | 76 | 55 | -63 | % | 38 | % | |||||||||||||
Lincoln UK | 50 | 46 | 39 | 9 | % | 18 | % | |||||||||||||
Other Operations | (180 | ) | (173 | ) | (38 | ) | -4 | % | NM | |||||||||||
Excluded realized gain (loss), after-tax | (494 | ) | (120 | ) | 9 | NM | NM | |||||||||||||
Early extinguishment of debt | — | — | (4 | ) | NM | 100 | % | |||||||||||||
Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 2 | (7 | ) | 1 | 129 | % | NM | |||||||||||||
Impairment of intangibles, after-tax | (305 | ) | — | — | NM | NM | ||||||||||||||
Income from continuing operations, after-tax | 62 | 1,321 | 1,295 | -95 | % | 2 | % | |||||||||||||
Income (loss) from discontinued operations, after-tax | (5 | ) | (106 | ) | 21 | 95 | % | NM | ||||||||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | -95 | % | -8 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Deposits | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 11,730 | $ | 13,457 | $ | 10,756 | -13 | % | 25 | % | ||||||||||
Defined Contribution | 5,547 | 5,550 | 4,585 | 0 | % | 21 | % | |||||||||||||
Insurance Solutions — Life Insurance | 4,493 | 4,413 | 3,632 | 2 | % | 22 | % | |||||||||||||
Investment Management | 15,997 | 23,752 | 28,094 | -33 | % | -15 | % | |||||||||||||
Consolidating adjustments(1) | (4,637 | ) | (4,015 | ) | (3,838 | ) | -15 | % | -5 | % | ||||||||||
Total deposits | $ | 33,130 | $ | 43,157 | $ | 43,229 | -23 | % | 0 | % | ||||||||||
Net Flows | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 4,090 | $ | 4,991 | $ | 2,665 | -18 | % | 87 | % | ||||||||||
Defined Contribution | 781 | 337 | 342 | 132 | % | -1 | % | |||||||||||||
Insurance Solutions — Life Insurance | 2,822 | 2,645 | 2,080 | 7 | % | 27 | % | |||||||||||||
Investment Management | (9,270 | ) | (1,372 | ) | 9,368 | NM | NM | |||||||||||||
Consolidating adjustments(1) | 338 | 820 | 114 | -59 | % | NM | ||||||||||||||
Total net flows | $ | (1,239 | ) | $ | 7,421 | $ | 14,569 | NM | -49 | % | ||||||||||
(1) | Consolidating adjustments represents the elimination of deposits and net flows on products affecting more than one segment. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Assets Under Management by Advisor | ||||||||||||||||||||
Investment Management: | ||||||||||||||||||||
External assets | $ | 46,574 | $ | 75,686 | $ | 83,577 | -38 | % | -9 | % | ||||||||||
Inter-segment assets | 73,648 | 77,088 | 81,166 | -4 | % | -5 | % | |||||||||||||
Lincoln UK (excluding policy loans) | 5,978 | 10,243 | 10,104 | -42 | % | 1 | % | |||||||||||||
Policy loans | 2,923 | 2,886 | 2,811 | 1 | % | 3 | % | |||||||||||||
Assets administered through unaffiliated third parties | 48,885 | 70,824 | 55,916 | -31 | % | 27 | % | |||||||||||||
Total assets under management | $ | 178,008 | $ | 236,727 | $ | 233,574 | -25 | % | 1 | % | ||||||||||
• | Write-downs for other-than-temporary impairments on our available-for-sale securities increased by $411 million and were attributable primarily to unfavorable changes in credit quality and increases in credit spreads; |
• | Impairment of goodwill and our FCC license intangible assets on our media business attributable primarily to declines in advertising revenues for the entire radio market and impairment of our Lincoln UK goodwill due to deterioration in the market; however, these non-cash impairments will not impact our future liquidity; |
• | A $215 million unfavorable prospective unlocking (a $168 million decrease from assumption changes and a $47 million decrease from model refinements) of DAC, VOBA, DSI, DFEL and the reserves for annuity and life insurance products with living benefit and death benefit guarantees due primarily to significantly unfavorable equity markets in 2008 compared to a $12 million favorable prospective unlocking (a $28 million increase from assumption changes due primarily to lower lapses and expenses and higher interest rates than our model projections assumed net of a $16 million decrease from model refinements) in 2007 (see “Critical Accounting Policies and Estimates — DAC, VOBA, DSI and DFEL” for more information); |
• | A $108 million unfavorable retrospective unlocking of DAC, VOBA, DSI, DFEL and the reserves for annuity and life insurance products with living benefit and death benefit guarantees in 2008 due primarily to the impact of lower equity market performance and premiums received and higher death claims and future GDB claims than our model projections assumed compared to a $40 million favorable retrospective unlocking in 2007 due primarily to the impact of higher equity market performance and persistency and lower expenses than our model projections assumed; |
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• | Higher benefits due primarily to an increase in the change in GDB reserves from an increase in our expected GDB benefit payments attributable primarily to the decline in account values from the unfavorable equity markets and the increase in reserves for products with secondary guarantees from continued growth of business in force and the effects of model refinements along with higher mortality experience due to an increase in the average attained age of the in-force block and lower benefits in the first quarter of 2007 related to a purchase accounting adjustment to the opening balance sheet of Jefferson-Pilot; |
• | Lower earnings from our variable annuity and mutual fund products as a result of declines in assets under management caused by decreases in the equity markets; |
• | Lower net investment income attributable primarily to less favorable investment income on surplus and alternative investments and prepayment and bond makewhole premiums due primarily to deterioration of the capital markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); and |
• | A $16 million impact of the initial adoption of SFAS 157 on January 1, 2008. |
• | Favorable GLB net derivatives results due primarily to the inclusion in 2008 of an NPR adjustment as required under SFAS 157 attributable primarily to our widening credit spreads; |
• | Lower DAC and VOBA amortization, net of interest and excluding unlocking, due primarily to declines in variable account values from unfavorable equity markets during 2008; |
• | The loss on disposition of our discontinued operations in 2007; |
• | Growth in insurance fees driven by increases in life insurance in force as a result of new sales and favorable persistency partially offset by unfavorable equity markets and adjustments during the second quarter of 2007 resulting from adjusting account values for certain of our life insurance policies and modifying the accounting for certain of our life insurance policies; |
• | A reduction in federal income tax expense due primarily to lower income from continuing operations, favorable tax audit adjustments, and favorable tax return true-ups driven primarily by the separate account DRD and other items; and |
• | Lower broker-dealer expenses due primarily to lower sales of non-proprietary products, lower merger expenses as many of our integration efforts related to our acquisition of Jefferson-Pilot have been completed and lower incentive compensation accruals as a result of lower earnings and production performance relative to planned goals. |
• | Write-downs for other-than-temporary impairments on our available-for-sale securities attributable primarily to unfavorable changes in credit quality and interest rates; |
• | An increase to realized loss due to the ineffectiveness of our GLB hedge program driven by significant volatility in the capital markets along with a modification of the structure of some of our hedges in an effort to better match the sensitivities of the embedded derivative liability going forward; |
• | The loss on disposition of our discontinued operations in 2007; |
• | An increase to underwriting, acquisition, insurance and other expenses due primarily to growth in account values from sales and favorable equity markets and an increase in broker-dealer expenses, driven by an increase in incentive compensation attributable to stronger sales performance and an increase in legal expenses for pending cases; |
• | An increase in the effective tax rate to 30% from 27% attributable to a $25 million favorable tax return true-up in 2006 associated primarily with the separate account DRD; |
• | The impact of adjustments during the second quarter of 2007 resulting from account value adjustments for certain of our life insurance policies and modifying the accounting for certain of our life insurance policies; and |
• | The adoption of SOP 05-1 on January 1, 2007, which increased DAC and VOBA amortization, net of deferrals by approximately $11 million. |
• | Including the results of operations from Jefferson-Pilot for twelve months in 2007 compared to only nine months in 2006; |
• | Growth in insurance fees driven by increases in life insurance in force as a result of new sales and favorable persistency along with increases in variable account values from favorable equity markets and positive net flows; |
• | Growth in insurance premiums driven by increases in our Insurance Solutions — Group Protection non-medical group business in force as a result of new sales and favorable persistency; |
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• | Higher investment income from stronger results from our alternative investments and growth in fixed account values, including fixed portion of variable, driven by positive net flows and favorable equity markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | A $12 million favorable prospective unlocking (a $28 million increase from assumption changes net of a $16 million decrease from model refinements) of DAC, VOBA, DSI, DFEL and the reserves for annuity and life insurance products with living benefit and death benefit guarantees (discussed above) in 2007 compared to a $19 million unfavorable prospective unlocking (an $18 million decrease from assumption changes due primarily to higher increase in reserves on products with secondary guarantees, partially offset by improved mortality experience and expenses than our model projections assumed and a $1 million decrease from model refinements) in 2006 (see “Critical Accounting Policies and Estimates — DAC, VOBA, DSI and DFEL” for more information); and |
• | Growth in investment advisory fees driven by higher external average assets under management and favorable equity markets. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance premiums | $ | 136 | $ | 118 | $ | 47 | 15 | % | 151 | % | ||||||||||
Insurance fees | 963 | 998 | 751 | -4 | % | 33 | % | |||||||||||||
Net investment income | 972 | 1,032 | 976 | -6 | % | 6 | % | |||||||||||||
Operating realized gain | 219 | 6 | 1 | NM | NM | |||||||||||||||
Other revenues and fees(1) | 320 | 379 | 285 | -16 | % | 33 | % | |||||||||||||
Total operating revenues | 2,610 | 2,533 | 2,060 | 3 | % | 23 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Interest credited | 698 | 659 | 624 | 6 | % | 6 | % | |||||||||||||
Benefits | 452 | 170 | 92 | 166 | % | 85 | % | |||||||||||||
Underwriting, acquisition, insurance and other expenses | 1,322 | 1,060 | 855 | 25 | % | 24 | % | |||||||||||||
Total operating expenses | 2,472 | 1,889 | 1,571 | 31 | % | 20 | % | |||||||||||||
Income from operations before taxes | 138 | 644 | 489 | -79 | % | 32 | % | |||||||||||||
Federal income tax expense (benefit) | (55 | ) | 159 | 90 | NM | 77 | % | |||||||||||||
Income from operations | $ | 193 | $ | 485 | $ | 399 | -60 | % | 22 | % | ||||||||||
(1) | Other revenues and fees consists primarily of broker-dealer earnings that are subject to market volatility. |
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• | A $210 million unfavorable prospective unlocking from assumption changes of DAC, VOBA, DSI, DFEL and reserves for our GDB riders in 2008 due primarily to significantly unfavorable equity markets, compared to a $7 million favorable prospective unlocking (an $18 million favorable unlocking from assumption changes due primarily to favorable interest rates, maintenance expenses and persistency, partially offset by less favorable asset-based fees than our model projections assumed, net of an $11 million unfavorable unlocking from model refinements) in 2007 (see “Critical Accounting Policies and Estimates — DAC, VOBA, DSI and DFEL” for more information); |
• | A $50 million unfavorable retrospective unlocking of DAC, VOBA, DSI, DFEL and reserves for our guarantee riders in 2008 due primarily to the impact of lower equity market performance than our model projections assumed, compared to a $21 million favorable retrospective unlocking in 2007 due primarily to lower lapses and higher equity market performance than our model projections assumed; |
• | Higher benefits from an increase in the change in GDB reserves due to an increase in our expected GDB benefit payments attributable primarily to the decline in account values due to the unfavorable equity markets; |
• | Lower net investment income attributable primarily to less favorable investment income on surplus and alternative investments due to deterioration of the capital markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | Lower insurance fees driven primarily by lower average daily variable account values due to unfavorable equity markets, partially offset by increased surrender charges and higher average expense assessment rates due to continued growth in rider elections that have incremental charges associated with them; and |
• | A less favorable net broker-dealer margin attributable primarily to lower sales of non-proprietary products and lower earnings due to the unfavorable equity markets. |
• | Lower underwriting, acquisition, insurance and other expenses, excluding unlocking, due primarily to lower DAC and VOBA amortization, net of interest, driven by the declines in our variable account values from unfavorable equity markets during 2008 and lower incentive compensation accruals as a result of lower earnings and production performance relative to planned goals; and |
• | A reduction in federal income tax expense related to a $21 million favorable tax return true-up driven primarily by the separate account DRD and other items in 2008, compared to a $2 million unfavorable tax return true-up and other items in 2007. |
• | Lower expense assessments and higher changes in reserves related to our GDB features, partially offset by lower asset-based expenses, due to the variable account value erosion from unfavorable equity market returns experienced during the fourth quarter of 2008 resulting in lower account values at the end of 2008; |
• | Lower investment income on the segment’s alternative investments due to the market conditions in both the equity and credit markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); and |
• | Higher expenses attributable to our U.S. pension plans (see “Critical Accounting Policies and Estimates — Pension and Other Postretirement Benefit Plans” above for additional information). |
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• | Including the results of operations from Jefferson-Pilot for twelve months in 2007 compared to only nine months in 2006; |
• | Growth in insurance fees driven by higher average daily variable account values from favorable equity markets and positive net flows and an increase in average expense assessment rates driven by the increase in account values with our guarantee riders that have incremental charges associated with them; and |
• | A $7 million favorable prospective unlocking of DAC, VOBA, DSI, DFEL and reserves for our GDB riders (discussed above) in 2007 compared to a $1 million favorable prospective unlocking from assumption changes for 2006. |
• | Increases to underwriting, acquisition, insurance and other expenses attributable primarily to growth in account values from sales and favorable equity markets and an increase in our broker-dealer expenses, driven by increases in incentive compensation attributable to the strong sales performance and increases in legal expenses for pending cases; |
• | The adoption of SOP 05-1 on January 1, 2007, which increased DAC and VOBA amortization, net of deferrals, by approximately $6 million; and |
• | An increase in the effective tax rate to 25% from 18% attributable to a $2 million unfavorable tax return true-up and other items in 2007, compared to a $33 million favorable tax return true-up associated primarily with the separate account DRD in 2006. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Insurance Fees | ||||||||||||||||||||
Mortality, expense and other assessments | $ | 935 | $ | 989 | $ | 747 | -5 | % | 32 | % | ||||||||||
Surrender charges | 45 | 39 | 35 | 15 | % | 11 | % | |||||||||||||
DFEL: | ||||||||||||||||||||
Deferrals | (50 | ) | (45 | ) | (40 | ) | -11 | % | -13 | % | ||||||||||
Prospective unlocking — assumption changes | 25 | (1 | ) | (3 | ) | NM | 67 | % | ||||||||||||
Retrospective unlocking | 13 | — | (1 | ) | NM | 100 | % | |||||||||||||
Other amortization, net of interest | (5 | ) | 16 | 13 | NM | 23 | % | |||||||||||||
Total insurance fees | $ | 963 | $ | 998 | $ | 751 | -4 | % | 33 | % | ||||||||||
As of December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Account Values | ||||||||||||||||||||
Variable portion of variable annuities | $ | 40,925 | $ | 58,643 | $ | 48,169 | -30 | % | 22 | % | ||||||||||
Fixed portion of variable annuities | 3,617 | 3,470 | 3,613 | 4 | % | -4 | % | |||||||||||||
Total variable annuities | 44,542 | 62,113 | 51,782 | -28 | % | 20 | % | |||||||||||||
Fixed annuities, including indexed | 14,038 | 14,352 | 14,932 | -2 | % | -4 | % | |||||||||||||
Fixed annuities ceded to reinsurers | (1,125 | ) | (1,352 | ) | (1,812 | ) | 17 | % | 25 | % | ||||||||||
Total fixed annuities | 12,913 | 13,000 | 13,120 | -1 | % | -1 | % | |||||||||||||
Total account values | $ | 57,455 | $ | 75,113 | $ | 64,902 | -24 | % | 16 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Averages | ||||||||||||||||||||
Daily variable account values, excluding the fixed portion of variable | $ | 52,111 | $ | 54,210 | $ | 42,359 | -4 | % | 28 | % | ||||||||||
Daily S&P 500 | 1,220.72 | 1,476.71 | 1,310.58 | -17 | % | 13 | % | |||||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Flows on Account Values | ||||||||||||||||||||
Variable portion of variable annuity deposits | $ | 6,690 | $ | 9,135 | $ | 7,251 | -27 | % | 26 | % | ||||||||||
Variable portion of variable annuity withdrawals | (4,813 | ) | (5,089 | ) | (4,080 | ) | 5 | % | -25 | % | ||||||||||
Variable portion of variable annuity net flows | 1,877 | 4,046 | 3,171 | -54 | % | 28 | % | |||||||||||||
Fixed portion of variable annuity deposits | 3,433 | 2,795 | 2,090 | 23 | % | 34 | % | |||||||||||||
Fixed portion of variable annuity withdrawals | (549 | ) | (644 | ) | (697 | ) | 15 | % | 8 | % | ||||||||||
Fixed portion of variable annuity net flows | 2,884 | 2,151 | 1,393 | 34 | % | 54 | % | |||||||||||||
Total variable annuity deposits | 10,123 | 11,930 | 9,341 | -15 | % | 28 | % | |||||||||||||
Total variable annuity withdrawals | (5,362 | ) | (5,733 | ) | (4,777 | ) | 6 | % | -20 | % | ||||||||||
Total variable annuity net flows | 4,761 | 6,197 | 4,564 | -23 | % | 36 | % | |||||||||||||
Fixed indexed annuity deposits | 1,078 | 755 | 717 | 43 | % | 5 | % | |||||||||||||
Fixed indexed annuity withdrawals | (441 | ) | (245 | ) | (175 | ) | -80 | % | -40 | % | ||||||||||
Fixed indexed annuity net flows | 637 | 510 | 542 | 25 | % | -6 | % | |||||||||||||
Other fixed annuity deposits | 529 | 772 | 698 | -31 | % | 11 | % | |||||||||||||
Other fixed annuity withdrawals | (1,837 | ) | (2,488 | ) | (3,139 | ) | 26 | % | 21 | % | ||||||||||
Other fixed annuity net flows | (1,308 | ) | (1,716 | ) | (2,441 | ) | 24 | % | 30 | % | ||||||||||
Total annuity deposits | 11,730 | 13,457 | 10,756 | -13 | % | 25 | % | |||||||||||||
Total annuity withdrawals | (7,640 | ) | (8,466 | ) | (8,091 | ) | 10 | % | -5 | % | ||||||||||
Total annuity net flows | $ | 4,090 | $ | 4,991 | $ | 2,665 | -18 | % | 87 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Changes to Account Values | ||||||||||||||||||||
Interest credited and change in market value on variable, excluding the fixed portion of variable | $ | (22,187 | ) | $ | 3,988 | $ | 5,203 | NM | -23 | % | ||||||||||
Transfers from the fixed portion of variable annuity products to the variable portion of variable annuity products | 2,798 | 2,440 | 1,890 | 15 | % | 29 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Investment Income | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 901 | $ | 914 | $ | 886 | -1 | % | 3 | % | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums(1) | 3 | 10 | 7 | -70 | % | 43 | % | |||||||||||||
Alternative investments(2) | (2 | ) | 1 | 2 | NM | -50 | % | |||||||||||||
Surplus investments(3) | 67 | 101 | 81 | -34 | % | 25 | % | |||||||||||||
Internal default charges(4) | — | — | (4 | ) | NM | 100 | % | |||||||||||||
Broker-dealer | 3 | 6 | 4 | -50 | % | 50 | % | |||||||||||||
Total net investment income | $ | 972 | $ | 1,032 | $ | 976 | -6 | % | 6 | % | ||||||||||
Interest Credited | ||||||||||||||||||||
Amount provided to contract holders | $ | 727 | $ | 746 | $ | 691 | -3 | % | 8 | % | ||||||||||
Opening balance sheet adjustment(5) | — | (4 | ) | — | 100 | % | NM | |||||||||||||
DSI deferrals | (95 | ) | (116 | ) | (86 | ) | 18 | % | -35 | % | ||||||||||
Interest credited before DSI amortization | 632 | 626 | 605 | 1 | % | 3 | % | |||||||||||||
DSI amortization: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 37 | (2 | ) | (1 | ) | NM | -100 | % | ||||||||||||
Prospective unlocking — model refinements | — | 1 | — | -100 | % | NM | ||||||||||||||
Retrospective unlocking | 13 | (1 | ) | (3 | ) | NM | 67 | % | ||||||||||||
Other amortization | 16 | 35 | 23 | -54 | % | 52 | % | |||||||||||||
Total interest credited | $ | 698 | $ | 659 | $ | 624 | 6 | % | 6 | % | ||||||||||
(1) | See “Consolidated Investments — Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information. | |
(2) | See “Consolidated Investments — Alternative Investments” below for additional information. | |
(3) | Represents net investment income on the required statutory surplus for this segment. | |
(4) | See “Results of Other Operations” below for information on this methodology discontinued in the third quarter of 2006. | |
(5) | Net adjustment to the opening balance sheet of Jefferson-Pilot finalized in 2007. |
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Basis Point Change | ||||||||||||||||||||
For the Years Ended December 31, | Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Interest Rate Spread | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.79 | % | 5.87 | % | 5.82 | % | (8 | ) | 5 | |||||||||||
Commercial mortgage loan prepayment and bond make whole premiums | 0.02 | % | 0.06 | % | 0.05 | % | (4 | ) | 1 | |||||||||||
Alternative investments | -0.01 | % | 0.00 | % | 0.01 | % | (1 | ) | (1 | ) | ||||||||||
Internal default charges | 0.00 | % | 0.00 | % | -0.03 | % | — | 3 | ||||||||||||
Net investment income yield on reserves | 5.80 | % | 5.93 | % | 5.85 | % | (13 | ) | 8 | |||||||||||
Amount provided to contract holders | 3.84 | % | 3.74 | % | 3.82 | % | 10 | (8 | ) | |||||||||||
Opening balance sheet adjustment | 0.00 | % | -0.02 | % | 0.00 | % | 2 | (2 | ) | |||||||||||
Interest rate credited to contract holders | 3.84 | % | 3.72 | % | 3.82 | % | 12 | (10 | ) | |||||||||||
Interest rate spread | 1.96 | % | 2.21 | % | 2.03 | % | (25 | ) | 18 | |||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Information | ||||||||||||||||||||
Average invested assets on reserves | $ | 15,784 | $ | 15,924 | $ | 15,386 | -1 | % | 3 | % | ||||||||||
Average fixed account values, including the fixed portion of variable | 17,263 | 17,560 | 16,525 | -2 | % | 6 | % | |||||||||||||
Transfers from the fixed portion of variable annuity products to the variable portion of variable annuity products | (2,798 | ) | (2,440 | ) | (1,890 | ) | -15 | % | -29 | % | ||||||||||
Net flows for fixed annuities, including the fixed portion of variable | 2,213 | 945 | (506 | ) | 134 | % | 287 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses | ||||||||||||||||||||
Total expenses incurred, excluding broker-dealer | $ | 1,002 | $ | 1,083 | $ | 878 | -7 | % | 23 | % | ||||||||||
DAC and VOBA deferrals | (686 | ) | (774 | ) | (612 | ) | 11 | % | -26 | % | ||||||||||
Total pre-broker-dealer expenses incurred, excluding amortization, net of interest | 316 | 309 | 266 | 2 | % | 16 | % | |||||||||||||
DAC and VOBA amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 303 | (28 | ) | (1 | ) | NM | NM | |||||||||||||
Prospective unlocking — model refinements | — | 16 | — | -100 | % | NM | ||||||||||||||
Retrospective unlocking | 154 | (32 | ) | (19 | ) | NM | -68 | % | ||||||||||||
Other amortization, net of interest | 218 | 417 | 322 | -48 | % | 30 | % | |||||||||||||
Broker-dealer expenses incurred | 331 | 378 | 287 | -12 | % | 32 | % | |||||||||||||
Total underwriting, acquisition, insurance and other expenses | $ | 1,322 | $ | 1,060 | $ | 855 | 25 | % | 24 | % | ||||||||||
DAC and VOBA Deferrals | ||||||||||||||||||||
As a percentage of sales/deposits | 5.8 | % | 5.8 | % | 5.7 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance fees | $ | 222 | $ | 259 | $ | 230 | -14 | % | 13 | % | ||||||||||
Net investment income | 695 | 709 | 738 | -2 | % | -4 | % | |||||||||||||
Operating realized gain | 4 | — | — | NM | NM | |||||||||||||||
Other revenues and fees | 15 | 18 | 20 | -17 | % | -10 | % | |||||||||||||
Total operating revenues | 936 | 986 | 988 | -5 | % | 0 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Interest credited | 430 | 418 | 411 | 3 | % | 2 | % | |||||||||||||
Benefits | 14 | — | — | NM | NM | |||||||||||||||
Underwriting, acquisition, insurance and other expenses | 340 | 315 | 297 | 8 | % | 6 | % | |||||||||||||
Total operating expenses | 784 | 733 | 708 | 7 | % | 4 | % | |||||||||||||
Income from operations before taxes | 152 | 253 | 280 | -40 | % | -10 | % | |||||||||||||
Federal income taxes | 29 | 72 | 76 | -60 | % | -5 | % | |||||||||||||
Income from operations | $ | 123 | $ | 181 | $ | 204 | -32 | % | -11 | % | ||||||||||
• | A $26 million unfavorable prospective unlocking from assumption changes of DAC, VOBA, DSI and reserves for our GDB riders in 2008 due primarily to continued significantly unfavorable equity markets, compared to a $2 million unfavorable prospective unlocking from assumption changes in 2007 due primarily to higher lapse rates and lower asset-based fees, partially offset by lower expenses than our model projections assumed (see “Critical Accounting Policies and Estimates — DAC, VOBA, DSI and DFEL” for more information); |
• | Lower insurance fees driven primarily by lower average daily variable account values resulting from the unfavorable equity markets and an overall shift in business mix toward products with lower expense assessment rates; |
• | Lower net investment income attributable primarily to less favorable investment income on surplus and alternative investments due to deterioration of the capital markets partially offset by higher average fixed account values (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | Higher interest credited driven primarily by higher average fixed account values, including the fixed portion of variable annuity contracts, driven by transfers from variable to fixed; |
• | Higher benefits from an increase in the change in GDB reserves due to an increase in our expected GDB benefit payments attributable primarily to the decline in account values due to the unfavorable equity markets; and |
• | A $9 million unfavorable retrospective unlocking of DAC, VOBA and DSI in 2008 due primarily to higher lapses, maintenance expenses and future GDB claims than our model projections assumed compared to a $4 million unfavorable retrospective unlocking in 2007 due primarily to higher lapses and less favorable asset-based fees than our model projections assumed. |
• | Lower underwriting, acquisition, insurance and other expenses, excluding unlocking, due primarily to lower DAC and VOBA amortization, net of interest, driven by the declines in our variable account values from unfavorable equity markets during 2008, the implementation of several expense management controls and practices that are focused on aggressively managing expenses and lower incentive compensation accruals as a result of lower earnings and production performance relative to planned goals; and |
• | A reduction in federal income tax expense related to a favorable tax return true up in 2008. |
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• | Lower expense assessments and higher changes in reserves related to our GDB features, partially offset by lower asset-based expenses, due to the variable account value erosion from unfavorable equity market returns experienced during the fourth quarter of 2008 resulting in lower account values at the end of 2008; |
• | Lower investment income on the segment’s alternative investments due to the market conditions in both the equity and credit markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | Lower insurance fees driven by a continuing overall shift in business mix toward products with lower expense assessments and lower margins.; and |
• | Higher expenses attributable to our U.S. pension plans (see “Critical Accounting Policies and Estimates — Pension and Other Postretirement Benefit Plans” above for additional information). |
• | Lower net investment income driven by net outflows for fixed annuities, including the fixed portion of variable annuity contracts and less favorable results from our investment income on alternative investments and prepayment and bond makewhole premiums (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | Higher interest credited to contract holders attributable to an increase in crediting rates; |
• | A $2 million unfavorable prospective unlocking of DAC, VOBA and DSI from assumption changes (discussed above) in 2007 compared to a $4 million favorable prospective unlocking from assumption changes in 2006 due primarily to lower long-term interest rates and favorable margins, partially offset by lower persistency than our model projections assumed; and |
• | Higher costs of investments in strategic initiatives associated with changes to and expansion of our wholesaling structure in 2007. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Insurance Fees | ||||||||||||||||||||
Annuity expense assessments | $ | 197 | $ | 234 | $ | 210 | -16 | % | 11 | % | ||||||||||
Mutual fund fees | 19 | 17 | 12 | 12 | % | 42 | % | |||||||||||||
Total expense assessments | 216 | 251 | 222 | -14 | % | 13 | % | |||||||||||||
Surrender charges | 6 | 8 | 8 | -25 | % | 0 | % | |||||||||||||
Total insurance fees | $ | 222 | $ | 259 | $ | 230 | -14 | % | 13 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Averages | ||||||||||||||||||||
Daily variable account values, excluding the fixed portion of variable | $ | 14,935 | $ | 18,043 | $ | 16,432 | -17 | % | 10 | % | ||||||||||
Daily S&P 500 | 1,220.72 | 1,476.71 | 1,310.58 | -17 | % | 13 | % | |||||||||||||
As of December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Account Values | ||||||||||||||||||||
Variable portion of variable annuities | $ | 10,588 | $ | 17,876 | $ | 17,476 | -41 | % | 2 | % | ||||||||||
Fixed portion of variable annuities | 6,037 | 5,893 | 6,210 | 2 | % | -5 | % | |||||||||||||
Total variable annuities | 16,625 | 23,769 | 23,686 | -30 | % | 0 | % | |||||||||||||
Fixed annuities | 5,601 | 4,996 | 4,796 | 12 | % | 4 | % | |||||||||||||
Total annuities | 22,226 | 28,765 | 28,482 | -23 | % | 1 | % | |||||||||||||
Mutual funds | 6,652 | 7,293 | 5,174 | -9 | % | 41 | % | |||||||||||||
Total annuities and mutual funds | $ | 28,878 | $ | 36,058 | $ | 33,656 | -20 | % | 7 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Account Value Roll Forward — By Product | ||||||||||||||||||||
Total Micro — Small Segment: | ||||||||||||||||||||
Balance at beginning-of-period | $ | 7,798 | $ | 7,535 | $ | 6,506 | 3 | % | 16 | % | ||||||||||
Gross deposits | 1,531 | 1,594 | 1,840 | -4 | % | -13 | % | |||||||||||||
Withdrawals and deaths | (1,740 | ) | (1,931 | ) | (1,540 | ) | 10 | % | -25 | % | ||||||||||
Net flows | (209 | ) | (337 | ) | 300 | 38 | % | NM | ||||||||||||
Transfers between fixed and variable accounts | (8 | ) | (5 | ) | — | -60 | % | NM | ||||||||||||
Inter-product transfer(1) | (653 | ) | — | — | NM | NM | ||||||||||||||
Investment increase and change in market value | (2,040 | ) | 605 | 729 | NM | -17 | % | |||||||||||||
Balance at end-of-period | $ | 4,888 | $ | 7,798 | $ | 7,535 | -37 | % | 3 | % | ||||||||||
Total Mid — Large Segment: | ||||||||||||||||||||
Balance at beginning-of-period | $ | 9,463 | $ | 6,975 | $ | 5,271 | 36 | % | 32 | % | ||||||||||
Gross deposits | 2,933 | 2,771 | 1,544 | 6 | % | 79 | % | |||||||||||||
Withdrawals and deaths | (871 | ) | (724 | ) | (434 | ) | -20 | % | -67 | % | ||||||||||
Net flows | 2,062 | 2,047 | 1,110 | 1 | % | 84 | % | |||||||||||||
Transfers between fixed and variable accounts | (55 | ) | (17 | ) | (4 | ) | NM | NM | ||||||||||||
Inter-product transfer(1) | 653 | — | — | NM | NM | |||||||||||||||
Investment increase and change in market value | (2,583 | ) | 458 | 598 | NM | -23 | % | |||||||||||||
Balance at end-of-period | $ | 9,540 | $ | 9,463 | $ | 6,975 | 1 | % | 36 | % | ||||||||||
TotalMulti-Fund® and Other Variable Annuities: | ||||||||||||||||||||
Balance at beginning-of-period | $ | 18,797 | $ | 19,146 | $ | 18,697 | -2 | % | 2 | % | ||||||||||
Gross deposits | 1,083 | 1,185 | 1,201 | -9 | % | -1 | % | |||||||||||||
Withdrawals and deaths | (2,155 | ) | (2,558 | ) | (2,269 | ) | 16 | % | -13 | % | ||||||||||
Net flows | (1,072 | ) | (1,373 | ) | (1,068 | ) | 22 | % | -29 | % | ||||||||||
Transfers between fixed and variable accounts | (2 | ) | (6 | ) | (6 | ) | 67 | % | 0 | % | ||||||||||
Inter-segment transfer | 295 | — | — | NM | NM | |||||||||||||||
Investment increase and change in market value | (3,568 | ) | 1,030 | 1,523 | NM | -32 | % | |||||||||||||
Balance at end-of-period | $ | 14,450 | $ | 18,797 | $ | 19,146 | -23 | % | -2 | % | ||||||||||
Total Annuities and Mutual Funds: | ||||||||||||||||||||
Balance at beginning-of-period | $ | 36,058 | $ | 33,656 | $ | 30,474 | 7 | % | 10 | % | ||||||||||
Gross deposits | 5,547 | 5,550 | 4,585 | 0 | % | 21 | % | |||||||||||||
Withdrawals and deaths | (4,766 | ) | (5,213 | ) | (4,243 | ) | 9 | % | -23 | % | ||||||||||
Net flows | 781 | 337 | 342 | 132 | % | -1 | % | |||||||||||||
Transfers between fixed and variable accounts | (65 | ) | (28 | ) | (10 | ) | NM | NM | ||||||||||||
Inter-segment transfer | 295 | — | — | NM | NM | |||||||||||||||
Investment increase and change in market value | (8,191 | ) | 2,093 | 2,850 | NM | -27 | % | |||||||||||||
Balance at end-of-period(2) | $ | 28,878 | $ | 36,058 | $ | 33,656 | -20 | % | 7 | % | ||||||||||
(1) | The Lincoln Employee 401(k) Plan transferred from LINCOLN DIRECTORSM toLINCOLN ALLIANCE® effective September 30, 2008. | |
(2) | Includes mutual fund account values. Mutual funds are not included in the separate accounts reported on our Consolidated Balance Sheets as we do not have any ownership interest in them. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Flows on Account Values | ||||||||||||||||||||
Variable portion of variable annuity deposits | $ | 2,170 | $ | 2,355 | $ | 2,525 | -8 | % | -7 | % | ||||||||||
Variable portion of variable annuity withdrawals | (2,708 | ) | (3,212 | ) | (2,557 | ) | 16 | % | -26 | % | ||||||||||
Variable portion of variable annuity net flows | (538 | ) | (857 | ) | (32 | ) | 37 | % | NM | |||||||||||
Fixed portion of variable annuity deposits | 369 | 351 | 441 | 5 | % | -20 | % | |||||||||||||
Fixed portion of variable annuity withdrawals | (991 | ) | (912 | ) | (938 | ) | -9 | % | 3 | % | ||||||||||
Fixed portion of variable annuity net flows | (622 | ) | (561 | ) | (497 | ) | -11 | % | -13 | % | ||||||||||
Total variable annuity deposits | 2,539 | 2,706 | 2,966 | -6 | % | -9 | % | |||||||||||||
Total variable annuity withdrawals | (3,699 | ) | (4,124 | ) | (3,495 | ) | 10 | % | -18 | % | ||||||||||
Total variable annuity net flows | (1,160 | ) | (1,418 | ) | (529 | ) | 18 | % | NM | |||||||||||
Fixed annuity deposits | 812 | 754 | 506 | 8 | % | 49 | % | |||||||||||||
Fixed annuity withdrawals | (557 | ) | (724 | ) | (501 | ) | 23 | % | -45 | % | ||||||||||
Fixed annuity net flows | 255 | 30 | 5 | NM | NM | |||||||||||||||
Total annuity deposits | 3,351 | 3,460 | 3,472 | -3 | % | 0 | % | |||||||||||||
Total annuity withdrawals | (4,256 | ) | (4,848 | ) | (3,996 | ) | 12 | % | -21 | % | ||||||||||
Total annuity net flows | (905 | ) | (1,388 | ) | (524 | ) | 35 | % | NM | |||||||||||
Mutual fund deposits | 2,196 | 2,090 | 1,113 | 5 | % | 88 | % | |||||||||||||
Mutual fund withdrawals | (510 | ) | (365 | ) | (247 | ) | -40 | % | -48 | % | ||||||||||
Mutual fund net flows | 1,686 | 1,725 | 866 | -2 | % | 99 | % | |||||||||||||
Total annuity and mutual fund deposits | 5,547 | 5,550 | 4,585 | 0 | % | 21 | % | |||||||||||||
Total annuity and mutual fund withdrawals | (4,766 | ) | (5,213 | ) | (4,243 | ) | 9 | % | -23 | % | ||||||||||
Total annuity and mutual fund net flows | $ | 781 | $ | 337 | $ | 342 | 132 | % | -1 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Changes to Account Values | ||||||||||||||||||||
Interest credited and change in market value on variable, excluding the fixed portion of variable | $ | (5,942 | ) | $ | 1,287 | $ | 1,899 | NM | -32 | % | ||||||||||
Transfers from the fixed portion of variable annuity products to the variable portion of variable annuity products | (461 | ) | (29 | ) | (84 | ) | NM | 65 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Investment Income | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 655 | $ | 646 | $ | 659 | 1 | % | -2 | % | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums(1) | 7 | 6 | 17 | 17 | % | -65 | % | |||||||||||||
Alternative investments(2) | (6 | ) | 2 | 8 | NM | -75 | % | |||||||||||||
Surplus investments(3) | 39 | 55 | 54 | -29 | % | 2 | % | |||||||||||||
Total net investment income | $ | 695 | $ | 709 | $ | 738 | -2 | % | -4 | % | ||||||||||
Interest Credited | $ | 430 | $ | 418 | $ | 411 | 3 | % | 2 | % | ||||||||||
(1) | See “Consolidated Investments — Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information. | |
(2) | See “Consolidated Investments — Alternative Investments” below for additional information. | |
(3) | Represents net investment income on the required statutory surplus for this segment. |
Basis Point Change | ||||||||||||||||||||
For the Years Ended December 31, | Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Interest Rate Spread | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.89 | % | 6.03 | % | 6.11 | % | (14 | ) | (8 | ) | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.06 | % | 0.06 | % | 0.16 | % | — | (10 | ) | |||||||||||
Alternative investments | -0.05 | % | 0.02 | % | 0.07 | % | (7 | ) | (5 | ) | ||||||||||
Net investment income yield on reserves | 5.90 | % | 6.11 | % | 6.34 | % | (21 | ) | (23 | ) | ||||||||||
Interest rate credited to contract holders | 3.79 | % | 3.83 | % | 3.73 | % | (4 | ) | 10 | |||||||||||
Interest rate spread | 2.11 | % | 2.28 | % | 2.61 | % | (17 | ) | (33 | ) | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Information | ||||||||||||||||||||
Average invested assets on reserves | $ | 11,113 | $ | 10,712 | $ | 10,785 | 4 | % | -1 | % | ||||||||||
Average fixed account values, including the fixed portion of variable | 11,330 | 10,935 | 11,016 | 4 | % | -1 | % | |||||||||||||
Transfers from the fixed portion of variable annuity products to the variable portion of variable annuity products | 461 | 29 | 84 | NM | -65 | % | ||||||||||||||
Net flows for fixed annuities, including the fixed portion of variable | (367 | ) | (531 | ) | (492 | ) | 31 | % | -8 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses | ||||||||||||||||||||
Total expenses incurred | $ | 305 | $ | 313 | $ | 311 | -3 | % | 1 | % | ||||||||||
DAC deferrals | (94 | ) | (92 | ) | (88 | ) | -2 | % | -5 | % | ||||||||||
Total expenses recognized before amortization | 211 | 221 | 223 | -5 | % | -1 | % | |||||||||||||
DAC and VOBA amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 39 | 3 | (7 | ) | NM | 143 | % | |||||||||||||
Retrospective unlocking | 15 | 6 | 6 | 150 | % | 0 | % | |||||||||||||
Other amortization, net of interest | 75 | 85 | 75 | -12 | % | 13 | % | |||||||||||||
Total underwriting, acquisition, insurance and other expenses | $ | 340 | $ | 315 | $ | 297 | 8 | % | 6 | % | ||||||||||
DAC Deferrals | ||||||||||||||||||||
As a percentage of annuity sales/deposits | 2.8 | % | 2.7 | % | 2.5 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance premiums | $ | 360 | $ | 351 | $ | 322 | 3 | % | 9 | % | ||||||||||
Insurance fees | 1,871 | 1,734 | 1,421 | 8 | % | 22 | % | |||||||||||||
Net investment income | 1,988 | 2,069 | 1,685 | -4 | % | 23 | % | |||||||||||||
Other revenues and fees | 31 | 35 | 42 | -11 | % | -17 | % | |||||||||||||
Total operating revenues | 4,250 | 4,189 | 3,470 | 1 | % | 21 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Interest credited | 1,202 | 1,173 | 1,007 | 2 | % | 16 | % | |||||||||||||
Benefits | 1,363 | 1,089 | 901 | 25 | % | 21 | % | |||||||||||||
Underwriting, acquisition, insurance and other expenses | 877 | 842 | 765 | 4 | % | 10 | % | |||||||||||||
Total operating expenses | 3,442 | 3,104 | 2,673 | 11 | % | 16 | % | |||||||||||||
Income from operations before taxes | 808 | 1,085 | 797 | -26 | % | 36 | % | |||||||||||||
Federal income tax expense | 267 | 366 | 266 | -27 | % | 38 | % | |||||||||||||
Income from operations | $ | 541 | $ | 719 | $ | 531 | -25 | % | 35 | % | ||||||||||
• | A $53 million unfavorable prospective unlocking of DAC, VOBA, DFEL and secondary guarantee life insurance product reserves (a $34 million unfavorable unlocking from model refinements and a $19 million unfavorable unlocking from assumption changes due primarily to the impact of significantly unfavorable equity markets on our VUL block of business, partially offset by adjustments to reserves for products with secondary guarantees) in 2008 compared to a $4 million favorable prospective unlocking (a $12 million favorable unlocking from assumption changes due primarily to lower lapses and expenses and higher interest rates than our model projections assumed, net of an $8 million unfavorable unlocking from model refinements) in 2007 (see “Critical Accounting Policies and Estimates — DAC, VOBA, DSI and DFEL” for more information); |
• | A $24 million unfavorable retrospective unlocking of DAC, VOBA, and DFEL in 2008 due primarily to lower premiums received, higher death claims and lower investment income on alternative investments and prepayment and bond makewhole premiums than our model projections assumed, compared to a $28 million favorable retrospective unlocking in 2007 due primarily to higher persistency, higher investment income on alternative investments and prepayment and bond makewhole premiums and lower expenses than our model projections assumed, partially offset by the impact of a correction to account values; |
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• | An increase in benefits due primarily to an increase in reserves for products with secondary guarantees from continued growth of business in force and the effects of model refinements along with higher mortality due to an increase in the average attained age of the in-force block (discussed below) and lower benefits in the first quarter of 2007 related to a purchase accounting adjustment to the opening balance sheet of Jefferson-Pilot, discussed below; and |
• | Lower net investment income due primarily to unfavorable results from our investment income on alternative investments (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments) and prepayment and bond makewhole premiums due to deterioration of the financial markets and reductions in statutory reserves for products with secondary guarantees as a result of executing on a capital transaction to provide AG38 relief (see “Review of Consolidated Financial Condition — Liquidity and Capital Resources — Sources of Liquidity and Cash Flow” for details), the merger of several of our insurance subsidiaries and certain assumption changes in the fourth quarter of 2007. |
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• | Including the results of operations from Jefferson-Pilot for twelve months in 2007 compared to only nine months in 2006; |
• | Growth in insurance fees driven by increase in business in force as a result of new sales and favorable persistency, partially offset by a $41 million reduction related to the impact of the correction to account values and modifications of accounting related to certain insurance contracts during the second quarter of 2007; |
• | Higher investment income from growth in fixed product account values driven by positive net flows, higher statutory reserves on products with secondary guarantees and stronger results from our investment income on alternative investments (see “Consolidated Investments - Alternative Investments” below for additional information on our alternative investments); |
• | A $28 million favorable retrospective unlocking of DAC, VOBA, and DFEL (discussed above) in 2007 compared to an $11 million favorable retrospective unlocking in 2006 due primarily to higher persistency, higher investment income on alternative investments and prepayment and bond makewhole premiums and lower expenses than our model projections assumed, partially offset by the impact of a correction to account values; and |
• | A $4 million favorable prospective unlocking of DAC, VOBA, DFEL and secondary guarantee life insurance product reserves (discussed above) in 2007 compared to a $20 million unfavorable prospective unlocking (a $19 million decrease from assumption changes due primarily to higher increases in reserves on products with secondary guarantees, partially offset by lower mortality and expenses than our model projections assumed and a $1 million decrease from model refinements) in 2006. |
• | The adjustments to account values and modification of accounting related to certain life insurance policies with secondary guarantees during the second quarter of 2007; and |
• | Other increases to benefits due to growth in business in force, higher mortality and an increase in reserves for products with secondary guarantees, partially offset by $14 million in the first quarter of 2007 related to adjustments to the opening balance sheet of Jefferson-Pilot. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Insurance Fees | ||||||||||||||||||||
Mortality assessments | $ | 1,321 | $ | 1,223 | $ | 998 | 8 | % | 23 | % | ||||||||||
Expense assessments | 707 | 653 | 474 | 8 | % | 38 | % | |||||||||||||
Surrender charges | 60 | 59 | 60 | 2 | % | -2 | % | |||||||||||||
DFEL: | ||||||||||||||||||||
Deferrals | (379 | ) | (364 | ) | (206 | ) | -4 | % | -77 | % | ||||||||||
Amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 12 | — | (2 | ) | NM | 100 | % | |||||||||||||
Prospective unlocking — model refinements | (25 | ) | 26 | 1 | NM | NM | ||||||||||||||
Retrospective unlocking | 35 | (9 | ) | (7 | ) | NM | -29 | % | ||||||||||||
Other amortization, net of interest | 140 | 146 | 103 | -4 | % | 3 | % | |||||||||||||
Total insurance fees | $ | 1,871 | $ | 1,734 | $ | 1,421 | 8 | % | 22 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Sales by Product | ||||||||||||||||||||
UL: | ||||||||||||||||||||
ExcludingMoneyGuard® | $ | 525 | $ | 597 | $ | 436 | -12 | % | 37 | % | ||||||||||
MoneyGuard® | 50 | 40 | 31 | 25 | % | 29 | % | |||||||||||||
Total UL | 575 | 637 | 467 | -10 | % | 36 | % | |||||||||||||
VUL | 54 | 77 | 61 | -30 | % | 26 | % | |||||||||||||
COLI and BOLI | 84 | 91 | 83 | -8 | % | 10 | % | |||||||||||||
Term/whole life | 28 | 32 | 43 | -13 | % | -26 | % | |||||||||||||
Total sales | $ | 741 | $ | 837 | $ | 654 | -11 | % | 28 | % | ||||||||||
Net Flows | ||||||||||||||||||||
Deposits | $ | 4,493 | $ | 4,413 | $ | 3,632 | 2 | % | 22 | % | ||||||||||
Withdrawals and deaths | (1,671 | ) | (1,768 | ) | (1,552 | ) | 5 | % | -14 | % | ||||||||||
Net flows | $ | 2,822 | $ | 2,645 | $ | 2,080 | 7 | % | 27 | % | ||||||||||
Contract holder assessments | $ | 2,791 | $ | 2,521 | $ | 2,037 | 11 | % | 24 | % | ||||||||||
As of December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Account Values | ||||||||||||||||||||
UL | $ | 25,199 | $ | 24,223 | $ | 23,106 | 4 | % | 5 | % | ||||||||||
VUL | 4,251 | 6,040 | 5,432 | -30 | % | 11 | % | |||||||||||||
Interest-sensitive whole life | 2,303 | 2,295 | 2,257 | 0 | % | 2 | % | |||||||||||||
Total account values | $ | 31,753 | $ | 32,558 | $ | 30,795 | -2 | % | 6 | % | ||||||||||
In-Force Face Amount | ||||||||||||||||||||
UL and other | $ | 310,198 | $ | 299,598 | $ | 282,874 | 4 | % | 6 | % | ||||||||||
Term insurance | 235,023 | 235,919 | 234,148 | 0 | % | 1 | % | |||||||||||||
Total in-force face amount | $ | 545,221 | $ | 535,517 | $ | 517,022 | 2 | % | 4 | % | ||||||||||
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• | UL (excluding linked-benefit products) and VUL (including COLI and BOLI) — first year commissionable premiums plus 5% of excess premiums received, including an adjustment for internal replacements at approximately 50% of target; |
• | MoneyGuard® (our linked-benefit product) — 15% of premium deposits; and |
• | Whole life and term — 100% of first year paid premiums. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Investment Income | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 1,902 | $ | 1,873 | $ | 1,583 | 2 | % | 18 | % | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums(1) | 16 | 36 | 25 | -56 | % | 44 | % | |||||||||||||
Alternative investments(2) | (11 | ) | 54 | 6 | NM | NM | ||||||||||||||
Surplus investments(3) | 81 | 106 | 77 | -24 | % | 38 | % | |||||||||||||
Internal default charges(4) | — | — | (6 | ) | NM | 100 | % | |||||||||||||
Total net investment income | $ | 1,988 | $ | 2,069 | $ | 1,685 | -4 | % | 23 | % | ||||||||||
Interest Credited | $ | 1,202 | $ | 1,173 | $ | 1,007 | 2 | % | 16 | % | ||||||||||
(1) | See “Consolidated Investments — Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information. | |
(2) | See “Consolidated Investments — Alternative Investments” below for additional information. | |
(3) | Represents net investment income on the required statutory surplus for this segment and includes the impact of investment income on alternative investments for such assets that are held in the surplus portfolios versus the product portfolios. | |
(4) | See “Results of Other Operations” below for information on this methodology, which was discontinued in the third quarter of 2006. |
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Basis Point Change | ||||||||||||||||||||
For the Years Ended December 31, | Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Interest Rate Yields and Spread | ||||||||||||||||||||
Attributable to interest-sensitive products: | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.91 | % | 6.06 | % | 6.15 | % | (15 | ) | (9 | ) | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.05 | % | 0.13 | % | 0.09 | % | (8 | ) | 4 | |||||||||||
Alternative investments | -0.03 | % | 0.21 | % | 0.02 | % | (24 | ) | 19 | |||||||||||
Internal default charges | 0.00 | % | 0.00 | % | -0.03 | % | — | 3 | ||||||||||||
Net investment income yield on reserves | 5.93 | % | 6.40 | % | 6.23 | % | (47 | ) | 17 | |||||||||||
Interest rate credited to contract holders | 4.35 | % | 4.44 | % | 4.51 | % | (9 | ) | (7 | ) | ||||||||||
Interest rate spread | 1.58 | % | 1.96 | % | 1.72 | % | (38 | ) | 24 | |||||||||||
Attributable to traditional products: | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 6.13 | % | 6.25 | % | 6.45 | % | (12 | ) | (20 | ) | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.03 | % | 0.07 | % | 0.11 | % | (4 | ) | (4 | ) | ||||||||||
Alternative investments | -0.03 | % | 0.01 | % | 0.04 | % | (4 | ) | (3 | ) | ||||||||||
Net investment income yield on reserves | 6.13 | % | 6.33 | % | 6.60 | % | (20 | ) | (27 | ) | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Averages | ||||||||||||||||||||
Attributable to interest-sensitive products: | ||||||||||||||||||||
Invested assets on reserves | $ | 27,003 | $ | 25,787 | $ | 21,202 | 5 | % | 22 | % | ||||||||||
Account values — universal and whole life | 27,136 | 25,900 | 21,838 | 5 | % | 19 | % | |||||||||||||
Attributable to traditional products: | ||||||||||||||||||||
Invested assets on reserves | 5,058 | 5,063 | 4,446 | 0 | % | 14 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Benefits | ||||||||||||||||||||
Death claims direct and assumed | $ | 2,177 | $ | 1,944 | $ | 1,644 | 12 | % | 18 | % | ||||||||||
Death claims ceded | (966 | ) | (810 | ) | (714 | ) | -19 | % | -13 | % | ||||||||||
Reserves released on death | (357 | ) | (339 | ) | (312 | ) | -5 | % | -9 | % | ||||||||||
Net death benefits | 854 | 795 | 618 | 7 | % | 29 | % | |||||||||||||
Change in reserves for products with secondary guarantees: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 8 | (3 | ) | 15 | NM | NM | ||||||||||||||
Prospective unlocking — model refinements | 76 | 3 | — | NM | NM | |||||||||||||||
Other | 134 | 60 | 39 | 123 | % | 54 | % | |||||||||||||
Other benefits(1) | 291 | 234 | 229 | 24 | % | 2 | % | |||||||||||||
Total benefits | $ | 1,363 | $ | 1,089 | $ | 901 | 25 | % | 21 | % | ||||||||||
Death claims per $1,000 of inforce | 1.59 | 1.52 | 1.31 | 5 | % | 16 | % |
(1) | Other benefits includes primarily traditional product changes in reserves and dividends. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses | ||||||||||||||||||||
Total expenses incurred | $ | 1,338 | $ | 1,458 | $ | 1,154 | -8 | % | 26 | % | ||||||||||
DAC and VOBA deferrals | (1,016 | ) | (1,134 | ) | (839 | ) | 10 | % | -35 | % | ||||||||||
Total expenses recognized before amortization | 322 | 324 | 315 | -1 | % | 3 | % | |||||||||||||
DAC and VOBA amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 34 | (15 | ) | 12 | NM | NM | ||||||||||||||
Prospective unlocking — model refinements | (49 | ) | 36 | 2 | NM | NM | ||||||||||||||
Retrospective unlocking | 71 | (51 | ) | (25 | ) | 239 | % | NM | ||||||||||||
Other amortization, net of interest | 495 | 544 | 458 | -9 | % | 19 | % | |||||||||||||
Other intangible amortization | 4 | 4 | 3 | 0 | % | 33 | % | |||||||||||||
Total underwriting, acquisition, insurance and other expenses | $ | 877 | $ | 842 | $ | 765 | 4 | % | 10 | % | ||||||||||
DAC and VOBA Deferrals | ||||||||||||||||||||
As a percentage of sales | 137.1 | % | 135.5 | % | 128.3 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance premiums | $ | 1,517 | $ | 1,380 | $ | 949 | 10 | % | 45 | % | ||||||||||
Net investment income | 117 | 115 | 80 | 2 | % | 44 | % | |||||||||||||
Other revenues and fees | 6 | 5 | 3 | 20 | % | 67 | % | |||||||||||||
Total operating revenues | 1,640 | 1,500 | 1,032 | 9 | % | 45 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Interest credited | 2 | — | — | NM | NM | |||||||||||||||
Benefits | 1,107 | 999 | 663 | 11 | % | 51 | % | |||||||||||||
Underwriting, acquisition, insurance and other expenses | 371 | 326 | 217 | 14 | % | 50 | % | |||||||||||||
Total operating expenses | 1,480 | 1,325 | 880 | 12 | % | 51 | % | |||||||||||||
Income from operations before taxes | 160 | 175 | 152 | -9 | % | 15 | % | |||||||||||||
Federal income taxes | 56 | 61 | 53 | -8 | % | 15 | % | |||||||||||||
Income from operations | $ | 104 | $ | 114 | $ | 99 | -9 | % | 15 | % | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Income from Operations by Product Line | ||||||||||||||||||||
Life | $ | 34 | $ | 41 | $ | 37 | -17 | % | 11 | % | ||||||||||
Disability | 64 | 64 | 53 | 0 | % | 21 | % | |||||||||||||
Dental | 2 | 4 | 6 | -50 | % | -33 | % | |||||||||||||
Total non-medical | 100 | 109 | 96 | -8 | % | 14 | % | |||||||||||||
Medical | 4 | 5 | 3 | -20 | % | 67 | % | |||||||||||||
Total income from operations | $ | 104 | $ | 114 | $ | 99 | -9 | % | 15 | % | ||||||||||
• | Less favorable total non-medical loss ratio experience, although still on the low end of our expected range; and |
• | An increase to underwriting, acquisition, insurance and other expenses due primarily to growth in our business in force, higher 401(k) expenses, higher costs of investments in strategic initiatives associated with realigning our marketing and distribution structure and an increase in the allocation of expenses to this segment. |
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• | Growth in sales as a result of sales strength in our core, small case markets; and |
• | This segment was added as a result of the merger with Jefferson-Pilot; therefore, the results of operations reflect twelve months of activity in 2007 compared to only nine months in 2006. |
• | Loss ratios in 2007 were not as favorable as the loss ratios in 2006 due primarily to the exceptional claims experience on all our non-medical products during 2006; and |
• | The adoption of SOP 05-1 on January 1, 2007, which increased DAC and VOBA amortization, net of deferrals, by approximately $5 million. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Insurance Premiums by Product Line | ||||||||||||||||||||
Life | $ | 541 | $ | 494 | $ | 334 | 10 | % | 48 | % | ||||||||||
Disability | 672 | 601 | 407 | 12 | % | 48 | % | |||||||||||||
Dental | 150 | 136 | 95 | 10 | % | 43 | % | |||||||||||||
Total non-medical | 1,363 | 1,231 | 836 | 11 | % | 47 | % | |||||||||||||
Medical | 154 | 149 | 113 | 3 | % | 32 | % | |||||||||||||
Total insurance premiums | $ | 1,517 | $ | 1,380 | $ | 949 | 10 | % | 45 | % | ||||||||||
Sales | $ | 316 | $ | 326 | $ | 209 | -3 | % | 56 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Benefits and Interest Credited by Product Line | ||||||||||||||||||||
Life | $ | 401 | $ | 360 | $ | 233 | 11 | % | 55 | % | ||||||||||
Disability | 456 | 406 | 262 | 12 | % | 55 | % | |||||||||||||
Dental | 117 | 104 | 68 | 13 | % | 53 | % | |||||||||||||
Total non-medical | 974 | 870 | 563 | 12 | % | 55 | % | |||||||||||||
Medical | 135 | 129 | 100 | 5 | % | 29 | % | |||||||||||||
Total benefits and interest credited | $ | 1,109 | $ | 999 | $ | 663 | 11 | % | 51 | % | ||||||||||
Loss Ratios by Product Line | ||||||||||||||||||||
Life | 73.9 | % | 73.0 | % | 69.7 | % | ||||||||||||||
Disability | 67.9 | % | 67.5 | % | 64.4 | % | ||||||||||||||
Dental | 78.3 | % | 76.6 | % | 72.2 | % | ||||||||||||||
Total non-medical | 71.4 | % | 70.7 | % | 67.4 | % | ||||||||||||||
Medical | 87.6 | % | 87.0 | % | 88.2 | % |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses | ||||||||||||||||||||
Total expenses incurred | $ | 393 | $ | 349 | $ | 238 | 13 | % | 47 | % | ||||||||||
DAC and VOBA deferrals | (58 | ) | (54 | ) | (37 | ) | -7 | % | -46 | % | ||||||||||
Total expenses recognized before amortization | 335 | 295 | 201 | 14 | % | 47 | % | |||||||||||||
DAC and VOBA amortization, net of interest | 36 | 31 | 16 | 16 | % | 94 | % | |||||||||||||
Total underwriting, acquisition, insurance and other expenses | $ | 371 | $ | 326 | $ | 217 | 14 | % | 50 | % | ||||||||||
DAC and VOBA Deferrals | ||||||||||||||||||||
As a percentage of insurance premiums | 3.8 | % | 3.9 | % | 3.9 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Investment advisory fees — external | $ | 268 | $ | 360 | $ | 328 | -26 | % | 10 | % | ||||||||||
Investment advisory fees — inter-segment | 82 | 87 | 97 | -6 | % | -10 | % | |||||||||||||
Other revenues and fees | 88 | 143 | 139 | -38 | % | 3 | % | |||||||||||||
Total operating revenues | 438 | 590 | 564 | -26 | % | 5 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Underwriting, acquisition, insurance and other expenses | 393 | 471 | 480 | -17 | % | -2 | % | |||||||||||||
Income from operations before taxes | 45 | 119 | 84 | -62 | % | 42 | % | |||||||||||||
Federal income taxes | 17 | 43 | 29 | -60 | % | 48 | % | |||||||||||||
Income from operations | $ | 28 | $ | 76 | $ | 55 | -63 | % | 38 | % | ||||||||||
Pre-tax operating margin(1) | 10 | % | 20 | % | 15 | % | ||||||||||||||
(1) | The pre-tax operating margin is determined by dividing pre-tax income from operations by operating revenues. |
• | A reduction in investment advisory fees due to lower assets under management resulting primarily from continued significant unfavorable equity markets, an increase in negative net flows, the sale of certain institutional fixed income business in 2007 (discussed below) and the transition of the investment advisory role for the Lincoln Variable Insurance Trust product to another internal advisor within Retirement Solutions (discussed below); and |
• | A reduction in other revenues and fees due primarily to negative returns on seed capital driven by continued significant unfavorable equity markets. |
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As of December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Assets Under Management | ||||||||||||||||||||
Retail — equity | $ | 15,222 | $ | 31,598 | $ | 31,705 | -52 | % | 0 | % | ||||||||||
Retail — fixed | 10,453 | 10,801 | 8,790 | -3 | % | 23 | % | |||||||||||||
Total retail | 25,675 | 42,399 | 40,495 | -39 | % | 5 | % | |||||||||||||
Institutional — equity | 11,203 | 21,751 | 21,977 | -48 | % | -1 | % | |||||||||||||
Institutional — fixed | 9,696 | 11,536 | 21,105 | -16 | % | -45 | % | |||||||||||||
Total institutional | 20,899 | 33,287 | 43,082 | -37 | % | -23 | % | |||||||||||||
Inter-segment assets — retail and institutional | 7,968 | 9,671 | 13,729 | -18 | % | -30 | % | |||||||||||||
Inter-segment assets — general account | 65,680 | 67,417 | 67,437 | -3 | % | 0 | % | |||||||||||||
Total inter-segment assets | 73,648 | 77,088 | 81,166 | -4 | % | -5 | % | |||||||||||||
Total assets under management | $ | 120,222 | $ | 152,774 | $ | 164,743 | -21 | % | -7 | % | ||||||||||
Total Sub-Advised Assets, Included Above | ||||||||||||||||||||
Retail | $ | 8,047 | $ | 16,219 | $ | 18,023 | -50 | % | -10 | % | ||||||||||
Institutional | 2,180 | 4,570 | 4,648 | -52 | % | -2 | % | |||||||||||||
Total sub-advised assets | $ | 10,227 | $ | 20,789 | $ | 22,671 | -51 | % | -8 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Flows — External(1) (2) | ||||||||||||||||||||
Retail equity sales | $ | 4,033 | $ | 6,916 | $ | 8,058 | -42 | % | -14 | % | ||||||||||
Retail equity redemptions and transfers | (9,470 | ) | (8,942 | ) | (6,894 | ) | -6 | % | -30 | % | ||||||||||
Retail equity net flows | (5,437 | ) | (2,026 | ) | 1,164 | NM | NM | |||||||||||||
Retail fixed income sales | 4,901 | 4,390 | 2,966 | 12 | % | 48 | % | |||||||||||||
Retail fixed income redemptions and transfers | (4,466 | ) | (2,898 | ) | (2,389 | ) | -54 | % | -21 | % | ||||||||||
Retail fixed income net flows | 435 | 1,492 | 577 | -71 | % | 159 | % | |||||||||||||
Total retail sales | 8,934 | 11,306 | 11,024 | -21 | % | 3 | % | |||||||||||||
Total retail redemptions and transfers | (13,936 | ) | (11,840 | ) | (9,283 | ) | -18 | % | -28 | % | ||||||||||
Total retail net flows | (5,002 | ) | (534 | ) | 1,741 | NM | NM | |||||||||||||
Institutional equity inflows | 2,972 | 4,369 | 5,409 | -32 | % | -19 | % | |||||||||||||
Institutional equity withdrawals and transfers | (5,229 | ) | (6,515 | ) | (4,580 | ) | 20 | % | -42 | % | ||||||||||
Institutional equity net flows | (2,257 | ) | (2,146 | ) | 829 | -5 | % | NM | ||||||||||||
Institutional fixed income inflows | 1,357 | 5,582 | 8,760 | -76 | % | -36 | % | |||||||||||||
Institutional fixed income withdrawals and transfers | (2,879 | ) | (3,500 | ) | (1,477 | ) | 18 | % | NM | |||||||||||
Institutional fixed income net flows | (1,522 | ) | 2,082 | 7,283 | NM | -71 | % | |||||||||||||
Total institutional inflows | 4,329 | 9,951 | 14,169 | -56 | % | -30 | % | |||||||||||||
Total institutional redemptions and transfers | (8,108 | ) | (10,015 | ) | (6,057 | ) | 19 | % | -65 | % | ||||||||||
Total institutional net flows | (3,779 | ) | (64 | ) | 8,112 | NM | NM | |||||||||||||
Total sales/inflows | 13,263 | 21,257 | 25,193 | -38 | % | -16 | % | |||||||||||||
Total redemptions and transfers | (22,044 | ) | (21,855 | ) | (15,340 | ) | -1 | % | -42 | % | ||||||||||
Total net flows | $ | (8,781 | ) | $ | (598 | ) | $ | 9,853 | NM | NM | ||||||||||
(1) | Includes Delaware Variable Insurance Product funds. Our insurance subsidiaries, as well as unaffiliated insurers, participate in these funds. In addition, sales/inflows includes contributions, dividend reinvestments and transfers in kind, and redemptions/transfers includes dividends and capital gain distributions. | |
(2) | Excludes $12.3 billion in institutional fixed income business sold to an unaffiliated investment management company in 2007 and $201 million and $190 million of 529 Plan assets transferred to an unaffiliated 529 Plan provider in 2007 and 2006, respectively, because we do not consider these to be net flows. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Flows — Inter-Segment(1) | ||||||||||||||||||||
Total sales/inflows(2) | $ | 2,734 | $ | 2,495 | $ | 2,901 | 10 | % | -14 | % | ||||||||||
Total redemptions and transfers(3) | (3,223 | ) | (3,269 | ) | (3,386 | ) | 1 | % | 3 | % | ||||||||||
Total net flows | $ | (489 | ) | $ | (774 | ) | $ | (485 | ) | 37 | % | -60 | % | |||||||
(1) | Includes net flows from retail and institutional. Excludes net flows from the general account and the transfer in of $709 million in assets primarily from another internal advisor in Retirement Solutions during 2008 and the transfer of $3.2 billion in assets to another internal advisor and $780 million in assets to Other Operations during 2007 because we do not consider these to be net flows. | |
(2) | Includes contributions, dividend reinvestments and transfers in kind. | |
(3) | Includes dividends and capital gains distributions. |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Information | ||||||||||||||||||||
Average daily S&P 500 | 1,220.72 | 1,476.71 | 1,310.58 | -17 | % | 13 | % | |||||||||||||
Reinvested dividends and interest and change in market value | $ | (22,281 | ) | $ | 5,966 | $ | 10,496 | NM | -43 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance premiums | $ | 78 | $ | 95 | $ | 79 | -18 | % | 20 | % | ||||||||||
Insurance fees | 171 | 194 | 158 | -12 | % | 23 | % | |||||||||||||
Net investment income | 78 | 81 | 71 | -4 | % | 14 | % | |||||||||||||
Total operating revenues | 327 | 370 | 308 | -12 | % | 20 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Benefits | 107 | 137 | 108 | -22 | % | 27 | % | |||||||||||||
Underwriting, acquisition, insurance and other expenses | 143 | 163 | 140 | -12 | % | 16 | % | |||||||||||||
Total operating expenses | 250 | 300 | 248 | -17 | % | 21 | % | |||||||||||||
Income from operations before taxes | 77 | 70 | 60 | 10 | % | 17 | % | |||||||||||||
Federal income taxes | 27 | 24 | 21 | 13 | % | 14 | % | |||||||||||||
Income from operations | $ | 50 | $ | 46 | $ | 39 | 9 | % | 18 | % | ||||||||||
Exchange Rate Ratio-U.S. Dollars to Pounds Sterling | ||||||||||||||||||||
Average for the period | 1.865 | 2.007 | 1.847 | -7 | % | 9 | % | |||||||||||||
End-of-period | 1.459 | 1.987 | 1.958 | -27 | % | 1 | % |
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• | A decline in insurance fees driven by lower average unit-linked account values resulting primarily from unfavorable markets as the average value of the Financial Time Stock Exchange (“FTSE”) 100 index was 16% lower; |
• | A reduction in premiums due primarily to declines in the annuitization of vesting pension policies and the face amount of our insurance in force attributable to the maturity of the block of business; and |
• | A $3 million unfavorable prospective unlocking of DAC, VOBA and DFEL (a $13 million unfavorable unlocking from model refinements net of a $10 million favorable unlocking from assumption changes related primarily to lower maintenance expenses and higher persistency than our model projections assumed) in 2008 compared to a $2 million favorable prospective unlocking (a $4 million favorable unlocking from assumption changes related primarily to higher investment income, lower maintenance expenses and lower mortality than our model projections assumed, net of a $2 million unfavorable unlocking from model refinements) in 2007. |
• | Continued deterioration in general economic and business conditions that we believe will result in lower investment fee income and less favorable foreign exchange rates; |
• | Lower net investment income on the segment’s fixed deposits from the continuation of the low interest rate environment; and |
• | Lower net flows on unit-linked assets due to the current economic challenges, including the current expectation by analysts for the economic downturn to last through the first half of 2009 and unemployment to continue to increase until early 2010. |
• | Growth in insurance fees driven by higher average unit-linked account values resulting primarily from favorable markets as the average value of the FTSE 100 index was 8% higher, an increase in linked-taxes deducted from unit-linked funds due to increasing bond values, partially offset by surrender penalties and declines in older blocks of business; and |
• | A $2 million favorable prospective unlocking of DAC, VOBA and DFEL (discussed above) in 2007 compared to a $6 million unfavorable prospective unlocking (a $5 million unfavorable unlocking from assumption changes related primarily to lower retention rates for our pension business than our model projections assumed and a $1 million unfavorable unlocking from model refinements) in 2006. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Insurance Fees | ||||||||||||||||||||
Mortality assessments | $ | 34 | $ | 37 | $ | 34 | -8 | % | 9 | % | ||||||||||
Expense assessments | 116 | 125 | 115 | -7 | % | 9 | % | |||||||||||||
DFEL: | ||||||||||||||||||||
Deferrals | (3 | ) | (3 | ) | (3 | ) | 0 | % | 0 | % | ||||||||||
Amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | (1 | ) | (3 | ) | (15 | ) | 67 | % | 80 | % | ||||||||||
Prospective unlocking — model refinements | — | 8 | 3 | -100 | % | 167 | % | |||||||||||||
Retrospective unlocking | — | — | (1 | ) | NM | 100 | % | |||||||||||||
Other amortization, net of interest | 25 | 30 | 25 | -17 | % | 20 | % | |||||||||||||
Total insurance fees | $ | 171 | $ | 194 | $ | 158 | -12 | % | 23 | % | ||||||||||
As of December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Individual life insurance in force | $ | 12,284 | $ | 19,022 | $ | 19,345 | -35 | % | -2 | % |
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Unit-Linked Assets | ||||||||||||||||||||
Balance at beginning-of-period | $ | 8,850 | $ | 8,757 | $ | 7,320 | 1 | % | 20 | % | ||||||||||
Deposits | 299 | 323 | 318 | -7 | % | 2 | % | |||||||||||||
Withdrawals and deaths | (767 | ) | (969 | ) | (838 | ) | 21 | % | -16 | % | ||||||||||
Net flows | (468 | ) | (646 | ) | (520 | ) | 28 | % | -24 | % | ||||||||||
Investment income and change in market value | (1,524 | ) | 601 | 911 | NM | -34 | % | |||||||||||||
Foreign currency adjustment | (1,880 | ) | 138 | 1,046 | NM | -87 | % | |||||||||||||
Balance at end-of-period | $ | 4,978 | $ | 8,850 | $ | 8,757 | -44 | % | 1 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses | ||||||||||||||||||||
Total expenses incurred | $ | 100 | $ | 114 | $ | 104 | -12 | % | 10 | % | ||||||||||
DAC and VOBA deferrals | (3 | ) | (4 | ) | (2 | ) | 25 | % | -100 | % | ||||||||||
Total expenses recognized before amortization | 97 | 110 | 102 | -12 | % | 8 | % | |||||||||||||
DAC and VOBA amortization, net of interest: | ||||||||||||||||||||
Prospective unlocking — assumption changes | (16 | ) | (9 | ) | (7 | ) | -78 | % | -29 | % | ||||||||||
Prospective unlocking — model refinements | 20 | 11 | 4 | 82 | % | 175 | % | |||||||||||||
Retrospective unlocking | (4 | ) | (1 | ) | (2 | ) | NM | 50 | % | |||||||||||
Other amortization, net of interest | 46 | 52 | 43 | -12 | % | 21 | % | |||||||||||||
Total underwriting, acquisition, insurance and other expenses | $ | 143 | $ | 163 | $ | 140 | -12 | % | 16 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Operating Revenues | ||||||||||||||||||||
Insurance premiums | $ | 4 | $ | 3 | $ | 9 | 33 | % | -67 | % | ||||||||||
Net investment income | 358 | 372 | 373 | -4 | % | 0 | % | |||||||||||||
Amortization of deferred gain on business sold through reinsurance | 74 | 74 | 75 | 0 | % | -1 | % | |||||||||||||
Media revenues (net) | 85 | 107 | 85 | -21 | % | 26 | % | |||||||||||||
Other revenues and fees | — | 4 | (1 | ) | -100 | % | NM | |||||||||||||
Inter-segment elimination of investment advisory fees | (82 | ) | (87 | ) | (97 | ) | 6 | % | 10 | % | ||||||||||
Total operating revenues | 439 | 473 | 444 | -7 | % | 7 | % | |||||||||||||
Operating Expenses | ||||||||||||||||||||
Interest credited | 171 | 185 | 149 | -8 | % | 24 | % | |||||||||||||
Benefits | 113 | 146 | 141 | -23 | % | 4 | % | |||||||||||||
Media expenses | 60 | 56 | 41 | 7 | % | 37 | % | |||||||||||||
Other expenses | 165 | 176 | 79 | -6 | % | 123 | % | |||||||||||||
Interest and debt expenses | 281 | 284 | 223 | -1 | % | 27 | % | |||||||||||||
Inter-segment elimination of investment advisory fees | (82 | ) | (87 | ) | (97 | ) | 6 | % | 10 | % | ||||||||||
Total operating expenses | 708 | 760 | 536 | -7 | % | 42 | % | |||||||||||||
Loss from operations before taxes | (269 | ) | (287 | ) | (92 | ) | 6 | % | NM | |||||||||||
Federal income tax benefit | (89 | ) | (114 | ) | (54 | ) | 22 | % | NM | |||||||||||
Loss from operations | $ | (180 | ) | $ | (173 | ) | $ | (38 | ) | -4 | % | NM | ||||||||
• | Lower media earnings related primarily to declines in discretionary business spending, such as advertising, caused by the general weakening of the U.S. economy in 2008 causing the media market revenues to decline faster than expected; |
• | Lower net investment income from a reduction in invested assets driven by transfers to other segments for other-than-temporary impairments, share repurchases and dividends paid to stockholders as these items exceeded the distributable earnings received from our insurance segments, dividends received from our other segments and issuances of debt; and |
• | Less favorable tax items that impacted the effective tax rate related primarily to changes in tax preferred investments. |
• | Lower other expenses due primarily to higher merger-related expenses as a result of higher system integration work related to our administrative systems, a separation benefit related to the retirement of a key executive and a net expense related to changes in our employee benefit plans in 2007, partially offset by restructuring charges associated with expense initiatives, relocation costs associated with the move of our corporate office and increases in litigation expense and incentive compensation expense in 2008; and |
• | Lower benefits due to unfavorable mortality in our Institutional Pension business in 2007. |
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• | Higher expenses attributable to restructuring charges related to recently announced expense reduction initiatives that are discussed further below; |
• | Lower investment income by approximately $14 million, after-tax, due to lower dividend income from our holdings of Bank of America common stock as it announced dividend rate cuts during the latter part of 2008 and early 2009; |
• | Lower investment income from a reduction in the distributable earnings that will be received from our insurance segments and lower dividends received from our other segments due to the current economic challenges, including the current expectation by analysts for the economic downturn to last through the first half of 2009 and unemployment to continue to increase until early 2010; |
• | Lower investment income on alternative investment income due to the market conditions in both the equity and credit markets (see “Consolidated Investments — Alternative Investments” below for additional information on our alternative investments); |
• | Lower investment income on fixed maturity securities and mortgage loans on real estate from the continuation of the low interest rate environment; |
• | Lower media earnings as we believe customers will continue to reduce their advertising expenses in response to the credit markets; and |
• | Higher expenses attributable to our U.S. pension plans (see “Critical Accounting Policies and Estimates — Pension and Other Postretirement Benefit Plans” above for additional information). |
• | Including the unfavorable results of operations from Jefferson-Pilot for twelve months in 2007 compared to only nine months in 2006; |
• | Higher interest and debt expenses from increased debt; |
• | Higher other expenses attributable to increases for merger-related expenses due primarily to system integration work, strategic initiatives and expenses resulting from changes in employee benefit plans, and expenses in 2006 benefited from insurance recoveries related to U.K. mis-selling losses due to settlements with certain of our liability carriers; |
• | Lower net investment income from a reduction in invested assets driven by share repurchases, dividends paid to stockholders and decreases in payables for collateral on securities loaned as these items exceeded the distributable earnings received from our insurance segments, the dividends received from our other segments and issuances of debt, and we recorded $8 million of default charges in Other Operations during 2006 before the methodology was discontinued; and |
• | Less favorable mortality in our Institutional Pension business. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other Expenses | ||||||||||||||||||||
Merger-related expenses | $ | 52 | $ | 104 | $ | 49 | -50 | % | 112 | % | ||||||||||
Restructuring charges for expense initiatives | 8 | — | — | NM | NM | |||||||||||||||
Branding | 33 | 36 | 34 | -8 | % | 6 | % | |||||||||||||
Strategic initiatives | 11 | 9 | — | 22 | % | NM | ||||||||||||||
Taxes, licenses and fees | 7 | 13 | 9 | -46 | % | 44 | % | |||||||||||||
Net expenses related to changes in benefit plans | — | 4 | — | -100 | % | NM | ||||||||||||||
UK mis-selling losses settlement | — | — | (26 | ) | NM | 100 | % | |||||||||||||
Other | 54 | 10 | 13 | NM | -23 | % | ||||||||||||||
Total other expenses | $ | 165 | $ | 176 | $ | 79 | -6 | % | 123 | % | ||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Pre-Tax | ||||||||||||||||||||
Operating realized gain: | ||||||||||||||||||||
Indexed annuity net derivatives results | $ | — | $ | 2 | $ | 2 | -100 | % | 0 | % | ||||||||||
GLB | 38 | 6 | 3 | NM | 100 | % | ||||||||||||||
GDB | 185 | (2 | ) | (4 | ) | NM | 50 | % | ||||||||||||
Total operating realized gain | 223 | 6 | 1 | NM | NM | |||||||||||||||
Realized loss related to certain investments | (1,050 | ) | (126 | ) | (7 | ) | NM | NM | ||||||||||||
Gain on certain reinsurance derivative/ trading securities | 3 | 2 | 4 | 50 | % | -50 | % | |||||||||||||
GLB net derivatives results | 398 | (48 | ) | 15 | NM | NM | ||||||||||||||
GDB derivatives results | (127 | ) | 1 | 2 | NM | -50 | % | |||||||||||||
Indexed annuity forward-starting option | 7 | (10 | ) | (2 | ) | 170 | % | NM | ||||||||||||
Gain on sale of subsidiaries/businesses | 9 | 6 | — | 50 | % | NM | ||||||||||||||
Total excluded realized gain (loss) | (760 | ) | (175 | ) | 12 | NM | NM | |||||||||||||
Total realized gain (loss) | $ | (537 | ) | $ | (169 | ) | $ | 13 | NM | NM | ||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
After-Tax | ||||||||||||||||||||
Operating realized gain: | ||||||||||||||||||||
Indexed annuity net derivatives results | $ | — | $ | 1 | $ | 1 | -100 | % | 0 | % | ||||||||||
GLB | 25 | 4 | 2 | NM | 100 | % | ||||||||||||||
GDB | 120 | (1 | ) | (3 | ) | NM | 67 | % | ||||||||||||
Total operating realized gain | 145 | 4 | — | NM | NM | |||||||||||||||
Realized loss related to certain investments | (682 | ) | (82 | ) | (3 | ) | NM | NM | ||||||||||||
Gain on certain reinsurance derivative/ trading securities | 2 | 1 | 2 | 100 | % | -50 | % | |||||||||||||
GLB net derivatives results | 259 | (31 | ) | 10 | NM | NM | ||||||||||||||
GDB derivative results | (83 | ) | 1 | 1 | NM | 0 | % | |||||||||||||
Indexed annuity forward-starting option | 5 | (7 | ) | (1 | ) | 171 | % | NM | ||||||||||||
Gain (loss) on sale of subsidiaries/businesses | 5 | (2 | ) | — | NM | NM | ||||||||||||||
Total excluded realized gain (loss) | (494 | ) | (120 | ) | 9 | NM | NM | |||||||||||||
Total realized gain (loss) | $ | (349 | ) | $ | (116 | ) | $ | 9 | NM | NM | ||||||||||
(1) | DAC refers to the associated amortization of expense of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities. |
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• | The inclusion in 2008 of an NPR adjustment as required under SFAS 157 due primarily to our widening credit spreads; | |
• | Hedge program effectiveness; and |
• | Favorable unlocking. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Indexed Annuity Net Derivatives Results | ||||||||||||||||||||
Change in fair value of S&P 500 call options | $ | 203 | $ | (1 | ) | $ | (59 | ) | NM | 98 | % | |||||||||
Change in fair value of embedded derivatives | (204 | ) | 6 | 62 | NM | -90 | % | |||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL | 1 | (3 | ) | (1 | ) | 133 | % | NM | ||||||||||||
Total indexed annuity net derivatives results | — | 2 | 2 | -100 | % | 0 | % | |||||||||||||
GLB | ||||||||||||||||||||
Attributed fee in excess of the net valuation premium | 69 | 15 | 9 | NM | 67 | % | ||||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL: | ||||||||||||||||||||
Retrospective unlocking(1) | 12 | — | — | NM | NM | |||||||||||||||
Other amortization | (43 | ) | (9 | ) | (6 | ) | NM | -50 | % | |||||||||||
Total GLB | 38 | 6 | 3 | NM | 100 | % | ||||||||||||||
GDB | ||||||||||||||||||||
Pre-DAC(2) amount | 242 | (4 | ) | (8 | ) | NM | 50 | % | ||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL: | ||||||||||||||||||||
Retrospective unlocking(1) | 67 | — | — | NM | NM | |||||||||||||||
Other amortization | (124 | ) | 2 | 4 | NM | -50 | % | |||||||||||||
Total GDB hedge cost | 185 | (2 | ) | (4 | ) | NM | 50 | % | ||||||||||||
Total Operating Realized Gain | $ | 223 | $ | 6 | $ | 1 | NM | NM | ||||||||||||
(1) | Related primarily to the emergence of gross profits. | |
(2) | DAC refers to the associated amortization of expense of DAC, VOBA, DSI and DFEL. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
GLB Net Derivatives Results | ||||||||||||||||||||
Net valuation premium, net of reinsurance | $ | 80 | $ | 51 | $ | 29 | 57 | % | 76 | % | ||||||||||
Change in reserves hedged: | ||||||||||||||||||||
Prospective unlocking — assumption changes | 164 | (6 | ) | — | NM | NM | ||||||||||||||
Prospective unlocking — model refinements | — | 8 | — | -100 | % | NM | ||||||||||||||
Other | (3,470 | ) | (305 | ) | 61 | NM | NM | |||||||||||||
Change in market value of derivative assets | 3,357 | 167 | (62 | ) | NM | NM | ||||||||||||||
Hedge program effectiveness (ineffectiveness) | 51 | (136 | ) | (1 | ) | 138 | % | NM | ||||||||||||
Change in reserves not hedged (NPR component) | 640 | — | — | NM | NM | |||||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL: | ||||||||||||||||||||
Prospective unlocking — assumption changes | (46 | ) | — | — | NM | NM | ||||||||||||||
Retrospective unlocking(1) | 252 | (13 | ) | 3 | NM | NM | ||||||||||||||
Other amortization | (546 | ) | 50 | (16 | ) | NM | NM | |||||||||||||
Loss from the initial impact of adopting SFAS 157, after-DAC(2) | (33 | ) | — | — | NM | NM | ||||||||||||||
Total GLB net derivatives results | $ | 398 | $ | (48 | ) | $ | 15 | NM | NM | |||||||||||
GDB Derivatives Results | ||||||||||||||||||||
Benefit ratio unlocking of SOP 03-1 reserves | $ | (242 | ) | $ | 4 | $ | 8 | NM | -50 | % | ||||||||||
Change in fair value of derivatives, excluding expected cost of hedging instruments | 75 | (2 | ) | (4 | ) | NM | 50 | % | ||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL: | ||||||||||||||||||||
Retrospective unlocking(1) | (58 | ) | — | — | NM | NM | ||||||||||||||
Other amortization | 98 | (1 | ) | (2 | ) | NM | 50 | % | ||||||||||||
Total GDB derivatives results | $ | (127 | ) | $ | 1 | $ | 2 | NM | -50 | % | ||||||||||
(1) | Related primarily to the emergence of gross profits. | |
(2) | DAC refers to the associated amortization of expense of DAC, VOBA, DSI and DFEL. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Indexed Annuity Forward-Starting Option | ||||||||||||||||||||
Pre-DAC(1) amounts: | ||||||||||||||||||||
Prospective unlocking — assumption changes | $ | — | $ | 1 | $ | — | -100 | % | NM | |||||||||||
Other | (7 | ) | (23 | ) | (4 | ) | 70 | % | NM | |||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL | 4 | 12 | 2 | -67 | % | NM | ||||||||||||||
Gain from the initial impact of adopting SFAS 157, after-DAC(1) | 10 | — | — | NM | NM | |||||||||||||||
Total | $ | 7 | $ | (10 | ) | $ | (2 | ) | 170 | % | NM | |||||||||
(1) | DAC refers to the associated amortization of expense of DAC, VOBA, DSI and DFEL. |
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Percentage of | ||||||||||||||||
As of December 31, | Total Investments | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Investments | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Fixed maturity | $ | 48,935 | $ | 56,276 | 72.6 | % | 78.2 | % | ||||||||
Equity | 288 | 518 | 0.4 | % | 0.7 | % | ||||||||||
Trading securities | 2,333 | 2,730 | 3.5 | % | 3.8 | % | ||||||||||
Mortgage loans on real estate | 7,715 | 7,423 | 11.5 | % | 10.3 | % | ||||||||||
Real estate | 125 | 258 | 0.2 | % | 0.4 | % | ||||||||||
Policy loans | 2,924 | 2,885 | 4.3 | % | 4.0 | % | ||||||||||
Derivative instruments | 3,397 | 807 | 5.0 | % | 1.1 | % | ||||||||||
Alternative investments | 776 | 799 | 1.2 | % | 1.1 | % | ||||||||||
Other investments | 848 | 276 | 1.3 | % | 0.4 | % | ||||||||||
Total investments | $ | 67,341 | $ | 71,972 | 100.0 | % | 100.0 | % | ||||||||
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As of December 31, 2008 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | % Fair | ||||||||||||||||
Cost | Gains | Losses | Value | Value | ||||||||||||||||
Fixed Maturity Available-For-Sale Securities | ||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||
Financial services | $ | 8,564 | $ | 75 | $ | 1,264 | $ | 7,375 | 15.1 | % | ||||||||||
Basic industry | 2,246 | 15 | 353 | 1,908 | 3.9 | % | ||||||||||||||
Capital goods | 2,668 | 34 | 222 | 2,480 | 5.1 | % | ||||||||||||||
Communications | 2,609 | 44 | 222 | 2,431 | 5.0 | % | ||||||||||||||
Consumer cyclical | 2,878 | 33 | 460 | 2,451 | 5.0 | % | ||||||||||||||
Consumer non-cyclical | 4,296 | 88 | 206 | 4,178 | 8.5 | % | ||||||||||||||
Energy | 2,972 | 48 | 246 | 2,774 | 5.7 | % | ||||||||||||||
Technology | 766 | 9 | 71 | 704 | 1.4 | % | ||||||||||||||
Transportation | 1,237 | 22 | 119 | 1,140 | 2.3 | % | ||||||||||||||
Industrial other | 718 | 16 | 38 | 696 | 1.4 | % | ||||||||||||||
Utilities | 8,207 | 104 | 678 | 7,633 | 15.6 | % | ||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations and credit-linked notes | 796 | 7 | 630 | 173 | 0.4 | % | ||||||||||||||
Commercial real estate collateralized debt obligations | 60 | — | 23 | 37 | 0.1 | % | ||||||||||||||
Credit card | 165 | — | 73 | 92 | 0.2 | % | ||||||||||||||
Home equity | 1,108 | 1 | 411 | 698 | 1.4 | % | ||||||||||||||
Manufactured housing | 148 | 2 | 28 | 122 | 0.2 | % | ||||||||||||||
Other | 196 | 1 | 18 | 179 | 0.4 | % | ||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||
Non-agency backed | 2,535 | 9 | 625 | 1,919 | 3.9 | % | ||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||
Agency backed | 5,068 | 180 | 29 | 5,219 | 10.7 | % | ||||||||||||||
Non-agency backed | 1,996 | 1 | 746 | 1,251 | 2.6 | % | ||||||||||||||
Mortgage pass-throughs: | ||||||||||||||||||||
Agency backed | 1,619 | 55 | — | 1,674 | 3.4 | % | ||||||||||||||
Non-agency backed | 141 | — | 47 | 94 | 0.2 | % | ||||||||||||||
Municipals: | ||||||||||||||||||||
Taxable | 110 | 4 | 1 | 113 | 0.2 | % | ||||||||||||||
Tax-exempt | 3 | — | — | 3 | 0.0 | % | ||||||||||||||
Government and government agencies: | ||||||||||||||||||||
United States | 1,148 | 167 | 25 | 1,290 | 2.6 | % | ||||||||||||||
Foreign | 1,377 | 97 | 135 | 1,339 | 2.7 | % | ||||||||||||||
Hybrid and redeemable preferred stock | 1,563 | 6 | 607 | 962 | 2.0 | % | ||||||||||||||
Total fixed maturity available-for-sale securities | 55,194 | 1,018 | 7,277 | 48,935 | 100.0 | % | ||||||||||||||
Equity Available-For-Sale Securities | 466 | 9 | 187 | 288 | ||||||||||||||||
Total available-for-sale securities | 55,660 | 1,027 | 7,464 | 49,223 | ||||||||||||||||
Trading Securities(1) | 2,307 | 255 | 229 | 2,333 | ||||||||||||||||
Total available-for-sale and trading securities | $ | 57,967 | $ | 1,282 | $ | 7,693 | $ | 51,556 | ||||||||||||
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As of December 31, 2007 | ||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | % Fair | ||||||||||||||||
Cost | Gains | Losses | Value | Value | ||||||||||||||||
Fixed Maturity Available-For-Sale Securities | ||||||||||||||||||||
Corporate bonds: | ||||||||||||||||||||
Financial services | $ | 11,234 | $ | 187 | $ | 300 | $ | 11,121 | 19.8 | % | ||||||||||
Basic industry | 2,148 | 52 | 35 | 2,165 | 3.8 | % | ||||||||||||||
Capital goods | 2,665 | 66 | 16 | 2,715 | 4.8 | % | ||||||||||||||
Communications | 2,903 | 123 | 46 | 2,980 | 5.3 | % | ||||||||||||||
Consumer cyclical | 3,038 | 56 | 94 | 3,000 | 5.3 | % | ||||||||||||||
Consumer non-cyclical | 3,898 | 101 | 25 | 3,974 | 7.1 | % | ||||||||||||||
Energy | 2,688 | 121 | 14 | 2,795 | 5.0 | % | ||||||||||||||
Technology | 660 | 15 | 5 | 670 | 1.2 | % | ||||||||||||||
Transportation | 1,409 | 39 | 19 | 1,429 | 2.5 | % | ||||||||||||||
Industrial other | 710 | 22 | 6 | 726 | 1.3 | % | ||||||||||||||
Utilities | 8,051 | 195 | 77 | 8,169 | 14.5 | % | ||||||||||||||
Asset-backed securities: | ||||||||||||||||||||
Collateralized debt obligations and credit-linked notes | 996 | 8 | 205 | 799 | 1.4 | % | ||||||||||||||
Commercial real estate collateralized debt obligations | 42 | — | 4 | 38 | 0.1 | % | ||||||||||||||
Mortgage-backed securities collateralized debt obligations | 1 | — | — | 1 | 0.0 | % | ||||||||||||||
Credit card | 160 | 1 | 2 | 159 | 0.3 | % | ||||||||||||||
Home equity | 1,209 | 4 | 76 | 1,137 | 2.0 | % | ||||||||||||||
Manufactured housing | 161 | 7 | 5 | 163 | 0.3 | % | ||||||||||||||
Auto loan | 4 | — | — | 4 | 0.0 | % | ||||||||||||||
Other | 235 | 4 | 1 | 238 | 0.4 | % | ||||||||||||||
Commercial mortgage-backed securities: | ||||||||||||||||||||
Non-agency backed | 2,711 | 48 | 70 | 2,689 | 4.8 | % | ||||||||||||||
Collateralized mortgage obligations: | ||||||||||||||||||||
Agency backed | 4,547 | 74 | 19 | 4,602 | 8.2 | % | ||||||||||||||
Non-agency backed | 2,347 | 10 | 110 | 2,247 | 4.0 | % | ||||||||||||||
Mortgage pass-throughs: | ||||||||||||||||||||
Agency backed | 933 | 18 | 2 | 949 | 1.7 | % | ||||||||||||||
Non-agency backed | 153 | 1 | 4 | 150 | 0.3 | % | ||||||||||||||
Municipals: | ||||||||||||||||||||
Taxable | 133 | 5 | — | 138 | 0.2 | % | ||||||||||||||
Tax-exempt | 6 | — | — | 6 | 0.0 | % | ||||||||||||||
Government and government agencies: | ||||||||||||||||||||
United States | 1,261 | 108 | 4 | 1,365 | 2.4 | % | ||||||||||||||
Foreign | 1,663 | 92 | 19 | 1,736 | 3.1 | % | ||||||||||||||
Redeemable preferred stock | 103 | 9 | 1 | 111 | 0.2 | % | ||||||||||||||
Total fixed maturity available-for-sale securities | 56,069 | 1,366 | 1,159 | 56,276 | 100.0 | % | ||||||||||||||
Available-For-Sale — Equity | 548 | 13 | 43 | 518 | ||||||||||||||||
Total available-for-sale securities | 56,617 | 1,379 | 1,202 | 56,794 | ||||||||||||||||
Trading Securities(1) | 2,512 | 265 | 47 | 2,730 | ||||||||||||||||
Total available-for-sale and trading securities | $ | 59,129 | $ | 1,644 | $ | 1,249 | $ | 59,524 | ||||||||||||
(1) | Our trading securities support our modified coinsurance arrangements (“Modco”) and the investment results are passed directly to the reinsurers. Refer below to the “Trading Securities” section for further details. |
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Rating Agency | As of December 31, 2008 | As of December 31, 2007 | ||||||||||||||||||||||||
NAIC | Equivalent | Amortized | Fair | % of | Amortized | Fair | % of | |||||||||||||||||||
Designation | Designation | Cost | Value | Total | Cost | Value | Total | |||||||||||||||||||
Investment Grade Securities | ||||||||||||||||||||||||||
1 | Aaa / Aa / A | $ | 32,595 | $ | 30,386 | 62.0 | % | $ | 34,648 | $ | 34,741 | 61.8 | % | |||||||||||||
2 | Baa | 19,240 | 16,111 | 32.9 | % | 18,168 | 18,339 | 32.6 | % | |||||||||||||||||
51,835 | 46,497 | 94.9 | % | 52,816 | 53,080 | 94.4 | % | |||||||||||||||||||
Below Investment Grade Securities | ||||||||||||||||||||||||||
3 | Ba | 2,194 | 1,698 | 3.5 | % | 2,184 | 2,159 | 3.8 | % | |||||||||||||||||
4 | B | 772 | 516 | 1.1 | % | 787 | 783 | 1.4 | % | |||||||||||||||||
5 | Caa and lower | 251 | 131 | 0.3 | % | 270 | 238 | 0.4 | % | |||||||||||||||||
6 | In or near default | 142 | 93 | 0.2 | % | 12 | 16 | 0.0 | % | |||||||||||||||||
3,359 | 2,438 | 5.1 | % | 3,253 | 3,196 | 5.6 | % | |||||||||||||||||||
Total securities | $ | 55,194 | $ | 48,935 | 100.0 | % | $ | 56,069 | $ | 56,276 | 100.0 | % | ||||||||||||||
Below investment grade as a % of total fixed maturity available-for-sale securities | 6.1 | % | 5.1 | % | 5.8 | % | 5.6 | % |
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Fair Value as of December 31, 2008 | ||||||||||||||||||||
Prime/ | ||||||||||||||||||||
Prime | Non - | |||||||||||||||||||
Agency | Agency | Alt-A | Subprime | Total | ||||||||||||||||
Type | ||||||||||||||||||||
Collateralized mortgage obligations and pass- throughs | $ | 6,819 | $ | 912 | $ | 507 | $ | — | $ | 8,238 | ||||||||||
Asset-backed securities home equity | — | — | 253 | 445 | 698 | |||||||||||||||
Total(1) | $ | 6,819 | $ | 912 | $ | 760 | $ | 445 | $ | 8,936 | ||||||||||
Rating | ||||||||||||||||||||
AAA | $ | 6,780 | $ | 658 | $ | 484 | $ | 300 | $ | 8,222 | ||||||||||
AA | 20 | 108 | 69 | 52 | 249 | |||||||||||||||
A | 19 | 59 | 38 | 18 | 134 | |||||||||||||||
BBB | — | 63 | 47 | 64 | 174 | |||||||||||||||
BB and below | — | 24 | 122 | 11 | 157 | |||||||||||||||
Total(1) | $ | 6,819 | $ | 912 | $ | 760 | $ | 445 | $ | 8,936 | ||||||||||
Origination Year | ||||||||||||||||||||
2004 and prior | $ | 3,342 | $ | 326 | $ | 302 | $ | 238 | $ | 4,208 | ||||||||||
2005 | 904 | 195 | 212 | 145 | 1,456 | |||||||||||||||
2006 | 372 | 140 | 210 | 62 | 784 | |||||||||||||||
2007 | 1,518 | 251 | 36 | — | 1,805 | |||||||||||||||
2008 | 683 | — | — | — | 683 | |||||||||||||||
Total(1) | $ | 6,819 | $ | 912 | $ | 760 | $ | 445 | $ | 8,936 | ||||||||||
(1) | Does not include the fair value of trading securities totaling $187 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $187 million in trading securities consisted of $155 million prime, $19 million Alt-A and $13 million subprime. For the table above, credit ratings shown in the document are based on ratings provided by the major credit rating agencies (Fitch Ratings, Moody’s, S&P) or are based on internal ratings for those securities where external ratings are not available. For securities where the ratings assigned by the major rating agencies are not equivalent, the second highest of the three ratings assigned is used. |
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Amortized Cost as of December 31, 2008 | ||||||||||||||||||||
Prime/ | ||||||||||||||||||||
Prime | Non - | |||||||||||||||||||
Agency | Agency | Alt-A | Subprime | Total | ||||||||||||||||
Type | ||||||||||||||||||||
Collateralized mortgage obligations and pass-throughs | $ | 6,595 | $ | 1,477 | $ | 752 | $ | — | $ | 8,824 | ||||||||||
Asset-backed securities home equity | — | — | 363 | 745 | 1,108 | |||||||||||||||
Total(1) | $ | 6,595 | $ | 1,477 | $ | 1,115 | $ | 745 | $ | 9,932 | ||||||||||
Rating | ||||||||||||||||||||
AAA | $ | 6,556 | $ | 936 | $ | 642 | $ | 424 | $ | 8,558 | ||||||||||
AA | 20 | 184 | 126 | 118 | 448 | |||||||||||||||
A | 18 | 163 | 69 | 33 | 283 | |||||||||||||||
BBB | — | 117 | 78 | 130 | 325 | |||||||||||||||
BB and below | 1 | 77 | 200 | 40 | 318 | |||||||||||||||
Total(1) | $ | 6,595 | $ | 1,477 | $ | 1,115 | $ | 745 | $ | 9,932 | ||||||||||
Origination Year | ||||||||||||||||||||
2004 and prior | $ | 3,246 | $ | 423 | $ | 392 | $ | 335 | $ | 4,396 | ||||||||||
2005 | 879 | 281 | 326 | 259 | 1,745 | |||||||||||||||
2006 | 359 | 264 | 361 | 151 | 1,135 | |||||||||||||||
2007 | 1,451 | 509 | 36 | — | 1,996 | |||||||||||||||
2008 | 660 | — | — | — | 660 | |||||||||||||||
Total(1) | $ | 6,595 | $ | 1,477 | $ | 1,115 | $ | 745 | $ | 9,932 | ||||||||||
(1) | Does not include the amortized cost of trading securities totaling $213 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $213 million in trading securities consisted of $165 million prime, $29 million Alt-A and $19 million subprime. For the table above, credit ratings shown in the document are based on ratings provided by the major credit rating agencies (Fitch Ratings, Moody’s, S&P) or are based on internal ratings for those securities where external ratings are not available. For securities where the ratings assigned by the major rating agencies are not equivalent, the second highest of the three ratings assigned is used. |
As of December 31, 2008 | ||||||||
Fair | Amortized | |||||||
Value | Cost | |||||||
Rating | ||||||||
AAA | $ | 77 | $ | 139 | ||||
BBB | 15 | 26 | ||||||
Total(1)(2) | $ | 92 | $ | 165 | ||||
(1) | Additional indirect credit card exposure through structured securities is excluded from this table. See “Credit-Linked Notes” section below and in Note 5. For the table above, credit ratings shown in the document are based on ratings provided by the major credit rating agencies (Fitch Ratings, Moody’s, S&P) or are based on internal ratings for those securities where external ratings are not available. For securities where the ratings assigned by the major rating agencies are not equivalent, the second highest of the three ratings assigned is used. | |
(2) | Does not include the fair value of trading securities totaling $1 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $1 million in trading securities consisted of credit card securities. |
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As of December 31, 2008 | ||||||||||||||||||||||||||||||||
Commercial Real | ||||||||||||||||||||||||||||||||
Estate Collateralized | ||||||||||||||||||||||||||||||||
Multiple Property | Single Property | Debt Obligations | Total | |||||||||||||||||||||||||||||
Fair | Amortized | Fair | Amortized | Fair | Amortized | Fair | Amortized | |||||||||||||||||||||||||
Value | Cost | Value | Cost | Value | Cost | Value | Cost | |||||||||||||||||||||||||
Type | ||||||||||||||||||||||||||||||||
Commercial mortgage- backed securities | $ | 1,831 | $ | 2,388 | $ | 88 | $ | 147 | $ | — | $ | — | $ | 1,919 | $ | 2,535 | ||||||||||||||||
Commercial real estate collateralized debt obligations | — | — | — | — | 37 | 60 | 37 | 60 | ||||||||||||||||||||||||
Total(1) | $ | 1,831 | $ | 2,388 | $ | 88 | $ | 147 | $ | 37 | $ | 60 | $ | 1,956 | $ | 2,595 | ||||||||||||||||
Rating | ||||||||||||||||||||||||||||||||
AAA | $ | 1,386 | $ | 1,601 | $ | 56 | $ | 69 | $ | 19 | $ | 38 | $ | 1,461 | $ | 1,708 | ||||||||||||||||
AA | 275 | 417 | — | — | 1 | 3 | 276 | 420 | ||||||||||||||||||||||||
A | 86 | 172 | 29 | 67 | 17 | 19 | 132 | 258 | ||||||||||||||||||||||||
BBB | 67 | 157 | 3 | 11 | — | — | 70 | 168 | ||||||||||||||||||||||||
BB and below | 17 | 41 | — | — | — | — | 17 | 41 | ||||||||||||||||||||||||
Total(1) | $ | 1,831 | $ | 2,388 | $ | 88 | $ | 147 | $ | 37 | $ | 60 | $ | 1,956 | $ | 2,595 | ||||||||||||||||
Origination Year | ||||||||||||||||||||||||||||||||
2004 and prior | $ | 1,334 | $ | 1,580 | $ | 71 | $ | 78 | $ | 18 | $ | 22 | $ | 1,423 | $ | 1,680 | ||||||||||||||||
2005 | 243 | 369 | 16 | 61 | 7 | 15 | 266 | 445 | ||||||||||||||||||||||||
2006 | 143 | 255 | 1 | 8 | 12 | 23 | 156 | 286 | ||||||||||||||||||||||||
2007 | 111 | 184 | — | — | — | — | 111 | 184 | ||||||||||||||||||||||||
2008 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total(1) | $ | 1,831 | $ | 2,388 | $ | 88 | $ | 147 | $ | 37 | $ | 60 | $ | 1,956 | $ | 2,595 | ||||||||||||||||
(1) | Does not include the fair value of trading securities totaling $78 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $78 million in trading securities consisted of $77 million commercial mortgage-backed securities and $1 million commercial real estate collateralized debt obligations. For the table above, credit ratings shown in the document are based on ratings provided by the major credit rating agencies (Fitch Ratings, Moody’s, S&P) or are based on internal ratings for those securities where external ratings are not available. For securities where the ratings assigned by the major rating agencies are not equivalent, the second highest of the three ratings assigned is used. |
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As of December 31, 2008 | ||||||||||||||||||||||||
Total | Total | Total | Total | |||||||||||||||||||||
Direct | Insured | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||
Exposure(1) | Bonds(2) | Cost | Gain | Loss | Value | |||||||||||||||||||
Monoline Name | ||||||||||||||||||||||||
AMBAC | $ | — | $ | 268 | $ | 268 | $ | 6 | $ | 66 | $ | 208 | ||||||||||||
ASSURED GUARANTY LTD | 30 | — | 30 | — | 14 | 16 | ||||||||||||||||||
FGIC | — | 97 | 97 | 1 | 38 | 60 | ||||||||||||||||||
FSA | — | 68 | 68 | 1 | 11 | 58 | ||||||||||||||||||
MBIA | 12 | 114 | 126 | 2 | 31 | 97 | ||||||||||||||||||
MGIC | 12 | 7 | 19 | — | 4 | 15 | ||||||||||||||||||
PMI GROUP INC | 27 | — | 27 | — | 13 | 14 | ||||||||||||||||||
RADIAN GROUP INC | 19 | — | 19 | — | 11 | 8 | ||||||||||||||||||
SECURITY CAPITAL ASSURANCE LTD | 1 | — | 1 | — | 1 | — | ||||||||||||||||||
XL CAPITAL LTD | 72 | 73 | 145 | 2 | 36 | 111 | ||||||||||||||||||
Total(3) | $ | 173 | $ | 627 | $ | 800 | $ | 12 | $ | 225 | $ | 587 | ||||||||||||
(1) | Additional direct exposure through Credit Default Swaps with a notional totaling $50 million is excluded from this table. | |
(2) | Additional indirect insured exposure through structured securities is excluded from this table. See “Credit-Linked Notes” section below and in Note 4. | |
(3) | Does not include the fair value of trading securities totaling $28 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $28 million in trading securities consisted of $8 million of direct exposure and $20 million of insured exposure. This table also excludes insured exposure totaling $15 million for a guaranteed investment tax credit partnership. |
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As of | ||||||||||||
January 31, | As of December 31, | |||||||||||
2009 | 2008 | 2007 | ||||||||||
Fair value to amortized cost ratio | 12 | % | 8 | % | 78 | % |
Industry | AAA | AA | A | BBB | BB | B | Total | |||||||||||||||||||||
Telecommunications | 0 | % | 0 | % | 5 | % | 5 | % | 1 | % | 1 | % | 12 | % | ||||||||||||||
Financial intermediaries | 0 | % | 5 | % | 5 | % | 1 | % | 0 | % | 0 | % | 11 | % | ||||||||||||||
Oil and gas | 0 | % | 1 | % | 2 | % | 4 | % | 0 | % | 0 | % | 7 | % | ||||||||||||||
Insurance | 0 | % | 1 | % | 2 | % | 1 | % | 0 | % | 0 | % | 4 | % | ||||||||||||||
Utilities | 0 | % | 0 | % | 3 | % | 1 | % | 0 | % | 0 | % | 4 | % | ||||||||||||||
Chemicals and plastics | 0 | % | 0 | % | 2 | % | 2 | % | 0 | % | 0 | % | 4 | % | ||||||||||||||
Retailers, except food and drug | 0 | % | 0 | % | 1 | % | 2 | % | 1 | % | 0 | % | 4 | % | ||||||||||||||
Industrial equipment | 0 | % | 0 | % | 3 | % | 0 | % | 0 | % | 0 | % | 3 | % | ||||||||||||||
Sovereigns | 0 | % | 0 | % | 2 | % | 1 | % | 0 | % | 0 | % | 3 | % | ||||||||||||||
Drugs | 0 | % | 2 | % | 1 | % | 0 | % | 0 | % | 0 | % | 3 | % | ||||||||||||||
Forest products | 0 | % | 0 | % | 0 | % | 2 | % | 1 | % | 0 | % | 3 | % | ||||||||||||||
Other industry < 3% (28 industries) | 2 | % | 2 | % | 19 | % | 16 | % | 3 | % | 0 | % | 42 | % | ||||||||||||||
Total | 2 | % | 11 | % | 45 | % | 35 | % | 6 | % | 1 | % | 100 | % | ||||||||||||||
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As of December 31, 2008 | ||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fair | Fair | Amortized | Amortized | Unrealized | Unrealized | |||||||||||||||||||
Value | Value | Cost | Cost | Loss | Loss | |||||||||||||||||||
Non-captive diversified | $ | 83 | 30.6 | % | $ | 140 | 31.4 | % | $ | 57 | 32.4 | % | ||||||||||||
Automotive | 34 | 12.6 | % | 70 | 15.7 | % | 36 | 20.5 | % | |||||||||||||||
Gaming | 10 | 3.7 | % | 43 | 9.7 | % | 33 | 18.8 | % | |||||||||||||||
Property and casualty | 27 | 10.0 | % | 51 | 11.4 | % | 24 | 13.5 | % | |||||||||||||||
Non-captive consumer | 10 | 3.7 | % | 20 | 4.5 | % | 10 | 5.7 | % | |||||||||||||||
ABS | 9 | 3.4 | % | 16 | 3.7 | % | 7 | 4.0 | % | |||||||||||||||
Entertainment | 56 | 20.8 | % | 59 | 13.2 | % | 3 | 1.7 | % | |||||||||||||||
Refining | 2 | 0.7 | % | 5 | 1.1 | % | 3 | 1.7 | % | |||||||||||||||
Commercial mortgage-backed securities | 2 | 0.7 | % | 4 | 0.9 | % | 2 | 1.1 | % | |||||||||||||||
Banking | 23 | 8.5 | % | 24 | 5.4 | % | 1 | 0.6 | % | |||||||||||||||
Retailers | 1 | 0.4 | % | 1 | 0.2 | % | — | 0.0 | % | |||||||||||||||
Collateralized mortgage obligations | 6 | 2.2 | % | 6 | 1.3 | % | — | 0.0 | % | |||||||||||||||
Media — non-cable | 5 | 1.9 | % | 5 | 1.1 | % | — | 0.0 | % | |||||||||||||||
Paper | 1 | 0.4 | % | 1 | 0.2 | % | — | 0.0 | % | |||||||||||||||
Pharmaceuticals | 1 | 0.4 | % | 1 | 0.2 | % | — | 0.0 | % | |||||||||||||||
Total | $ | 270 | 100.0 | % | $ | 446 | 100.0 | % | $ | 176 | 100.0 | % | ||||||||||||
As of December 31, 2007 | ||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fair | Fair | Amortized | Amortized | Unrealized | Unrealized | |||||||||||||||||||
Value | Value | Cost | Cost | Loss | Loss | |||||||||||||||||||
Property and casualty | $ | 33 | 30.5 | % | $ | 48 | 35.8 | % | $ | 15 | 57.7 | % | ||||||||||||
Collateralized mortgage obligations | 17 | 15.7 | % | 25 | 18.7 | % | 8 | 30.8 | % | |||||||||||||||
Commercial mortgage-backed securities | 2 | 1.9 | % | 5 | 3.7 | % | 3 | 11.5 | % | |||||||||||||||
ABS | 6 | 5.6 | % | 6 | 4.5 | % | — | 0.0 | % | |||||||||||||||
Non-captive consumer | 37 | 34.3 | % | 37 | 27.6 | % | — | 0.0 | % | |||||||||||||||
Banking | 8 | 7.4 | % | 8 | 6.0 | % | — | 0.0 | % | |||||||||||||||
Consumer cyclical services | 5 | 4.6 | % | 5 | 3.7 | % | — | 0.0 | % | |||||||||||||||
Total | $ | 108 | 100.0 | % | $ | 134 | 100.0 | % | $ | 26 | 100.0 | % | ||||||||||||
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As of December 31, 2008 | ||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fair | Fair | Amortized | Amortized | Unrealized | Unrealized | |||||||||||||||||||
Value | Value | Cost | Cost | Loss | Loss | |||||||||||||||||||
ABS | $ | 1,198 | 4.0 | % | $ | 2,380 | 6.4 | % | $ | 1,182 | 15.7 | % | ||||||||||||
Banking | 3,657 | 12.2 | % | 4,714 | 12.5 | % | 1,057 | 14.1 | % | |||||||||||||||
Collateralized mortgage obligations | 1,636 | 5.5 | % | 2,411 | 6.3 | % | 775 | 10.4 | % | |||||||||||||||
Commercial mortgage-backed securities | 1,632 | 5.5 | % | 2,257 | 6.0 | % | 625 | 8.4 | % | |||||||||||||||
Electric | 2,916 | 9.7 | % | 3,242 | 8.7 | % | 326 | 4.4 | % | |||||||||||||||
Pipelines | 1,501 | 5.0 | % | 1,763 | 4.7 | % | 262 | 3.5 | % | |||||||||||||||
Real estate investment trusts | 662 | 2.2 | % | 918 | 2.5 | % | 256 | 3.4 | % | |||||||||||||||
Property and casualty insurers | 746 | 2.5 | % | 999 | 2.7 | % | 253 | 3.4 | % | |||||||||||||||
Metals and mining | 604 | 2.0 | % | 772 | 2.1 | % | 168 | 2.3 | % | |||||||||||||||
Life | 585 | 2.0 | % | 716 | 1.9 | % | 131 | 1.8 | % | |||||||||||||||
Paper | 397 | 1.3 | % | 528 | 1.4 | % | 131 | 1.8 | % | |||||||||||||||
Retailers | 549 | 1.8 | % | 678 | 1.8 | % | 129 | 1.7 | % | |||||||||||||||
Media — non-cable | 750 | 2.5 | % | 867 | 2.3 | % | 117 | 1.6 | % | |||||||||||||||
Food and beverage | 1,205 | 4.0 | % | 1,310 | 3.5 | % | 105 | 1.4 | % | |||||||||||||||
Gaming | 205 | 0.7 | % | 303 | 0.8 | % | 98 | 1.3 | % | |||||||||||||||
Diversified manufacturing | 686 | 2.3 | % | 774 | 2.1 | % | 88 | 1.2 | % | |||||||||||||||
Non-captive diversified | 217 | 0.7 | % | 304 | 0.8 | % | 87 | 1.2 | % | |||||||||||||||
Financial — other | 395 | 1.3 | % | 479 | 1.3 | % | 84 | 1.1 | % | |||||||||||||||
Building materials | 467 | 1.6 | % | 549 | 1.5 | % | 82 | 1.1 | % | |||||||||||||||
Owned no guarantee | 208 | 0.7 | % | 290 | 0.8 | % | 82 | 1.1 | % | |||||||||||||||
Home construction | 227 | 0.8 | % | 308 | 0.8 | % | 81 | 1.1 | % | |||||||||||||||
Independent | 533 | 1.8 | % | 615 | 1.6 | % | 82 | 1.1 | % | |||||||||||||||
Distributors | 890 | 3.0 | % | 971 | 2.6 | % | 81 | 1.1 | % | |||||||||||||||
Non-captive consumer | 181 | 0.6 | % | 253 | 0.7 | % | 72 | 1.0 | % | |||||||||||||||
Technology | 511 | 1.7 | % | 582 | 1.6 | % | 71 | 1.0 | % | |||||||||||||||
Automotive | 174 | 0.6 | % | 241 | 0.6 | % | 67 | 0.9 | % | |||||||||||||||
Integrated | 424 | 1.4 | % | 490 | 1.3 | % | 66 | 0.9 | % | |||||||||||||||
Transportation services | 376 | 1.3 | % | 442 | 1.2 | % | 66 | 0.9 | % | |||||||||||||||
Wirelines | 566 | 1.9 | % | 627 | 1.7 | % | 61 | 0.8 | % | |||||||||||||||
Refining | 285 | 1.0 | % | 340 | 0.9 | % | 55 | 0.7 | % | |||||||||||||||
Oil field services | 550 | 1.8 | % | 604 | 1.6 | % | 54 | 0.7 | % | |||||||||||||||
Wireless | 225 | 0.8 | % | 278 | 0.7 | % | 53 | 0.7 | % | |||||||||||||||
Chemicals | 473 | 1.6 | % | 522 | 1.4 | % | 49 | 0.7 | % | |||||||||||||||
Non agency | 94 | 0.3 | % | 141 | 0.4 | % | 47 | 0.6 | % | |||||||||||||||
Healthcare | 431 | 1.4 | % | 477 | 1.3 | % | 46 | 0.6 | % | |||||||||||||||
Entertainment | 487 | 1.6 | % | 531 | 1.4 | % | 44 | 0.6 | % | |||||||||||||||
Sovereigns | 146 | 0.5 | % | 190 | 0.5 | % | 44 | 0.6 | % |
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As of December 31, 2008 | ||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fair | Fair | Amortized | Amortized | Unrealized | Unrealized | |||||||||||||||||||
Value | Value | Cost | Cost | Loss | Loss | |||||||||||||||||||
(Continued from Above) | ||||||||||||||||||||||||
Health insurance | 334 | 1.1 | % | 376 | 1.0 | % | 42 | 0.6 | % | |||||||||||||||
Industrial other | 368 | 1.2 | % | 407 | 1.1 | % | 39 | 0.5 | % | |||||||||||||||
Brokerage | 186 | 0.6 | % | 223 | 0.6 | % | 37 | 0.5 | % | |||||||||||||||
Consumer products | 434 | 1.4 | % | 469 | 1.3 | % | 35 | 0.5 | % | |||||||||||||||
Airlines | 72 | 0.2 | % | 101 | 0.3 | % | 29 | 0.4 | % | |||||||||||||||
Lodging | 85 | 0.3 | % | 112 | 0.3 | % | 27 | 0.4 | % | |||||||||||||||
Packaging | 161 | 0.5 | % | 187 | 0.5 | % | 26 | 0.3 | % | |||||||||||||||
Railroads | 232 | 0.8 | % | 257 | 0.7 | % | 25 | 0.3 | % | |||||||||||||||
Local authorities | 31 | 0.2 | % | 45 | 0.1 | % | 14 | 0.2 | % | |||||||||||||||
Construction machinery | 238 | 0.8 | % | 250 | 0.7 | % | 12 | 0.2 | % | |||||||||||||||
Utility — other | 87 | 0.3 | % | 98 | 0.3 | % | 11 | 0.1 | % | |||||||||||||||
Government sponsored | 15 | 0.0 | % | 26 | 0.1 | % | 11 | 0.1 | % | |||||||||||||||
Media — cable | 156 | 0.5 | % | 167 | 0.4 | % | 11 | 0.1 | % | |||||||||||||||
Industries with unrealized losses less than $10 | 747 | 2.5 | % | 815 | 2.2 | % | 68 | 0.9 | % | |||||||||||||||
Total | $ | 29,935 | 100.0 | % | $ | 37,399 | 100.0 | % | $ | 7,464 | 100.0 | % | ||||||||||||
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As of December 31, 2007 | ||||||||||||||||||||||||
% | % | % | ||||||||||||||||||||||
Fair | Fair | Amortized | Amortized | Unrealized | Unrealized | |||||||||||||||||||
Value | Value | Cost | Cost | Loss | Loss | |||||||||||||||||||
ABS | $ | 1,946 | 9.4 | % | $ | 2,239 | 10.2 | % | $ | 293 | 24.4 | % | ||||||||||||
Banking | 3,147 | 15.0 | % | 3,328 | 15.1 | % | 181 | 15.1 | % | |||||||||||||||
Collateralized mortgage obligations | 2,881 | 13.8 | % | 3,010 | 13.7 | % | 129 | 10.8 | % | |||||||||||||||
Commercial mortgage-backed securities | 1,083 | 5.2 | % | 1,153 | 5.2 | % | 70 | 5.8 | % | |||||||||||||||
Electric | 1,406 | 6.8 | % | 1,440 | 6.5 | % | 34 | 2.9 | % | |||||||||||||||
Property and casualty insurers | 494 | 2.4 | % | 528 | 2.4 | % | 34 | 2.8 | % | |||||||||||||||
Non-captive diversified | 314 | 1.5 | % | 347 | 1.6 | % | 33 | 2.7 | % | |||||||||||||||
Home construction | 287 | 1.4 | % | 319 | 1.5 | % | 32 | 2.7 | % | |||||||||||||||
Media — non-cable | 223 | 1.1 | % | 254 | 1.2 | % | 31 | 2.6 | % | |||||||||||||||
Retailers | 443 | 2.1 | % | 469 | 2.1 | % | 26 | 2.2 | % | |||||||||||||||
Non-captive consumer | 258 | 1.2 | % | 284 | 1.3 | % | 26 | 2.2 | % | |||||||||||||||
Pipelines | 593 | 2.9 | % | 614 | 2.8 | % | 21 | 1.7 | % | |||||||||||||||
Real estate investment trusts | 572 | 2.8 | % | 593 | 2.7 | % | 21 | 1.7 | % | |||||||||||||||
Paper | 273 | 1.3 | % | 291 | 1.3 | % | 18 | 1.5 | % | |||||||||||||||
Financial — other | 354 | 1.7 | % | 371 | 1.7 | % | 17 | 1.4 | % | |||||||||||||||
Brokerage | 434 | 2.1 | % | 449 | 2.0 | % | 15 | 1.2 | % | |||||||||||||||
Gaming | 126 | 0.6 | % | 140 | 0.6 | % | 14 | 1.2 | % | |||||||||||||||
Distributors | 429 | 2.1 | % | 442 | 2.0 | % | 13 | 1.1 | % | |||||||||||||||
Food and beverage | 419 | 2.0 | % | 431 | 2.0 | % | 12 | 1.0 | % | |||||||||||||||
Metals and mining | 328 | 1.6 | % | 338 | 1.5 | % | 10 | 0.8 | % | |||||||||||||||
Building materials | 226 | 1.1 | % | 236 | 1.1 | % | 10 | 0.8 | % | |||||||||||||||
Automotive | 184 | 0.9 | % | 194 | 0.9 | % | 10 | 0.8 | % | |||||||||||||||
Industries with unrealized losses less than $10 | 4,370 | 21.0 | % | 4,522 | 20.6 | % | 152 | 12.6 | % | |||||||||||||||
Total | $ | 20,790 | 100.0 | % | $ | 21,992 | 100.0 | % | $ | 1,202 | 100.0 | % | ||||||||||||
127
Table of Contents
Ratio of | ||||||||||||||
Amortized | As of December 31, 2008 | |||||||||||||
Cost to | Fair | Amortized | Unrealized | |||||||||||
Aging Category | Fair Value | Value | Cost | Loss | ||||||||||
< or = 90 days | 70% to 100% | $ | 253 | $ | 268 | $ | 15 | |||||||
40% to 70% | 17 | 31 | 14 | |||||||||||
Below 40% | 1 | 5 | 4 | |||||||||||
Total < or = 90 days | 271 | 304 | 33 | |||||||||||
>90 days but < or = 180 days | 70% to 100% | 291 | 336 | 45 | ||||||||||
40% to 70% | 41 | 66 | 25 | |||||||||||
Below 40% | — | — | — | |||||||||||
Total >90 days but < or = 180 days | 332 | 402 | 70 | |||||||||||
>180 days but < or = 270 days | 70% to 100% | 311 | 349 | 38 | ||||||||||
40% to 70% | 83 | 140 | 57 | |||||||||||
Below 40% | 10 | 40 | 30 | |||||||||||
Total >180 days but < or = 270 days | 404 | 529 | 125 | |||||||||||
>270 days but < or = 1 year | 70% to 100% | 116 | 143 | 27 | ||||||||||
40% to 70% | 35 | 66 | 31 | |||||||||||
Below 40% | 9 | 28 | 19 | |||||||||||
Total >270 days but < or = 1 year | 160 | 237 | 77 | |||||||||||
>1 year | 70% to 100% | 501 | 606 | 105 | ||||||||||
40% to 70% | 339 | 604 | 265 | |||||||||||
Below 40% | 98 | 376 | 278 | |||||||||||
Total >1 year | 938 | 1,586 | 648 | |||||||||||
Total below-investment-grade | $ | 2,105 | $ | 3,058 | $ | 953 | ||||||||
128
Table of Contents
Ratio of | ||||||||||||||
Amortized | As of December 31, 2007 | |||||||||||||
Cost to | Fair | Amortized | Unrealized | |||||||||||
Aging Category | Fair Value | Value | Cost | Loss | ||||||||||
< or = 90 days | 70% to 100% | $ | 446 | $ | 468 | $ | 22 | |||||||
40% to 70% | — | 1 | 1 | |||||||||||
Below 40% | — | — | — | |||||||||||
Total < or = 90 days | 446 | 469 | 23 | |||||||||||
>90 days but < or = 180 days | 70% to 100% | 218 | 231 | 13 | ||||||||||
40% to 70% | 1 | 1 | — | |||||||||||
Below 40% | — | — | — | |||||||||||
Total >90 days but < or = 180 days | 219 | 232 | 13 | |||||||||||
>180 days but < or = 270 days | 70% to 100% | 378 | 408 | 30 | ||||||||||
40% to 70% | — | — | — | |||||||||||
Below 40% | — | — | — | |||||||||||
Total >180 days but < or = 270 days | 378 | 408 | 30 | |||||||||||
>270 days but < or = 1 year | 70% to 100% | 121 | 135 | 14 | ||||||||||
40% to 70% | — | — | — | |||||||||||
Below 40% | — | — | — | |||||||||||
Total >270 days but < or = 1 year | 121 | 135 | 14 | |||||||||||
>1 year | 70% to 100% | 328 | 362 | 34 | ||||||||||
40% to 70% | 52 | 84 | 32 | |||||||||||
Below 40% | — | — | — | |||||||||||
Total >1 year | 380 | 446 | 66 | |||||||||||
Total below-investment-grade | $ | 1,544 | $ | 1,690 | $ | 146 | ||||||||
129
Table of Contents
As of December 31, 2008 | ||||||||||||||
Length of Time | Fair | Amortized | Unrealized | |||||||||||
in Loss Position | Value | Cost | Loss | |||||||||||
Investment Grade | ||||||||||||||
Credit-linked notes | >1 year | $ | 30 | $ | 400 | $ | (370 | ) | ||||||
Credit-linked notes | >1 year | 20 | 200 | (180 | ) | |||||||||
Domestic bank and finance | >1 year | 258 | 404 | (146 | ) | |||||||||
U.K. bank and finance | >1 year | 109 | 183 | (74 | ) | |||||||||
International bank and finance | >270 days but <=1 year | 70 | 116 | (46 | ) | |||||||||
International bank and finance | >1 year | 77 | 123 | (46 | ) | |||||||||
International bank and finance | >1 year | 53 | 97 | (44 | ) | |||||||||
Mortgage related ABS | >1 year | 18 | 57 | (39 | ) | |||||||||
Domestic finance | >1 year | 42 | 80 | (38 | ) | |||||||||
Domestic retailer | >1 year | 43 | 80 | (37 | ) | |||||||||
International forestry | >1 year | 63 | 98 | (35 | ) | |||||||||
Mortgage related MBS | >1 year | 8 | 42 | (34 | ) | |||||||||
Domestic bank and finance | >270 days but <=1 year | 112 | 145 | (33 | ) | |||||||||
Mortgage related ABS | >1 year | 15 | 46 | (31 | ) | |||||||||
International bank and finance | >180 days but <=270 days | 53 | 84 | (31 | ) | |||||||||
Mortgage related MBS | >1 year | 24 | 55 | (31 | ) | |||||||||
Domestic bank and finance | >270 days but <=1 year | 171 | 201 | (30 | ) | |||||||||
U.K. bank and finance | >1 year | 67 | 97 | (30 | ) | |||||||||
Mortgage related MBS | >270 days but <=1 year | 35 | 63 | (28 | ) | |||||||||
Domestic energy | >180 days but <=270 days | 95 | 123 | (28 | ) | |||||||||
U.K. bank and finance | >1 year | 122 | 149 | (27 | ) | |||||||||
International energy | >1 year | 53 | 80 | (27 | ) | |||||||||
U.K. bank and finance | >1 year | 44 | 71 | (27 | ) | |||||||||
International bank and finance | >1 year | 37 | 64 | (27 | ) | |||||||||
International investment company | >1 year | 31 | 57 | (26 | ) | |||||||||
Real estate investment trust | >270 days but <=1 year | 34 | 59 | (25 | ) | |||||||||
Mortgage related MBS | >1 year | 4 | 29 | (25 | ) | |||||||||
Domestic bank and finance | >1 year | 76 | 101 | (25 | ) | |||||||||
International bank and finance | >270 days but <=1 year | 6 | 30 | (24 | ) | |||||||||
International bank and finance | >1 year | 25 | 48 | (23 | ) | |||||||||
Property and casualty insurance | >1 year | 31 | 54 | (23 | ) | |||||||||
Mortgage related ABS | >1 year | 2 | 25 | (23 | ) | |||||||||
International metals and mining | >1 year | 65 | 88 | (23 | ) | |||||||||
Domestic bank and finance | >180 days but <=270 days | 190 | 213 | (23 | ) | |||||||||
Domestic insurance | >180 days but <=270 days | 48 | 70 | (22 | ) | |||||||||
Mortgage related MBS | >1 year | 8 | 29 | (21 | ) | |||||||||
International energy | >180 days but <=270 days | 91 | 112 | (21 | ) | |||||||||
Domestic healthcare | >270 days but <=1 year | 108 | 129 | (21 | ) | |||||||||
Mortgage related ABS | >1 year | 19 | 40 | (21 | ) | |||||||||
International communications | >180 days but <=270 days | 85 | 106 | (21 | ) | |||||||||
International finance | >270 days but <=1 year | 82 | 103 | (21 | ) | |||||||||
International insurance | >90 days but <=180 days | 40 | 61 | (21 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 43 | 63 | (20 | ) |
130
Table of Contents
As of December 31, 2008 | ||||||||||||||
Length of Time | Fair | Amortized | Unrealized | |||||||||||
in Loss Position | Value | Cost | Loss | |||||||||||
(Continued from Above) | ||||||||||||||
Investment Grade | ||||||||||||||
International shipping | >270 days but <=1 year | 63 | 83 | (20 | ) | |||||||||
Mortgage related MBS | >1 year | 12 | 32 | (20 | ) | |||||||||
Mortgage related MBS | >270 days but <=1 year | 15 | 35 | (20 | ) | |||||||||
Mortgage related ABS | >270 days but <=1 year | 43 | 63 | (20 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 111 | 130 | (19 | ) | |||||||||
International metals and mining | >180 days but <=270 days | 53 | 72 | (19 | ) | |||||||||
International energy | >1 year | 21 | 40 | (19 | ) | |||||||||
Real estate investment trust | >1 year | 22 | 41 | (19 | ) | |||||||||
Automotive supplier | >270 days but <=1 year | 58 | 77 | (19 | ) | |||||||||
International energy | >1 year | 70 | 89 | (19 | ) | |||||||||
U.K. utilities | >1 year | 71 | 90 | (19 | ) | |||||||||
Domestic finance | >1 year | 49 | 67 | (18 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 112 | 130 | (18 | ) | |||||||||
Global multi-industry | >90 days but <=180 days | 69 | 87 | (18 | ) | |||||||||
Domestic insurance | >270 days but <=1 year | 71 | 89 | (18 | ) | |||||||||
Domestic brokerage | >1 year | 181 | 198 | (17 | ) | |||||||||
International energy | >180 days but <=270 days | 109 | 126 | (17 | ) | |||||||||
International aircraft leasing | >1 year | 27 | 44 | (17 | ) | |||||||||
Property and casualty insurance | >180 days but <=270 days | 54 | 71 | (17 | ) | |||||||||
Mortgage related ABS | >1 year | 12 | 29 | (17 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 113 | 130 | (17 | ) | |||||||||
Mortgage related MBS | >1 year | 9 | 26 | (17 | ) | |||||||||
Automotive rentals | >1 year | 40 | 57 | (17 | ) | |||||||||
International insurance | >270 days but <=1 year | 65 | 82 | (17 | ) | |||||||||
Domestic bank and finance | >1 year | 68 | 85 | (17 | ) | |||||||||
U.K. bank and finance | >1 year | 15 | 31 | (16 | ) | |||||||||
International communications | >1 year | 110 | 126 | (16 | ) | |||||||||
Domestic bank and finance | >180 days but <=270 days | 43 | 58 | (15 | ) | |||||||||
Domestic bank and finance | >1 year | 44 | �� | 59 | (15 | ) | ||||||||
International bank and finance | >1 year | 5 | 20 | (15 | ) | |||||||||
Domestic insurance | >180 days but <=270 days | 37 | 52 | (15 | ) | |||||||||
International energy | >1 year | 143 | 158 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 24 | 39 | (15 | ) | |||||||||
Mortgage related ABS | >180 days but <=270 days | 23 | 38 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 23 | 38 | (15 | ) | |||||||||
Mortgage related MBS | <=90 days | 10 | 25 | (15 | ) | |||||||||
International energy | >270 days but <=1 year | 80 | 95 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 2 | 17 | (15 | ) | |||||||||
International bank and finance | >1 year | 24 | 39 | (15 | ) | |||||||||
Mortgage related ABS | >1 year | 10 | 25 | (15 | ) | |||||||||
Domestic bank and finance | >1 year | 40 | 55 | (15 | ) | |||||||||
Global multi-industry | >270 days but <=1 year | 53 | 68 | (15 | ) | |||||||||
Domestic energy | >1 year | 77 | 92 | (15 | ) | |||||||||
Mortgage related ABS | >270 days but <=1 year | 17 | 32 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 3 | 18 | (15 | ) |
131
Table of Contents
As of December 31, 2008 | ||||||||||||||
Length of Time | Fair | Amortized | Unrealized | |||||||||||
in Loss Position | Value | Cost | Loss | |||||||||||
(Continued from Above) | ||||||||||||||
Investment Grade | ||||||||||||||
Mortgage related MBS | >270 days but <=1 year | 10 | 25 | (15 | ) | |||||||||
Domestic insurance | >270 days but <=1 year | 74 | 89 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 6 | 21 | (15 | ) | |||||||||
Monoline insurer | <=90 days | 15 | 30 | (15 | ) | |||||||||
International energy | >1 year | 105 | 120 | (15 | ) | |||||||||
Mortgage related MBS | >1 year | 2 | 17 | (15 | ) | |||||||||
International consumer goods | >1 year | 39 | 54 | (15 | ) | |||||||||
International beverage | >1 year | 100 | 115 | (15 | ) | |||||||||
International energy | >1 year | 44 | 58 | (14 | ) | |||||||||
Domestic brokerage | >270 days but <=1 year | 132 | 146 | (14 | ) | |||||||||
Mortgage related ABS | >1 year | 6 | 20 | (14 | ) | |||||||||
Real estate investment trust | >1 year | 36 | 50 | (14 | ) | |||||||||
International metals and mining | >1 year | 30 | 44 | (14 | ) | |||||||||
Real estate investment trust | >180 days but <=270 days | 42 | 56 | (14 | ) | |||||||||
Domestic energy | >1 year | 61 | 75 | (14 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 68 | 81 | (13 | ) | |||||||||
International energy | >1 year | 42 | 55 | (13 | ) | |||||||||
Mortgage related MBS | >270 days but <=1 year | 20 | 33 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 11 | 24 | (13 | ) | |||||||||
Domestic bank and finance | >270 days but <=1 year | 143 | 156 | (13 | ) | |||||||||
Domestic energy | >1 year | 41 | 54 | (13 | ) | |||||||||
International bank and finance | >90 days but <=180 days | 11 | 24 | (13 | ) | |||||||||
Mortgage related ABS | >1 year | 11 | 24 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 12 | 25 | (13 | ) | |||||||||
Domestic insurance | >1 year | 14 | 27 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 11 | 24 | (13 | ) | |||||||||
U.K. bank and finance | >1 year | 27 | 40 | (13 | ) | |||||||||
Domestic healthcare | >270 days but <=1 year | 127 | 140 | (13 | ) | |||||||||
International bank and finance | >1 year | 18 | 31 | (13 | ) | |||||||||
Domestic insurance | >1 year | 28 | 41 | (13 | ) | |||||||||
International energy | >1 year | 78 | 91 | (13 | ) | |||||||||
International print services | >270 days but <=1 year | 42 | 55 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 4 | 17 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 52 | 65 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 10 | 23 | (13 | ) | |||||||||
Real estate investment trust | >1 year | 16 | 29 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 13 | 26 | (13 | ) | |||||||||
Domestic metals and mining | >180 days but <=270 days | 35 | 48 | (13 | ) | |||||||||
Mortgage related MBS | >1 year | 5 | 17 | (12 | ) | |||||||||
Mortgage related ABS | >1 year | 6 | 18 | (12 | ) | |||||||||
Domestic energy | >1 year | 92 | 104 | (12 | ) | |||||||||
Real estate investment trust | >1 year | 35 | 47 | (12 | ) | |||||||||
International consumer goods | >270 days but <=1 year | 33 | 45 | (12 | ) | |||||||||
International office products | >180 days but <=270 days | 45 | 57 | (12 | ) | |||||||||
International bank and finance | >1 year | 5 | 17 | (12 | ) | |||||||||
Real estate investment trust | >270 days but <=1 year | 40 | 52 | (12 | ) | |||||||||
Municipal | >1 year | 20 | 32 | (12 | ) | |||||||||
International insurance | >180 days but <=270 days | 19 | 31 | (12 | ) |
132
Table of Contents
As of December 31, 2008 | ||||||||||||||
Length of Time | Fair | Amortized | Unrealized | |||||||||||
in Loss Position | Value | Cost | Loss | |||||||||||
(Continued from Above) | ||||||||||||||
Investment Grade | ||||||||||||||
Domestic brokerage | >1 year | 86 | 98 | (12 | ) | |||||||||
Domestic energy | >270 days but <=1 year | 47 | 59 | (12 | ) | |||||||||
International energy | >180 days but <=270 days | 78 | 90 | (12 | ) | |||||||||
Domestic retailer | >1 year | 39 | 50 | (11 | ) | |||||||||
Real estate investment trust | >270 days but <=1 year | 25 | 36 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 7 | 18 | (11 | ) | |||||||||
Mortgage related ABS | >1 year | 12 | 23 | (11 | ) | |||||||||
Real estate investment trust | >1 year | 34 | 45 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 9 | 20 | (11 | ) | |||||||||
International steelmaker | >180 days but <=270 days | 29 | 40 | (11 | ) | |||||||||
International bank and finance | >1 year | 34 | 45 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 24 | 35 | (11 | ) | |||||||||
Domestic energy | >180 days but <=270 days | 70 | 81 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 4 | 15 | (11 | ) | |||||||||
Mortgage related ABS | >1 year | 11 | 22 | (11 | ) | |||||||||
Domestic energy | >180 days but <=270 days | 103 | 114 | (11 | ) | |||||||||
Mortgage related ABS | >270 days but <=1 year | 28 | 39 | (11 | ) | |||||||||
Domestic retailer | >1 year | 31 | 42 | (11 | ) | |||||||||
Food products | >180 days but <=270 days | 27 | 38 | (11 | ) | |||||||||
Domestic communications | >270 days but <=1 year | 48 | 59 | (11 | ) | |||||||||
Real estate investment trust | >1 year | 25 | 36 | (11 | ) | |||||||||
Domestic energy | >1 year | 125 | 136 | (11 | ) | |||||||||
International communications | >270 days but <=1 year | 56 | 67 | (11 | ) | |||||||||
Global multi-industry | >1 year | 84 | 95 | (11 | ) | |||||||||
Mortgage related ABS | >270 days but <=1 year | 7 | 18 | (11 | ) | |||||||||
Mortgage related MBS | >270 days but <=1 year | 13 | 24 | (11 | ) | |||||||||
Domestic finance | >1 year | 10 | 21 | (11 | ) | |||||||||
Domestic insurance | >270 days but <=1 year | 14 | 25 | (11 | ) | |||||||||
Mortgage related MBS | >270 days but <=1 year | 23 | 34 | (11 | ) | |||||||||
International energy | >1 year | 19 | 30 | (11 | ) | |||||||||
Domestic bank and finance | >1 year | 42 | 53 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 13 | 23 | (10 | ) | |||||||||
Mortgage related MBS | >1 year | 4 | 14 | (10 | ) | |||||||||
Domestic insurance | >180 days but <=270 days | 28 | 38 | (10 | ) | |||||||||
Mortgage related ABS | >1 year | 21 | 31 | (10 | ) | |||||||||
International energy | >1 year | 53 | 63 | (10 | ) | |||||||||
Domestic insurance | >180 days but <=270 days | 20 | 30 | (10 | ) | |||||||||
International energy | >1 year | 93 | 103 | (10 | ) | |||||||||
Domestic bank and finance | >270 days but <=1 year | 120 | 130 | (10 | ) | |||||||||
International brokerage | >1 year | 18 | 28 | (10 | ) | |||||||||
Mortgage related ABS | >180 days but <=270 days | 20 | 30 | (10 | ) | |||||||||
Total investment grade | $ | 8,298 | $ | 12,004 | $ | (3,706 | ) | |||||||
133
Table of Contents
As of December 31, 2008 | ||||||||||||||
Length of Time | Fair | Amortized | Unrealized | |||||||||||
in Loss Position | Value | Cost | Loss | |||||||||||
Non Investment Grade | ||||||||||||||
Domestic bank and finance | >1 year | $ | 18 | $ | 58 | $ | (40 | ) | ||||||
Entertainment | >1 year | 10 | 43 | (33 | ) | |||||||||
Mining | >1 year | 23 | 51 | (28 | ) | |||||||||
International forestry | >1 year | 43 | 67 | (24 | ) | |||||||||
Domestic homebuilding | >1 year | 68 | 91 | (23 | ) | |||||||||
Sovereign | >1 year | 13 | 34 | (21 | ) | |||||||||
Mortgage related MBS | >1 year | 8 | 28 | (20 | ) | |||||||||
Mortgage related MBS | >1 year | 6 | 25 | (19 | ) | |||||||||
Automotive supplier | >1 year | 11 | 30 | (19 | ) | |||||||||
Mortgage related MBS | >1 year | 1 | 19 | (18 | ) | |||||||||
International communications | >1 year | 43 | 59 | (16 | ) | |||||||||
Domestic homebuilding | >1 year | 36 | 52 | (16 | ) | |||||||||
Domestic homebuilding | >1 year | 49 | 64 | (15 | ) | |||||||||
International bank and finance | >1 year | 34 | 47 | (13 | ) | |||||||||
International development | >180 days but <=270 days | 22 | 34 | (12 | ) | |||||||||
Monoline insurer | >1 year | 8 | 19 | (11 | ) | |||||||||
Mortgage related MBS | >180 days but <=270 days | 1 | 12 | (11 | ) | |||||||||
Domestic homebuilding | >1 year | 35 | 46 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 8 | 19 | (11 | ) | |||||||||
International construction materials | >270 days but <=1 year | 6 | 17 | (11 | ) | |||||||||
Entertainment | >1 year | 9 | 20 | (11 | ) | |||||||||
Mortgage related MBS | >1 year | 4 | 15 | (11 | ) | |||||||||
Entertainment | >270 days but <=1 year | 8 | 18 | (10 | ) | |||||||||
Domestic automaker | >1 year | 21 | 31 | (10 | ) | |||||||||
International energy | >270 days but <=1 year | 23 | 33 | (10 | ) | |||||||||
Total non investment grade | $ | 508 | $ | 932 | $ | (424 | ) | |||||||
134
Table of Contents
As of December 31, 2008 | ||||||||
Amount | % | |||||||
Property Type | ||||||||
Office Building | $ | 2,625 | 34 | % | ||||
Industrial | 2,004 | 26 | % | |||||
Retail | 1,834 | 24 | % | |||||
Apartment | 725 | 9 | % | |||||
Hotel/Motel | 287 | 4 | % | |||||
Mixed Use | 135 | 2 | % | |||||
Other Commercial | 105 | 1 | % | |||||
$ | 7,715 | 100 | % | |||||
Geographic Region | ||||||||
Pacific | $ | 2,050 | 27 | % | ||||
South Atlantic | 1,808 | 23 | % | |||||
East North Central | 803 | 10 | % | |||||
Mountain | 743 | 10 | % | |||||
West South Central | 706 | 9 | % | |||||
Middle Atlantic | 514 | 7 | % | |||||
East South Central | 457 | 6 | % | |||||
West North Central | 418 | 5 | % | |||||
New England | 216 | 3 | % | |||||
$ | 7,715 | 100 | % | |||||
As of December 31, 2008 | ||||||||
Amount | % | |||||||
State Exposure | ||||||||
CA | $ | 1,614 | 21 | % | ||||
TX | 656 | 9 | % | |||||
MD | 439 | 6 | % | |||||
FL | 341 | 4 | % | |||||
TN | 322 | 4 | % | |||||
NC | 321 | 4 | % | |||||
AZ | 318 | 4 | % | |||||
VA | 311 | 4 | % | |||||
WA | 297 | 4 | % | |||||
IL | 284 | 3 | % | |||||
GA | 250 | 3 | % | |||||
PA | 237 | 3 | % | |||||
NV | 214 | 3 | % | |||||
OH | 202 | 3 | % | |||||
IN | 192 | 2 | % | |||||
MN | 159 | 2 | % | |||||
MA | 159 | 2 | % | |||||
NJ | 146 | 2 | % | |||||
SC | 136 | 2 | % | |||||
NY | 131 | 2 | % | |||||
Other states under 1% | 986 | 13 | % | |||||
$ | 7,715 | 100 | % | |||||
135
Table of Contents
As of December 31, | ||||||||
2008 | 2007 | |||||||
Retirement Solutions: | ||||||||
Annuities | $ | 89 | $ | 108 | ||||
Defined Contribution | 72 | 130 | ||||||
Insurance Solutions: | ||||||||
Life Insurance | 603 | 526 | ||||||
Group Protection | 8 | 2 | ||||||
Other Operations | 4 | 33 | ||||||
Total alternative investments | $ | 776 | $ | 799 | ||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | (7 | ) | $ | 17 | $ | 12 | NM | 42 | % | ||||||||||
Defined Contribution | (8 | ) | 17 | 18 | NM | -6 | % | |||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | (16 | ) | 65 | 12 | NM | NM | ||||||||||||||
Group Protection | (2 | ) | — | — | NM | NM | ||||||||||||||
Other Operations | (1 | ) | 3 | 4 | NM | -25 | % | |||||||||||||
Total alternative investments (1) | $ | (34 | ) | $ | 102 | $ | 46 | NM | 122 | % | ||||||||||
(1) | Includes net investment income on the alternative investments supporting the required statutory surplus of our insurance businesses. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Net Investment Income | ||||||||||||||||||||
Fixed maturity available-for-sale securities | $ | 3,399 | $ | 3,367 | $ | 3,012 | 1 | % | 12 | % | ||||||||||
Equity available-for-sale securities | 29 | 41 | 27 | -29 | % | 52 | % | |||||||||||||
Trading securities | 166 | 176 | 197 | -6 | % | -11 | % | |||||||||||||
Mortgage loans on real estate | 475 | 494 | 417 | -4 | % | 18 | % | |||||||||||||
Real estate | 23 | 44 | 38 | -48 | % | 16 | % | |||||||||||||
Standby real estate equity commitments | 3 | 12 | 18 | -75 | % | -33 | % | |||||||||||||
Policy loans | 179 | 175 | 159 | 2 | % | 10 | % | |||||||||||||
Invested cash | 63 | 73 | 89 | -14 | % | -18 | % | |||||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums (1) | 29 | 57 | 70 | -49 | % | -19 | % | |||||||||||||
Alternative investments (2) | (34 | ) | 102 | 46 | NM | 122 | % | |||||||||||||
Consent fees | 5 | 10 | 8 | -50 | % | 25 | % | |||||||||||||
Other investments | (4 | ) | 12 | 10 | NM | 20 | % | |||||||||||||
Investment income | 4,333 | 4,563 | 4,091 | -5 | % | 12 | % | |||||||||||||
Investment expense | (125 | ) | (185 | ) | (168 | ) | 32 | % | -10 | % | ||||||||||
Net investment income | $ | 4,208 | $ | 4,378 | $ | 3,923 | -4 | % | 12 | % | ||||||||||
(1) | See “Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information. | |
(2) | See “Alternative Investments” above for additional information. |
Basis Point Change | ||||||||||||||||||||
For the Years Ended December 31, | Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Interest Rate Yield | ||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.91 | % | 5.95 | % | 5.97 | % | (4 | ) | (2 | ) | ||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.04 | % | 0.08 | % | 0.11 | % | (4 | ) | (3 | ) | ||||||||||
Alternative investments | -0.05 | % | 0.14 | % | 0.07 | % | (19 | ) | 7 | |||||||||||
Consent fees | 0.01 | % | 0.01 | % | 0.01 | % | — | — | ||||||||||||
Standby real estate equity commitments | 0.00 | % | 0.02 | % | 0.03 | % | (2 | ) | (1 | ) | ||||||||||
Net investment income yield on invested assets | 5.91 | % | 6.20 | % | 6.19 | % | (29 | ) | 1 | |||||||||||
For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Average invested assets at amortized cost | $ | 71,143 | $ | 70,633 | $ | 63,338 | 1 | % | 12 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Fixed maturity available-for-sale securities: | ||||||||||||||||||||
Gross gains | $ | 74 | $ | 125 | $ | 132 | -41 | % | -5 | % | ||||||||||
Gross losses | (1,145 | ) | (185 | ) | (103 | ) | NM | -80 | % | |||||||||||
Equity available-for-sale securities: | ||||||||||||||||||||
Gross gains | 5 | 8 | — | -38 | % | NM | ||||||||||||||
Gross losses | (164 | ) | (111 | ) | (1 | ) | -48 | % | NM | |||||||||||
Gain on other investments | 32 | 18 | 4 | 78 | % | NM | ||||||||||||||
Associated amortization expense (benefit) of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities | 260 | 29 | (41 | ) | NM | 171 | % | |||||||||||||
Total realized loss on investments, excluding trading securities | (938 | ) | (116 | ) | (9 | ) | NM | NM | ||||||||||||
Gain (loss) on certain derivative instruments | (112 | ) | (11 | ) | 2 | NM | NM | |||||||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL and changes in other contract holder funds | — | 1 | — | -100 | % | NM | ||||||||||||||
Total realized loss on investments and certain derivative instruments, excluding trading securities | $ | (1,050 | ) | $ | (126 | ) | $ | (7 | ) | NM | NM | |||||||||
Write-downs for other-than-temporary impairments impairments included in realized loss on available-for-sale securities above | $ | (1,075 | ) | $ | (261 | ) | $ | (64 | ) | NM | NM | |||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Other-Than-Temporary Impairments | ||||||||||||||||||||
Fixed maturity securities: | ||||||||||||||||||||
Corporate bonds | $ | 557 | $ | 129 | $ | 61 | NM | 111 | % | |||||||||||
Hybrid and redeemable preferred stock | 51 | 1 | — | NM | NM | |||||||||||||||
Mortgage-backed securities | 304 | 20 | 3 | NM | NM | |||||||||||||||
Total fixed maturity securities | 912 | 150 | 64 | NM | 134 | % | ||||||||||||||
Equity securities: | ||||||||||||||||||||
Bank of America stock | 130 | — | — | NM | NM | |||||||||||||||
Preferred stock | 24 | 111 | — | 47 | % | NM | ||||||||||||||
Common stock | 9 | — | — | NM | NM | |||||||||||||||
Total equity securities | 163 | 111 | — | 47 | % | NM | ||||||||||||||
Total other-than-temporary impairments | $ | 1,075 | $ | 261 | $ | 64 | NM | NM | ||||||||||||
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Dividends from Subsidiaries | ||||||||||||||||||||
LNL | $ | 400 | $ | 769 | $ | 569 | -48 | % | 35 | % | ||||||||||
First Penn-Pacific | 50 | 150 | — | -67 | % | NM | ||||||||||||||
Lincoln Financial Media(1) | 659 | 86 | 39 | NM | 121 | % | ||||||||||||||
Delaware Investments | 51 | 55 | 48 | -7 | % | 15 | % | |||||||||||||
Other non-regulated companies(2) | — | 395 | 235 | -100 | % | 68 | % | |||||||||||||
Lincoln UK | 24 | 75 | 85 | -68 | % | -12 | % | |||||||||||||
Other | 54 | — | 11 | NM | -100 | % | ||||||||||||||
Loan Repayments and Interest from Subsidiary | ||||||||||||||||||||
LNL interest on intercompany notes(3) | 83 | 82 | 82 | 1 | % | 0 | % | |||||||||||||
$ | 1,321 | $ | 1,612 | $ | 1,069 | -18 | % | 51 | % | |||||||||||
Other Cash Flow and Liquidity Items | ||||||||||||||||||||
Return of seed capital | $ | — | $ | — | $ | 21 | NM | -100 | % | |||||||||||
Net capital received from stock option exercises | 15 | 107 | 191 | -86 | % | -44 | % | |||||||||||||
$ | 15 | $ | 107 | $ | 212 | -86 | % | -50 | % | |||||||||||
�� |
(1) | For 2008, amount includes proceeds on the sale of certain discontinued media operations. For more information, see Note 3. | |
(2) | Represents dividend of proceeds from the sale of equity securities used to repay borrowings under the bridge facility in 2006 and a dividend of Bank of America shares to LNC from a subsidiary in September 2007. | |
(3) | Primarily represents interest on the holding company’s $1.3 billion in surplus note investments in LNL. Interest of $20 million from LNL for the fourth quarter of 2008, 2007 and 2006 was received December 31, 2008, December 31, 2007, and January 2, 2007, respectively. |
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For the Year Ended December 31, 2008 | ||||||||||||||||||||||||
Change | ||||||||||||||||||||||||
Maturities | in Fair | |||||||||||||||||||||||
Beginning | and | Value | Other | Ending | ||||||||||||||||||||
Balance | Issuance | Repayments | Hedges | Changes(1) | Balance | |||||||||||||||||||
Short-Term Debt | ||||||||||||||||||||||||
Commercial paper | $ | 265 | $ | — | $ | — | $ | — | $ | 50 | $ | 315 | ||||||||||||
Current maturities of long-term debt | 285 | — | (300 | ) | — | 515 | 500 | |||||||||||||||||
Total short-term debt | $ | 550 | $ | — | $ | (300 | ) | $ | — | $ | 565 | $ | 815 | |||||||||||
Long-Term Debt | ||||||||||||||||||||||||
Senior notes | $ | 2,892 | $ | — | $ | — | $ | 174 | $ | (511 | ) | $ | 2,555 | |||||||||||
Bank borrowing | — | 200 | — | — | — | 200 | ||||||||||||||||||
Federal Home Loan Bank of Indianapolis (“FHLBI”) advance | — | 250 | — | — | — | 250 | ||||||||||||||||||
Junior subordinated debentures issued to affiliated trusts | 155 | — | — | — | — | 155 | ||||||||||||||||||
Capital securities | 1,571 | — | — | — | — | 1,571 | ||||||||||||||||||
Total long-term debt | $ | 4,618 | $ | 450 | $ | — | $ | 174 | $ | (511 | ) | $ | 4,731 | |||||||||||
(1) | Includes the net increase (decrease) in commercial paper, non-cash reclassification of long-term debt to current maturities of long-term debt, accretion of discounts and (amortization) of premiums. |
As of December 31, 2008 | ||||||||||
Expiration | Maximum | Borrowings | ||||||||
Date | Available | Outstanding | ||||||||
Revolving Credit Facilities | ||||||||||
Credit facility with the FHLBI(1) | Not Applicable | $ | 378 | $ | 250 | |||||
Five-year revolving credit facility | July 2013 | 200 | 200 | |||||||
Five-year revolving credit facility | March 2011 | 1,750 | — | |||||||
Five-year revolving credit facility | February 2011 | 1,350 | — | |||||||
Total | $ | 3,678 | $ | 450 | ||||||
Letters of credit issued | $ | 2,095 | ||||||||
(1) | Our borrowing capacity under this credit facility does not have an expiration date and continues while our investment in the FHLBI common stock remains outstanding. The maturity dates of the borrowings are discussed below. |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Dividends to stockholders | $ | 429 | $ | 430 | $ | 429 | 0 | % | 0 | % | ||||||||||
Repurchase of common stock | 476 | 986 | 1,003 | -52 | % | -2 | % | |||||||||||||
Total cash returned to stockholders | $ | 905 | $ | 1,416 | $ | 1,432 | -36 | % | -1 | % | ||||||||||
Number of shares repurchased | 9.091 | 15.381 | 16.887 | -40 | % | -12 | % | |||||||||||||
Average price per share | $ | 52.31 | $ | 64.13 | $ | 59.40 | -19 | % | 8 | % |
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For the Years Ended December 31, | Change Over Prior Year | |||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | ||||||||||||||||
Debt service (interest paid) | $ | 282 | $ | 270 | $ | 195 | 4 | % | 38 | % | ||||||||||
Capital contribution to subsidiaries | — | 325 | 68 | -100 | % | NM | ||||||||||||||
Total | $ | 282 | $ | 595 | $ | 263 | -53 | % | 126 | % | ||||||||||
Less | More | |||||||||||||||||||
Than | 1 – 3 | 3 – 5 | Than | |||||||||||||||||
1 Year | Years | Years | 5 Years | Total | ||||||||||||||||
Future contract benefits and other contract holder obligations (1) | $ | 12,981 | $ | 24,272 | $ | 21,522 | $ | 76,571 | $ | 135,346 | ||||||||||
Short-term debt | 815 | — | — | — | 815 | |||||||||||||||
Long-term debt(2) | — | 500 | 500 | 3,555 | 4,555 | |||||||||||||||
Reverse repurchase agreements | 474 | — | — | — | 474 | |||||||||||||||
Operating leases | 53 | 76 | 52 | 120 | 301 | |||||||||||||||
Stadium naming rights(3) | 6 | 13 | 13 | 68 | 100 | |||||||||||||||
Media obligations(4) | 2 | 4 | 4 | 8 | 18 | |||||||||||||||
Outsourcing arrangements (5) | 35 | 55 | 37 | 73 | 200 | |||||||||||||||
Retirement and other plans(6) | 85 | 174 | 184 | 465 | 908 | |||||||||||||||
Totals | $ | 14,451 | $ | 25,094 | $ | 22,312 | $ | 80,860 | $ | 142,717 | ||||||||||
(1) | Includes various investment-type products with contractually scheduled maturities including single premium immediate annuities, group pension annuities, guaranteed interest contracts, structured settlements, pension closeouts and certain annuity contracts. Future contract benefits and other contract holder obligations also include benefit and claim liabilities, of which a significant portion represents policies and contracts that do not have stated contractual maturity dates and may not result in any future payment obligation. For these policies and contracts, we are not currently making payments and will not make payments in the future until the occurrence of an insurable event, such as death or disability; or the occurrence of a payment triggering event, such as a surrender of a policy or contract, which is outside of our control. We have made significant assumptions to determine the estimated undiscounted cash flows of these policies and contracts, which include mortality, morbidity, future lapse rates and interest crediting rates. Future contract benefits and other contract holder obligations have been calculated using a discount rate of 6%. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. Amounts for the Lincoln UK business have been translated using a U.S dollar to British pound sterling exchange rate of 1.459, which was the rate as of December 31, 2008. |
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(2) | Includes the maturities of the principal amounts of long-term debt, but excludes other items such as unamortized premiums and discounts and fair value hedges, which are included in long-term debt on our Consolidated Balance Sheets. | |
(3) | Includes a maximum annual increase related to the Consumer Price Index. | |
(4) | Consists primarily of employment contracts and rating service contracts. | |
(5) | Includes the Lincoln UK administration agreement, information technology and certain other outsourcing arrangements. | |
(6) | Includes anticipated funding for benefit payments for our retirement and postretirement plans through 2018 and known payments under deferred compensation arrangements. |
Amount of Commitment Expiring per Period | Total | |||||||||||||||||||
Less Than | 1 – 3 | 3 – 5 | After | Amount | ||||||||||||||||
1 Year | Years | Years | 5 Years | Committed | ||||||||||||||||
Bank lines of credit | $ | — | $ | 3,100 | $ | — | $ | 128 | $ | 3,228 | ||||||||||
Guarantees(1) | 1 | — | — | — | 1 | |||||||||||||||
Investment commitments | 40 | 157 | 181 | 60 | 438 | |||||||||||||||
Standby commitments to purchase real estate upon completion and leasing (2) | 148 | 119 | — | — | 267 | |||||||||||||||
Media commitments (3) | 12 | 18 | 9 | — | 39 | |||||||||||||||
Operating lease guarantees (4) | 15 | — | — | — | 15 | |||||||||||||||
Total | $ | 216 | $ | 3,394 | $ | 190 | $ | 188 | $ | 3,988 | ||||||||||
(1) | Certain of our subsidiaries have sold commercial mortgage loans through grantor trusts, which issued pass-through certificates. These subsidiaries have agreed to repurchase any mortgage loans that remain delinquent for 90 days at a repurchase price substantially equal to the outstanding principal balance plus accrued interest thereon to the date of repurchase. In case of default by the borrowers, we have recourse to the underlying real estate. It is management’s opinion that the value of the properties underlying these commitments is sufficient that in the event of default, the impact would not be material to us. These guarantees expire in 2009. | |
(2) | See “Consolidated Investments – Standby Real Estate Equity Commitments” above for additional information. | |
(3) | Consists primarily of employment contracts and rating service contracts. | |
(4) | We guarantee the repayment of operating leases on facilities that we have subleased to third parties, which obligate us to pay in the event the third parties fail to perform their payment obligations under the subleasing agreements. We have recourse to the third parties enabling us to recover any amounts paid under our guarantees. The annual rental payments subject to these guarantees are $15 million and expire in August 2009. |
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Estimated | ||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Rate Sensitive Assets | ||||||||||||||||||||||||||||||||
Fixed interest rate securities | $ | 1,925 | $ | 2,273 | $ | 3,411 | $ | 3,617 | $ | 3,997 | $ | 38,136 | $ | 53,359 | $ | 47,761 | ||||||||||||||||
Average interest rate | 6.0 | % | 6.1 | % | 6.2 | % | 6.0 | % | 5.9 | % | 6.2 | % | 6.1 | % | ||||||||||||||||||
Variable interest rate securities | $ | 46 | $ | 153 | $ | 149 | $ | 48 | $ | 228 | $ | 5,837 | $ | 6,461 | $ | 3,507 | ||||||||||||||||
Average interest rate | 7.9 | % | 5.9 | % | 3.2 | % | 5.7 | % | 5.8 | % | 5.4 | % | 5.4 | % | ||||||||||||||||||
Mortgage loans | $ | 266 | $ | 261 | $ | 366 | $ | 496 | $ | 455 | $ | 5,833 | $ | 7,677 | $ | 7,424 | ||||||||||||||||
Average interest rate | 7.5 | % | 7.0 | % | 7.7 | % | 6.8 | % | 6.2 | % | 6.3 | % | 6.5 | % | ||||||||||||||||||
Rate Sensitive Liabilities | ||||||||||||||||||||||||||||||||
Investment type insurance contracts(1) | $ | 1,032 | $ | 1,153 | $ | 1,794 | $ | 1,813 | $ | 1,942 | $ | 15,534 | $ | 23,268 | $ | 26,058 | ||||||||||||||||
Average interest rate | 5.7 | % | 6.1 | % | 6.3 | % | 6.0 | % | 5.9 | % | 6.1 | % | 6.1 | % | ||||||||||||||||||
Debt | $ | 815 | $ | 250 | $ | 250 | $ | 300 | $ | 200 | $ | 3,555 | $ | 5,370 | $ | 3,684 | ||||||||||||||||
Average interest rate | 1.5 | % | 2.2 | % | 6.2 | % | 5.7 | % | 1.6 | % | 5.9 | % | 4.9 | % | ||||||||||||||||||
Rate Sensitive Derivative Financial Instruments | ||||||||||||||||||||||||||||||||
Interest rate and foreign currency swaps: | ||||||||||||||||||||||||||||||||
Pay variable/receive fixed | $ | 146 | $ | 24 | $ | 68 | $ | — | $ | 258 | $ | 5,112 | $ | 5,608 | $ | 1,776 | ||||||||||||||||
Average pay rate | 2.8 | % | 3.2 | % | 2.4 | % | 0.0 | % | 3.4 | % | 3.3 | % | 3.3 | % | ||||||||||||||||||
Average receive rate | 6.5 | % | 4.2 | % | 4.1 | % | 0.0 | % | 4.2 | % | 5.2 | % | 5.2 | % | ||||||||||||||||||
Pay fixed/receive variable | $ | — | $ | 554 | $ | 405 | $ | 510 | $ | 275 | $ | 1,928 | $ | 3,672 | $ | (568 | ) | |||||||||||||||
Average pay rate | 0.0 | % | 4.9 | % | 3.6 | % | 5.0 | % | 4.0 | % | 5.1 | % | 4.8 | % | ||||||||||||||||||
Average receive rate | 0.0 | % | 2.4 | % | 3.3 | % | 2.7 | % | 2.5 | % | 3.0 | % | 2.9 | % | ||||||||||||||||||
Interest rate caps: | ||||||||||||||||||||||||||||||||
Outstanding notional | $ | 1,000 | $ | 150 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Average strike rate(2) | 7.0 | % | 7.0 | % | — | — | — | — | — | |||||||||||||||||||||||
Forward CMT curve(3) | 2.3 | % | 2.6 | % | — | — | — | — | — | |||||||||||||||||||||||
Interest rate futures: | ||||||||||||||||||||||||||||||||
2-year treasury notes outstanding notional | $ | 634 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 634 | $ | — | ||||||||||||||||
5-year treasury notes outstanding notional | 743 | — | — | — | — | — | 743 | — | ||||||||||||||||||||||||
10-year treasury notes outstanding notional | 671 | — | — | — | — | — | 671 | — | ||||||||||||||||||||||||
Treasury bonds outstanding notional | 6,522 | — | — | — | — | — | 6,522 | — |
(1) | The information shown is for our fixed maturity securities and mortgage loans that support these insurance contracts. | |
(2) | The indexes are a mixture of five-year constant maturity treasury (“CMT”) and constant maturity swap. | |
(3) | The CMT curve is the five-year constant maturity treasury forward curve. |
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As of December 31, 2007 | ||||||||
Principal | Estimated | |||||||
Amount | Fair Value | |||||||
Fixed interest rate securities | $ | 53,415 | $ | 53,113 | ||||
Variable interest rate securities | 7,097 | 5,891 | ||||||
Mortgage loans | 7,370 | 7,602 | ||||||
Investment type insurance contracts(1) | 22,922 | 22,667 | ||||||
Debt | 5,170 | 5,266 | ||||||
Interest rate and foreign currency swaps | 6,835 | 41 | ||||||
Interest rate caps | — | 2 |
(1) | The information shown is for our fixed maturity securities and mortgage loans that support these insurance contracts. |
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Account Values | ||||||||||||||||||||
Insurance | Percent | |||||||||||||||||||
Retirement Solutions | Solutions - | of Total | ||||||||||||||||||
Defined | Life | Account | ||||||||||||||||||
Annuities | Contribution | Insurance | Total | Values | ||||||||||||||||
Excess of Crediting Rates over Contract Minimums | ||||||||||||||||||||
CD and on-benefit type annuities | $ | 10,425 | $ | 1,864 | $ | — | $ | 12,289 | 22.61 | % | ||||||||||
Discretionary rate setting products(1) | ||||||||||||||||||||
No difference | 3,298 | 7,237 | 12,075 | 22,610 | 41.60 | % | ||||||||||||||
up to .10% | 1,462 | 74 | 4,147 | 5,683 | 10.45 | % | ||||||||||||||
0.11% to .20% | 790 | 2 | 2,640 | 3,432 | 6.31 | % | ||||||||||||||
0.21% to .30% | 137 | 5 | 859 | 1,001 | 1.84 | % | ||||||||||||||
0.31% to .40% | 126 | 1 | 561 | 688 | 1.27 | % | ||||||||||||||
0.41% to .50% | 74 | 1,113 | 1,196 | 2,383 | 4.39 | % | ||||||||||||||
0.51% to .60% | 38 | 125 | 1,021 | 1,184 | 2.18 | % | ||||||||||||||
0.61% to .70% | 268 | 2 | 440 | 710 | 1.31 | % | ||||||||||||||
0.71% to .80% | 7 | — | 560 | 567 | 1.04 | % | ||||||||||||||
0.81% to .90% | 9 | — | 364 | 373 | 0.69 | % | ||||||||||||||
0.91% to 1.0% | 5 | 36 | 632 | 673 | 1.24 | % | ||||||||||||||
1.01% to 1.50% | 48 | 149 | 290 | 487 | 0.90 | % | ||||||||||||||
1.51% to 2.00% | 438 | 205 | 645 | 1,288 | 2.37 | % | ||||||||||||||
2.01% to 2.50% | 278 | — | 232 | 510 | 0.94 | % | ||||||||||||||
2.51% to 3.00% | 176 | 14 | — | 190 | 0.35 | % | ||||||||||||||
3.01% and above | 73 | 194 | 8 | 275 | 0.51 | % | ||||||||||||||
Total discretionary rate setting products | 7,227 | 9,157 | 25,670 | 42,054 | 77.39 | % | ||||||||||||||
Total account values | $ | 17,652 | $ | 11,021 | $ | 25,670 | $ | 54,343 | 100.00 | % | ||||||||||
(1) | Contracts currently within new money rate bands are grouped according to the corresponding portfolio rate band in which they will fall upon their first anniversary. |
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Estimated | ||||||||||||||||||||||||||||||||
2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Currencies | ||||||||||||||||||||||||||||||||
British pound | $ | 73 | $ | 55 | $ | 58 | $ | 28 | $ | 25 | $ | 626 | $ | 865 | $ | 851 | ||||||||||||||||
Interest rate | 5.80 | % | 5.20 | % | 6.60 | % | 7.00 | % | 4.00 | % | 5.90 | % | 5.90 | % | ||||||||||||||||||
Canadian dollar | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 35 | $ | 35 | $ | 31 | ||||||||||||||||
Interest rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 5.98 | % | 5.98 | % | ||||||||||||||||||
New Zealand dollar | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 25 | $ | 25 | $ | 23 | ||||||||||||||||
Interest rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 7.50 | % | 7.50 | % | ||||||||||||||||||
Euro | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 195 | $ | 195 | $ | 172 | ||||||||||||||||
Interest rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 4.88 | % | 4.88 | % | ||||||||||||||||||
Australian dollar | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 34 | $ | 34 | $ | 19 | ||||||||||||||||
Interest rate | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 7.40 | % | 7.40 | % | ||||||||||||||||||
Total currencies | $ | 73 | $ | 55 | $ | 58 | $ | 28 | $ | 25 | $ | 915 | $ | 1,154 | $ | 1,096 | ||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||
Foreign currency swaps | — | — | — | — | — | 367 | 367 | 64 |
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As of December 31, 2007 | ||||||||
Principal/ | ||||||||
Notional | Estimated | |||||||
Amount | Fair Value | |||||||
Currencies | ||||||||
British pound | $ | 1,152 | $ | 1,220 | ||||
Canadian dollar | 53 | 54 | ||||||
New Zealand dollar | 33 | 31 | ||||||
Euro | 205 | 198 | ||||||
Australian dollar | 43 | 29 | ||||||
Total currencies | $ | 1,486 | $ | 1,532 | ||||
Derivatives | ||||||||
Foreign currency swaps | $ | 366 | $ | (17 | ) |
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As of December 31, 2008 | As of December 31, 2007 | |||||||||||||||||||||||
10% Fair | 10% Fair | |||||||||||||||||||||||
Carrying | Estimated | Value | Value | Carrying | Estimated | |||||||||||||||||||
Value | Fair Value | Increase | Decrease | Value | Fair Value | |||||||||||||||||||
Equity Assets | ||||||||||||||||||||||||
Domestic equities | $ | 210 | $ | 210 | $ | 231 | $ | 189 | $ | 393 | $ | 393 | ||||||||||||
Foreign equities | 80 | 80 | 88 | 72 | 131 | 131 | ||||||||||||||||||
Subtotal | 290 | 290 | 319 | 261 | 524 | 524 | ||||||||||||||||||
Real estate | 125 | 149 | 164 | 134 | 258 | 285 | ||||||||||||||||||
Other equity interests | 984 | 994 | 1,093 | 895 | 960 | 969 | ||||||||||||||||||
Total | $ | 1,399 | $ | 1,433 | $ | 1,576 | $ | 1,290 | $ | 1,742 | $ | 1,778 | ||||||||||||
As of December 31, 2008 | As of December 31, 2007 | |||||||||||||||||||||||
10% Fair | 10% Fair | |||||||||||||||||||||||
Notional | Estimated | Value | Value | Notional | Estimated | |||||||||||||||||||
Value | Fair Value | Increase | Decrease | Value | Fair Value | |||||||||||||||||||
Equity Derivatives(1) | ||||||||||||||||||||||||
Equity futures | $ | 3,769 | $ | — | $ | (377 | ) | $ | 377 | $ | 296 | $ | — | |||||||||||
Total return swaps | 126 | — | 9 | (9 | ) | 126 | — | |||||||||||||||||
Put options | 4,700 | 1,727 | 1,632 | 1,881 | 4,025 | 529 | ||||||||||||||||||
S&P 500 options | 2,951 | 31 | 58 | 4 | 2,858 | 150 | ||||||||||||||||||
Total | $ | 11,546 | $ | 1,758 | $ | 1,322 | $ | 2,253 | $ | 7,305 | $ | 679 | ||||||||||||
(1) | Assumes a +/- 10% change in underlying indexes. Estimated fair value does not reflect daily settlement of futures or monthly settlement of total return swaps. |
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S&P 500 | S&P 500 | |||||||
at 800(2) | at 700(2) | |||||||
Segment | ||||||||
Retirement Solutions — Annuities (1) | $ | (68 | ) | $ | (172 | ) | ||
Retirement Solutions — Defined Contribution | (7 | ) | (12 | ) | ||||
Investment Management | (5 | ) | (10 | ) |
(1) | The Annuities amounts reflect a one-time DAC retrospective unlocking of $29 million, after-tax, for S&P 800, and $44 million, after-tax, for S&P 700. | |
(2) | The impact of S&P 500 at 800 and 700, respectively, assumes the index remained at those levels for the entire year. |
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As of December 31, | ||||||||
2008 | 2007 | |||||||
Rating | ||||||||
AAA | $ | 20 | $ | 3 | ||||
AA | 333 | 651 | ||||||
A | 209 | 127 | ||||||
Total | $ | 562 | $ | 781 | ||||
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Lincoln National Corporation
Philadelphia, Pennsylvania
February 25, 2009
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Lincoln National Corporation
Philadelphia, Pennsylvania
February 25, 2009
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CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
As of December 31, | ||||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Investments: | ||||||||
Available-for-sale securities, at fair value: | ||||||||
Fixed maturity (amortized cost: 2008 - $55,194; 2007 - $56,069) | $ | 48,935 | $ | 56,276 | ||||
Equity (cost: 2008 - $466; 2007 - $548) | 288 | 518 | ||||||
Trading securities | 2,333 | 2,730 | ||||||
Mortgage loans on real estate | 7,715 | 7,423 | ||||||
Real estate | 125 | 258 | ||||||
Policy loans | 2,924 | 2,885 | ||||||
Derivative investments | 3,397 | 807 | ||||||
Other investments | 1,624 | 1,075 | ||||||
Total investments | 67,341 | 71,972 | ||||||
Cash and invested cash | 5,926 | 1,665 | ||||||
Deferred acquisition costs and value of business acquired | 11,936 | 9,580 | ||||||
Premiums and fees receivable | 481 | 401 | ||||||
Accrued investment income | 832 | 843 | ||||||
Reinsurance recoverables | 8,450 | 8,187 | ||||||
Reinsurance related derivative assets | 31 | — | ||||||
Goodwill | 3,944 | 4,144 | ||||||
Other assets | 3,562 | 3,530 | ||||||
Separate account assets | 60,633 | 91,113 | ||||||
Total assets | $ | 163,136 | $ | 191,435 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Future contract benefits | $ | 19,260 | $ | 16,007 | ||||
Other contract holder funds | 60,847 | 59,640 | ||||||
Short-term debt | 815 | 550 | ||||||
Long-term debt | 4,731 | 4,618 | ||||||
Reinsurance related derivative liabilities | — | 219 | ||||||
Funds withheld reinsurance liabilities | 2,042 | 2,117 | ||||||
Deferred gain on business sold through reinsurance | 619 | 696 | ||||||
Payables for collateral under securities loaned and derivatives | 3,706 | 1,135 | ||||||
Other liabilities | 2,506 | 3,622 | ||||||
Separate account liabilities | 60,633 | 91,113 | ||||||
Total liabilities | 155,159 | 179,717 | ||||||
Contingencies and Commitments (See Note 14) | ||||||||
Stockholders’ Equity | ||||||||
Series A preferred stock - 10,000,000 shares authorized | — | — | ||||||
Common stock - 800,000,000 shares authorized; 255,869,859 and 264,233,303 shares issued and outstanding as of December 31, 2008 and 2007, respectively | 7,035 | 7,200 | ||||||
Retained earnings | 3,745 | 4,293 | ||||||
Accumulated other comprehensive income (loss) | (2,803 | ) | 225 | |||||
Total stockholders’ equity | 7,977 | 11,718 | ||||||
Total liabilities and stockholders’ equity | $ | 163,136 | $ | 191,435 | ||||
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CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Insurance premiums | $ | 2,096 | $ | 1,947 | $ | 1,406 | ||||||
Insurance fees | 3,229 | 3,190 | 2,564 | |||||||||
Investment advisory fees | 268 | 360 | 328 | |||||||||
Net investment income | 4,208 | 4,378 | 3,923 | |||||||||
Realized gain (loss) | (537 | ) | (169 | ) | 13 | |||||||
Amortization of deferred gain on business sold through reinsurance | 76 | 83 | 76 | |||||||||
Other revenues and fees | 543 | 686 | 569 | |||||||||
Total revenues | 9,883 | 10,475 | 8,879 | |||||||||
Benefits and Expenses | ||||||||||||
Interest credited | 2,501 | 2,435 | 2,191 | |||||||||
Benefits | 3,157 | 2,562 | 1,906 | |||||||||
Underwriting, acquisition, insurance and other expenses | 3,576 | 3,320 | 2,776 | |||||||||
Interest and debt expense | 281 | 284 | 228 | |||||||||
Impairment of intangibles | 393 | — | — | |||||||||
Total benefits and expenses | 9,908 | 8,601 | 7,101 | |||||||||
Income (loss) from continuing operations before taxes | (25 | ) | 1,874 | 1,778 | ||||||||
Federal income tax expense (benefit) | (87 | ) | 553 | 483 | ||||||||
Income from continuing operations | 62 | 1,321 | 1,295 | |||||||||
Income (loss) from discontinued operations, net of federal income tax expense (benefit) | (5 | ) | (106 | ) | 21 | |||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | ||||||
Earnings Per Common Share — Basic | ||||||||||||
Income from continuing operations | $ | 0.24 | $ | 4.89 | $ | 5.13 | ||||||
Income (loss) from discontinued operations | (0.02 | ) | (0.39 | ) | 0.08 | |||||||
Net income | $ | 0.22 | $ | 4.50 | $ | 5.21 | ||||||
Earnings Per Common Share — Diluted | ||||||||||||
Income from continuing operations | $ | 0.24 | $ | 4.82 | $ | 5.05 | ||||||
Income (loss) from discontinued operations | (0.02 | ) | (0.39 | ) | 0.08 | |||||||
Net income | $ | 0.22 | $ | 4.43 | $ | 5.13 | ||||||
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except per share data)
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Series A Preferred Stock | ||||||||||||
Balance at beginning-of-year | $ | — | $ | 1 | $ | 1 | ||||||
Conversion into common stock | — | (1 | ) | — | ||||||||
Balance at end-of-year | — | — | 1 | |||||||||
Common Stock | ||||||||||||
Balance at beginning-of-year | 7,200 | 7,449 | 1,775 | |||||||||
Issued for acquisition | — | 20 | 5,632 | |||||||||
Conversion of Series A preferred stock | — | 1 | — | |||||||||
Stock compensation/issued for benefit plans | 78 | 139 | 207 | |||||||||
Deferred compensation payable in stock | 6 | 6 | 7 | |||||||||
Retirement of common stock/cancellation of shares | (249 | ) | (415 | ) | (172 | ) | ||||||
Balance at end-of-year | 7,035 | 7,200 | 7,449 | |||||||||
Retained Earnings | ||||||||||||
Balance at beginning-of-year | 4,293 | 4,138 | 4,081 | |||||||||
Cumulative effect of adoption of SOP 05-1 | — | (41 | ) | — | ||||||||
Cumulative effect of adoption of FIN 48 | — | (15 | ) | — | ||||||||
Cumulative effect of adoption of EITF 06-10 | (4 | ) | — | — | ||||||||
Comprehensive income | (2,971 | ) | 827 | 1,402 | ||||||||
Less other comprehensive income (loss), net of tax | (3,028 | ) | (388 | ) | 86 | |||||||
Net income | 57 | 1,215 | 1,316 | |||||||||
Retirement of common stock | (227 | ) | (574 | ) | (830 | ) | ||||||
Dividends declared: Common (2008 - $1.455; 2007 - $1.600; 2006 - $1.535) | (374 | ) | (430 | ) | (429 | ) | ||||||
Balance at end-of-year | 3,745 | 4,293 | 4,138 | |||||||||
Net Unrealized Gain (Loss) on Available-for-Sale Securities | ||||||||||||
Balance at beginning-of-year | 86 | 493 | 497 | |||||||||
Change during the year | (2,740 | ) | (407 | ) | (4 | ) | ||||||
Balance at end-of-year | (2,654 | ) | 86 | 493 | ||||||||
Net Unrealized Gain on Derivative Instruments | ||||||||||||
Balance at beginning-of-year | 53 | 39 | 7 | |||||||||
Change during the year | 74 | 14 | 32 | |||||||||
Balance at end-of-year | 127 | 53 | 39 | |||||||||
Foreign Currency Translation Adjustment | ||||||||||||
Balance at beginning-of-year | 175 | 165 | 83 | |||||||||
Change during the year | (169 | ) | 10 | 82 | ||||||||
Balance at end-of-year | 6 | 175 | 165 | |||||||||
Minimum Pension Liability Adjustment | ||||||||||||
Balance at beginning-of-year | — | — | (60 | ) | ||||||||
Change during the year | — | — | 60 | |||||||||
Balance at end-of-year | — | — | — | |||||||||
Funded Status of Employee Benefit Plans | ||||||||||||
Balance at beginning-of-year | (89 | ) | (84 | ) | — | |||||||
Change during the year | (193 | ) | (5 | ) | (84 | ) | ||||||
Balance at end-of-year | (282 | ) | (89 | ) | (84 | ) | ||||||
Total stockholders’ equity at end-of-year | $ | 7,977 | $ | 11,718 | $ | 12,201 | ||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front end loads deferrals and interest, net of amortization | (238 | ) | (1,276 | ) | (902 | ) | ||||||
Trading securities purchases, sales and maturities, net | 205 | 352 | 259 | |||||||||
Change in premiums and fees receivable | 69 | 21 | 87 | |||||||||
Change in accrued investment income | 11 | 23 | 15 | |||||||||
Change in future contract benefits | 755 | 677 | 426 | |||||||||
Change in other contract holder funds | (2 | ) | 177 | 909 | ||||||||
Change in funds withheld reinsurance liability and reinsurance recoverables | (305 | ) | (155 | ) | 365 | |||||||
Change in federal income tax accruals | (504 | ) | 585 | 175 | ||||||||
Realized loss (gain) | 537 | 169 | (13 | ) | ||||||||
Loss (gain) on disposal of discontinued operations | 12 | (57 | ) | — | ||||||||
Impairment of intangibles | 393 | — | — | |||||||||
Amortization of deferred gain on business sold through reinsurance | (76 | ) | (83 | ) | (76 | ) | ||||||
Stock-based compensation expense | 35 | 47 | 53 | |||||||||
Other | 310 | 260 | 436 | |||||||||
Net cash provided by operating activities | 1,259 | 1,955 | 3,050 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Purchases of available-for-sale securities | (6,800 | ) | (12,299 | ) | (9,951 | ) | ||||||
Sales of available-for-sale securities | 2,285 | 6,825 | 6,466 | |||||||||
Maturities of available-for-sale securities | 3,881 | 4,202 | 3,344 | |||||||||
Purchases of other investments | (3,510 | ) | (2,568 | ) | (573 | ) | ||||||
Sales or maturities of other investments | 3,613 | 2,110 | 189 | |||||||||
Increase (decrease) in payables for collateral under securities loaned and derivatives | 2,571 | (369 | ) | 58 | ||||||||
Purchase of Jefferson-Pilot stock, net of cash acquired of $39 | — | — | (1,826 | ) | ||||||||
Proceeds from sale of subsidiaries/businesses and disposal of discontinued operations | 648 | 64 | — | |||||||||
Other | (117 | ) | 74 | 28 | ||||||||
Net cash provided by (used in) investing activities | 2,571 | (1,961 | ) | (2,265 | ) | |||||||
Cash Flows from Financing Activities | ||||||||||||
Payment of long-term debt, including current maturities | (300 | ) | (658 | ) | (178 | ) | ||||||
Issuance of long-term debt | 450 | 1,422 | 2,045 | |||||||||
Issuance (decrease) in commercial paper | 50 | 265 | (564 | ) | ||||||||
Deposits of fixed account values, including the fixed portion of variable | 9,840 | 9,519 | 7,761 | |||||||||
Withdrawals of fixed account values, including the fixed portion of variable | (5,998 | ) | (6,733 | ) | (7,497 | ) | ||||||
Transfers to and from separate accounts, net | (2,204 | ) | (2,448 | ) | (1,821 | ) | ||||||
Payment of funding agreements | (550 | ) | — | — | ||||||||
Common stock issued for benefit plans and excess tax benefits | 49 | 98 | 166 | |||||||||
Repurchase of common stock | (476 | ) | (986 | ) | (1,002 | ) | ||||||
Dividends paid to stockholders | (430 | ) | (430 | ) | (385 | ) | ||||||
Net cash provided by (used in) financing activities | 431 | 49 | (1,475 | ) | ||||||||
Net increase (decrease) in cash and invested cash | 4,261 | 43 | (690 | ) | ||||||||
Cash and invested cash at beginning-of-year | 1,665 | 1,622 | 2,312 | |||||||||
Cash and invested cash at end-of-period | $ | 5,926 | $ | 1,665 | $ | 1,622 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended | ||||||||
December, 31 | ||||||||
2007 | 2006 | |||||||
Realized loss, as previously reported | $ | (118 | ) | $ | (3 | ) | ||
Effect of reclassifications to: | ||||||||
Insurance fees | 64 | 41 | ||||||
Net investment income | 6 | 62 | ||||||
Interest credited | (19 | ) | (68 | ) | ||||
Benefits | (138 | ) | (5 | ) | ||||
Underwriting, acquisition, insurance and other expenses | 36 | (14 | ) | |||||
Realized gain (loss), as adjusted | $ | (169 | ) | $ | 13 | |||
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• | Level 1 — inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. “Blockage discounts” for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available for an identical asset or liability in an active market are prohibited; |
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• | Level 2 — inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and | |
• | Level 3 — inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability, including assumptions regarding risk. |
Assets | ||||
DAC | $ | 13 | ||
VOBA | (8 | ) | ||
Other assets — DSI | 2 | |||
Total assets | $ | 7 | ||
Liabilities | ||||
Future contract benefits: | ||||
Remaining guaranteed interest and similar contracts | $ | (20 | ) | |
Embedded derivative instruments — living benefits liabilities | 48 | |||
Other contract holder funds — DFEL | 3 | |||
Other liabilities — income tax liabilities | (8 | ) | ||
Total liabilities | $ | 23 | ||
Revenues | ||||
Realized loss | $ | (24 | ) | |
Federal income tax benefit | (8 | ) | ||
Loss from continuing operations | $ | (16 | ) | |
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• | Nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination or other new basis event, but not measured at fair value in subsequent periods; |
• | Reporting units measured at fair value in the goodwill impairment test under SFAS 142, and indefinite-lived intangible assets measured at fair value for impairment assessment under SFAS 142; |
• | Nonfinancial long-lived assets measured at fair value for an impairment assessment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”; |
• | Asset retirement obligations initially measured at fair value under SFAS No. 143, “Accounting for Asset Retirement Obligations”; and |
• | Nonfinancial liabilities for exit or disposal activities initially measured at fair value under SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” |
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Assets” (“EITF 99-20”) for holders of beneficial interests to estimate cash flow using current information and events that a market participant would use in determining the current fair value and other-than-temporary impairment of the beneficial interest. FSP 99-20-1 removes the reference to a market participant and requires that an other-than-temporary impairment be recognized in earnings when it is probable that there has been an adverse change in the holder’s estimated cash flows from the cash flows previously projected, which is consistent with the impairment model used in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” FSP 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and must be applied prospectively at the balance sheet date of the reporting period for which the assessment of cash flows is made. We adopted the guidance in FSP 99-20-1 as of December 31, 2008. The adoption did not have a material impact on our consolidated financial condition or results of operations.
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As of December 31, | ||||||||
2008 | 2007 | |||||||
Goodwill | $ | — | $ | 340 | ||||
Specifically identifiable intangible assets | — | 266 | ||||||
Other | — | 146 | ||||||
Total assets held-for-sale | $ | — | $ | 752 | ||||
Liabilities held-for-sale | $ | — | $ | 354 | ||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Discontinued Operations Before Disposal | ||||||||||||
Communications revenues, net of agency commissions | $ | 22 | $ | 144 | $ | 101 | ||||||
Income from discontinued operations before disposal, before federal income taxes | $ | 8 | $ | 46 | $ | 33 | ||||||
Federal income tax expense | 3 | 16 | 12 | |||||||||
Income from discontinued operations before disposal | 5 | 30 | 21 | |||||||||
Disposal | ||||||||||||
Gain (loss) on disposal | (12 | ) | 57 | — | ||||||||
Federal income tax expense (benefit) | (2 | ) | 193 | — | ||||||||
Loss on disposal | (10 | ) | (136 | ) | — | |||||||
Income (loss) from discontinued operations | $ | (5 | ) | $ | (106 | ) | $ | 21 | ||||
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LNC Amounts Related to VIE | ||||||||||||
Maximum | ||||||||||||
Total | Total | Loss | ||||||||||
Assets | Liabilities | Exposure | ||||||||||
Affiliated trust | $ | 5 | $ | — | $ | — | ||||||
Credit-linked notes | 50 | — | 600 |
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As of December 31, 2008 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Corporate bonds | $ | 41,219 | $ | 667 | $ | 5,174 | $ | 36,712 | ||||||||
U.S. Government bonds | 204 | 42 | — | 246 | ||||||||||||
Foreign government bonds | 755 | 56 | 51 | 760 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Mortgage pass-through securities | 1,875 | 62 | 38 | 1,899 | ||||||||||||
Collateralized mortgage obligations | 6,918 | 174 | 780 | 6,312 | ||||||||||||
Commercial mortgage-backed securities | 2,535 | 9 | 625 | 1,919 | ||||||||||||
State and municipal bonds | 125 | 2 | 2 | 125 | ||||||||||||
Hybrid and redeemable preferred stocks | 1,563 | 6 | 607 | 962 | ||||||||||||
Total fixed maturity securities | 55,194 | 1,018 | 7,277 | 48,935 | ||||||||||||
Equity securities | 466 | 9 | 187 | 288 | ||||||||||||
Total available-for-sale securities | $ | 55,660 | $ | 1,027 | $ | 7,464 | $ | 49,223 | ||||||||
As of December 31, 2007 | ||||||||||||||||
Amortized | Gross Unrealized | Fair | ||||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Corporate bonds | $ | 43,973 | $ | 1,120 | $ | 945 | $ | 44,148 | ||||||||
U.S. Government bonds | 205 | 17 | — | 222 | ||||||||||||
Foreign government bonds | 979 | 67 | 8 | 1,038 | ||||||||||||
Mortgage-backed securities: | ||||||||||||||||
Mortgage pass-through securities | 1,226 | 24 | 5 | 1,245 | ||||||||||||
Collateralized mortgage obligations | 6,721 | 78 | 130 | 6,669 | ||||||||||||
Commercial mortgage-backed securities | 2,711 | 49 | 70 | 2,690 | ||||||||||||
State and municipal bonds | 151 | 2 | — | 153 | ||||||||||||
Hybrid and redeemable preferred stocks | 103 | 9 | 1 | 111 | ||||||||||||
Total fixed maturity securities | 56,069 | 1,366 | 1,159 | 56,276 | ||||||||||||
Equity securities | 548 | 13 | 43 | 518 | ||||||||||||
Total available-for-sale securities | $ | 56,617 | $ | 1,379 | $ | 1,202 | $ | 56,794 | ||||||||
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As of December 31, 2008 | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due in one year or less | $ | 1,739 | $ | 1,721 | ||||
Due after one year through five years | 13,191 | 12,474 | ||||||
Due after five years through ten years | 14,544 | 12,483 | ||||||
Due after ten years | 14,392 | 12,127 | ||||||
Subtotal | 43,866 | 38,805 | ||||||
Mortgage-backed securities | 11,328 | 10,130 | ||||||
Total fixed maturity available-for-sale securities | $ | 55,194 | $ | 48,935 | ||||
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As of December 31, 2008 | ||||||||||||||||||||||||
Less Than Or Equal | Greater Than | |||||||||||||||||||||||
to Twelve Months | Twelve Months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Corporate bonds | $ | 19,123 | $ | 2,398 | $ | 6,098 | $ | 2,776 | 25,221 | $ | 5,174 | |||||||||||||
U.S. Government bonds | 3 | — | — | — | 3 | — | ||||||||||||||||||
Foreign government bonds | 159 | 17 | 64 | 34 | 223 | 51 | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Mortgage pass-through securities | 96 | 26 | 52 | 12 | 148 | 38 | ||||||||||||||||||
Collateralized mortgage obligations | 853 | 299 | 720 | 481 | 1,573 | 780 | ||||||||||||||||||
Commercial mortgage-backed securities | 1,133 | 175 | 499 | 450 | 1,632 | 625 | ||||||||||||||||||
State and municipal bonds | 29 | 2 | 2 | — | 31 | 2 | ||||||||||||||||||
Hybrid and redeemable preferred stocks | 461 | 267 | 418 | 340 | 879 | 607 | ||||||||||||||||||
Total fixed maturity securities | 21,857 | 3,184 | 7,853 | 4,093 | 29,710 | 7,277 | ||||||||||||||||||
Equity securities | 215 | 184 | 9 | 3 | 224 | 187 | ||||||||||||||||||
Total available-for-sale securities | $ | 22,072 | $ | 3,368 | $ | 7,862 | $ | 4,096 | $ | 29,934 | $ | 7,464 | ||||||||||||
Total number of securities in an unrealized loss position | 3,682 | |||||||||||||||||||||||
As of December 31, 2007 | ||||||||||||||||||||||||
Less Than Or Equal | Greater Than | |||||||||||||||||||||||
to Twelve Months | Twelve Months | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
Corporate bonds | $ | 11,540 | $ | 679 | $ | 4,467 | $ | 266 | $ | 16,007 | $ | 945 | ||||||||||||
U.S. Government bonds | — | — | 3 | — | 3 | — | ||||||||||||||||||
Foreign government bonds | 95 | 4 | 51 | 4 | 146 | 8 | ||||||||||||||||||
Mortgage-backed securities: | ||||||||||||||||||||||||
Mortgage pass-through securities | 32 | 1 | 193 | 4 | 225 | 5 | ||||||||||||||||||
Collateralized mortgage obligations | 1,742 | 101 | 1,116 | 29 | 2,858 | 130 | ||||||||||||||||||
Commercial mortgage-backed securities | 520 | 47 | 562 | 23 | 1,082 | 70 | ||||||||||||||||||
State and municipal bonds | 29 | — | 17 | — | 46 | — | ||||||||||||||||||
Hybrid and redeemable preferred stocks | 13 | 1 | — | — | 13 | 1 | ||||||||||||||||||
Total fixed maturity securities | 13,971 | 833 | 6,409 | 326 | 20,380 | 1,159 | ||||||||||||||||||
Equity securities | 402 | 42 | 8 | 1 | 410 | 43 | ||||||||||||||||||
Total available-for-sale securities | $ | 14,373 | $ | 875 | $ | 6,417 | $ | 327 | $ | 20,790 | $ | 1,202 | ||||||||||||
Total number of securities in an unrealized loss position | 2,441 | |||||||||||||||||||||||
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As of December 31, 2008 | ||||||||||||
Gross | Number | |||||||||||
Fair | Unrealized | of | ||||||||||
Value | Losses | Securities | ||||||||||
Less than six months | $ | 916 | $ | 526 | 170 | |||||||
Six months or greater, but less than nine months | 1,222 | 578 | 219 | |||||||||
Nine months or greater, but less than twelve months | 1,613 | 818 | 228 | |||||||||
Twelve months or greater | 4,207 | 3,640 | 812 | |||||||||
Total available-for-sale securities | $ | 7,958 | $ | 5,562 | 1,429 | |||||||
As of December 31, 2007 | ||||||||||||
Gross | Number | |||||||||||
Fair | Unrealized | of | ||||||||||
Value | Losses | Securities | ||||||||||
Less than six months | $ | 136 | $ | 49 | 22 | |||||||
Six months or greater, but less than nine months | 427 | 138 | 32 | |||||||||
Nine months or greater, but less than twelve months | 364 | 110 | 17 | |||||||||
Twelve months or greater | 183 | 81 | 60 | |||||||||
Total available-for-sale securities | $ | 1,110 | $ | 378 | 131 | |||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Corporate bonds | $ | 1,601 | $ | 1,999 | ||||
U.S. Government bonds | 414 | 367 | ||||||
Foreign government bonds | 39 | 46 | ||||||
Mortgage-backed securities: | ||||||||
Mortgage pass-through securities | 32 | 22 | ||||||
Collateralized mortgage obligations | 124 | 160 | ||||||
Commercial mortgage-backed securities | 77 | 107 | ||||||
State and municipal bonds | 14 | 19 | ||||||
Hybrid and redeemable preferred stocks | 30 | 8 | ||||||
Total fixed maturity securities | 2,331 | 2,728 | ||||||
Equity securities | 2 | 2 | ||||||
Total trading securities | $ | 2,333 | $ | 2,730 | ||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net Investment Income | ||||||||||||
Fixed maturity available-for-sale securities | $ | 3,399 | $ | 3,367 | $ | 3,012 | ||||||
Equity available-for-sale securities | 29 | 41 | 27 | |||||||||
Trading securities | 166 | 176 | 197 | |||||||||
Mortgage loans on real estate | 475 | 494 | 417 | |||||||||
Real estate | 23 | 44 | 38 | |||||||||
Standby real estate equity commitments | 3 | 12 | 18 | |||||||||
Policy loans | 179 | 175 | 159 | |||||||||
Invested cash | 63 | 73 | 89 | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 29 | 57 | 70 | |||||||||
Alternative investments | (34 | ) | 102 | 46 | ||||||||
Consent fees | 5 | 10 | 8 | |||||||||
Other investments | (4 | ) | 12 | 10 | ||||||||
Investment income | 4,333 | 4,563 | 4,091 | |||||||||
Investment expense | (125 | ) | (185 | ) | (168 | ) | ||||||
Net investment income | $ | 4,208 | $ | 4,378 | $ | 3,923 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Fixed maturity available-for-sale securities: | ||||||||||||
Gross gains | $ | 74 | $ | 125 | $ | 132 | ||||||
Gross losses | (1,145 | ) | (185 | ) | (103 | ) | ||||||
Equity available-for-sale securities: | ||||||||||||
Gross gains | 5 | 8 | — | |||||||||
Gross losses | (164 | ) | (111 | ) | (1 | ) | ||||||
Gain on other investments | 32 | 18 | 4 | |||||||||
Associated amortization expense (benefit) of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities | 260 | 29 | (41 | ) | ||||||||
Total realized loss on investments, excluding trading securities | (938 | ) | (116 | ) | (9 | ) | ||||||
Gain (loss) on certain derivative instruments | (112 | ) | (11 | ) | 2 | |||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL and changes in other contract holder funds | — | 1 | — | |||||||||
Total realized loss on investments and certain derivative instruments, excluding trading securities | $ | (1,050 | ) | $ | (126 | ) | $ | (7 | ) | |||
Write-downs for other-than-temporary impairments included in realized loss on available-for-sale securities above | $ | (1,075 | ) | $ | (261 | ) | $ | (64 | ) | |||
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Amount and Date of Issuance | |||||||||
$400 | $200 | ||||||||
December 2006 | April 2007 | ||||||||
Amortized cost (1) | $ | 400 | $ | 200 | |||||
Fair value(1) | 30 | 20 | |||||||
Attachment point(1) | 4.77 | % | 1.48 | % | |||||
Maturity | 12/20/2016 | 3/20/2017 | |||||||
Current rating of tranche (1) | BBB- | Baa2 | |||||||
Current rating of underlying collateral pool (1) | Aaa-Caa1 | Aaa-Ba3 | |||||||
Number of entities(1) | 124 | 98 | |||||||
Number of countries(1) | 20 | 23 |
(1) | As of December 31, 2008 |
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As of December 31, | ||||||||||||||||
Assets (Liabilities) | ||||||||||||||||
Notional Amounts | Carrying or Fair Value | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Cash flow hedges: | ||||||||||||||||
Interest rate swap agreements | $ | 780 | $ | 1,371 | $ | (50 | ) | $ | (5 | ) | ||||||
Foreign currency swaps | 366 | 366 | 64 | (17 | ) | |||||||||||
Call options (based on LNC stock) | — | — | — | 1 | ||||||||||||
Total cash flow hedges | 1,146 | 1,737 | 14 | (21 | ) | |||||||||||
Fair value hedges: | ||||||||||||||||
Interest rate swap agreements | 375 | 375 | 196 | 22 | ||||||||||||
Equity collar | 49 | 49 | 138 | 47 | ||||||||||||
Total fair value hedges | 424 | 424 | 334 | 69 | ||||||||||||
Net investment in foreign subsidiary: | ||||||||||||||||
Foreign currency forwards | 183 | — | 74 | — | ||||||||||||
All other derivative instruments: | ||||||||||||||||
Interest rate cap agreements | 2,200 | 4,100 | — | 2 | ||||||||||||
Interest rate futures | 8,570 | 259 | — | — | ||||||||||||
Equity futures | 3,769 | 296 | — | — | ||||||||||||
Interest rate swap agreements | 7,759 | 4,722 | 998 | 41 | ||||||||||||
Credit default swaps | 149 | 60 | (51 | ) | — | |||||||||||
Total return swaps | 126 | 126 | — | — | ||||||||||||
Put options | 4,700 | 4,025 | 1,727 | 529 | ||||||||||||
Call options (based on LNC stock) | 18 | 23 | — | 13 | ||||||||||||
Call options (based on S&P 500) | 2,951 | 2,858 | 31 | 149 | ||||||||||||
Variance swaps | 31 | 6 | 204 | (4 | ) | |||||||||||
Total other derivative instruments | 30,273 | 16,475 | 2,909 | 730 | ||||||||||||
Embedded derivatives per SFAS 133/SFAS 157 | — | — | (2,858 | ) | (420 | ) | ||||||||||
Total derivative instruments | $ | 32,026 | $ | 18,636 | $ | 473 | $ | 358 | ||||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Derivative investments | $ | 3,397 | $ | 807 | ||||
Reinsurance related derivative asset (liability) | 31 | (219 | ) | |||||
Future contract benefits liability | (2,904 | ) | (230 | ) | ||||
Other liabilities — credit default swaps | (51 | ) | — | |||||
Total | $ | 473 | $ | 358 | ||||
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Remaining Life as of December 31, 2008 | ||||||||||||||||||||
Less Than | 1 – 5 | 5 – 10 | After | |||||||||||||||||
1 Year | Years | Years | 10 Years | Total | ||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||
Interest rate swap agreements | $ | 146 | $ | 128 | $ | 240 | $ | 266 | $ | 780 | ||||||||||
Foreign currency swaps | — | — | 231 | 135 | 366 | |||||||||||||||
Total cash flow hedges | 146 | 128 | 471 | 401 | 1,146 | |||||||||||||||
Fair value hedges: | ||||||||||||||||||||
Interest rate swap agreements | — | — | — | 375 | 375 | |||||||||||||||
Equity collar | — | 49 | — | — | 49 | |||||||||||||||
Total fair value hedges | — | 49 | — | 375 | 424 | |||||||||||||||
Net investment in foreign subsidiary: | ||||||||||||||||||||
Foreign currency forwards | 183 | — | — | — | 183 | |||||||||||||||
All other derivative instruments: | ||||||||||||||||||||
Interest rate cap agreements | 1,200 | 1,000 | — | — | 2,200 | |||||||||||||||
Interest rate futures | 8,570 | — | — | — | 8,570 | |||||||||||||||
Equity futures | 3,769 | — | — | — | 3,769 | |||||||||||||||
Interest rate swap agreements | — | 1,966 | 1,706 | 4,087 | 7,759 | |||||||||||||||
Credit default swaps | — | 60 | 89 | — | 149 | |||||||||||||||
Total return swaps | 126 | — | — | — | 126 | |||||||||||||||
Put options | — | 1,825 | 2,700 | 175 | 4,700 | |||||||||||||||
Call options (based on LNC stock) | — | 18 | — | — | 18 | |||||||||||||||
Call options (based on S&P 500) | 2,185 | 766 | — | — | 2,951 | |||||||||||||||
Variance swaps | — | 6 | 25 | — | 31 | |||||||||||||||
Total other derivative instruments | 15,850 | 5,641 | 4,520 | 4,262 | 30,273 | |||||||||||||||
Total derivative instruments | $ | 16,179 | $ | 5,818 | $ | 4,991 | $ | 5,038 | $ | 32,026 | ||||||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash flow hedges: | ||||||||||||
Interest rate swap agreements(1) | $ | 4 | $ | 5 | $ | 5 | ||||||
Foreign currency swaps(1) | (1 | ) | (1 | ) | (1 | ) | ||||||
Total cash flow hedges | 3 | 4 | 4 | |||||||||
Fair value hedges: | ||||||||||||
Interest rate swap agreements(2) | 6 | — | 2 | |||||||||
All other derivative instruments: | ||||||||||||
Equity futures (3) | 882 | (13 | ) | (10 | ) | |||||||
Interest rate swap agreements(3) | 1,167 | 43 | — | |||||||||
Credit default swaps(1) | 1 | — | — | |||||||||
Total return swaps(4) | (69 | ) | — | 13 | ||||||||
Put options(3) | 1,094 | 117 | (56 | ) | ||||||||
Call options (based on LNC stock)(4) | (8 | ) | (3 | ) | 10 | |||||||
Call options (based on S&P 500)(3) | (204 | ) | 6 | 62 | ||||||||
Variance swaps(3) | 267 | (4 | ) | — | ||||||||
Total other derivative instruments | 3,130 | 146 | 19 | |||||||||
Total derivative instruments | $ | 3,139 | $ | 150 | $ | 25 | ||||||
(1) | Reported in net investment income on our Consolidated Statements of Income. | |
(2) | Reported in interest and debt expense on our Consolidated Statements of Income. | |
(3) | Reported in net realized gain (loss) on our Consolidated Statements of Income. | |
(4) | Reported in underwriting, acquisition, insurance and other expenses on our Consolidated Statements of Income. |
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Ineffective portion recognized in realized gain (loss) | $ | 1 | $ | (1 | ) | $ | 1 | |||||
Gains recognized as a component of OCI with the offset to: | ||||||||||||
Net investment (income) | $ | 2 | $ | 2 | $ | 3 | ||||||
Benefit expense (recovery) | — | 1 | (2 | ) | ||||||||
$ | 2 | $ | 3 | $ | 1 | |||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Losses recognized as a component of realized investment loss | $ | (18 | ) | $ | (10 | ) | $ | — | ||||
Gains recognized as a component of OCI with the offset to interest expense | 4 | 3 | 3 |
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Reason | Nature | Credit | Maximum | |||||||||||||||||
for | of | Rating of | Fair | Potential | ||||||||||||||||
Maturity | Entering | Recourse | Counterparty | Value(4) | Payout | |||||||||||||||
3/20/2010 | (1) | (3) | Aa3/A+ | $ | (1 | ) | $ | 10 | ||||||||||||
6/20/2010 | (1) | (3) | Aa2/A | — | 10 | |||||||||||||||
12/20/2012 | (2) | (3) | Aa2/A+ | — | 10 | |||||||||||||||
12/20/2012 | (2) | (3) | Aa2/A+ | — | 10 | |||||||||||||||
12/20/2012 | (2) | (3) | A1/A | — | 10 | |||||||||||||||
12/20/2012 | (2) | (3) | A1/A | (1 | ) | 10 | ||||||||||||||
3/20/2017 | (2) | (3) | A2/A | (14 | ) | 22 | (5) | |||||||||||||
3/20/2017 | (2) | (3) | A2/A | (10 | ) | 14 | (5) | |||||||||||||
3/20/2017 | (2) | (3) | A2/A | (8 | ) | 18 | (5) | |||||||||||||
3/20/2017 | (2) | (3) | A2/A | (11 | ) | 18 | (5) | |||||||||||||
3/20/2017 | (2) | (3) | A2/A | (6 | ) | 17 | (5) | |||||||||||||
$ | (51 | ) | $ | 149 | ||||||||||||||||
(1) | Credit default swap was entered into in order to generate income by providing protection on a highly rated basket of securities in return for a quarterly payment. | |
(2) | Credit default swap was entered into in order to generate income by providing default protection in return for a quarterly payment. | |
(3) | Seller does not have the right to demand indemnification/compensation from third parties in case of a loss (payment) on the contract. | |
(4) | Broker quotes are used to determine the market value of credit default swaps. | |
(5) | These credit default swaps were sold to a counter party of the issuing special purpose trust as discussed in the “Credit-Linked Notes” section in Note 5. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Current | $ | 472 | $ | 499 | $ | 270 | ||||||
Deferred | (559 | ) | 54 | 213 | ||||||||
Total federal income tax expense (benefit) | $ | (87 | ) | $ | 553 | $ | 483 | |||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Tax rate times pre-tax income (loss) | $ | (9 | ) | $ | 656 | $ | 622 | |||||
Effect of: | ||||||||||||
Tax-preferred investment income | (81 | ) | (105 | ) | (98 | ) | ||||||
Tax credits | (25 | ) | (21 | ) | (23 | ) | ||||||
Goodwill | 58 | 5 | — | |||||||||
Prior year tax return adjustment | (35 | ) | (13 | ) | (25 | ) | ||||||
Other items | 5 | 31 | 7 | |||||||||
Provision for income taxes | $ | (87 | ) | $ | 553 | $ | 483 | |||||
Effective tax rate | N/M | 30 | % | 27 | % | |||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Current | $ | (729 | ) | $ | (630 | ) | ||
Deferred | 1,755 | (308 | ) | |||||
Total federal income tax asset (liability) | $ | 1,026 | $ | (938 | ) | |||
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As of December 31, | ||||||||
2008 | 2007 | |||||||
Deferred Tax Assets | ||||||||
Future contract benefits and other contract holder funds | $ | 2,257 | $ | 2,041 | ||||
Deferrred gain on business sold through reinsurance | 190 | 244 | ||||||
Net unrealized loss on available-for-sale securities | 2,253 | — | ||||||
Reinsurance related derivative liabilities | — | 77 | ||||||
Other investments | 241 | — | ||||||
Postretirement benefits other than pensions | 142 | 15 | ||||||
Compensation and benefit plans | 215 | 266 | ||||||
Ceding commission asset | 5 | 7 | ||||||
Other | 145 | 56 | ||||||
Total deferred tax assets | 5,448 | 2,706 | ||||||
Deferred Tax Liabilities | ||||||||
DAC | 2,030 | 1,492 | ||||||
VOBA | 1,317 | 985 | ||||||
Net unrealized gain on available-for-sale securities | — | 38 | ||||||
Net unrealized gain on trading securities | 9 | 76 | ||||||
Reinsurance related derivative assets | 11 | — | ||||||
Other investments | — | 62 | ||||||
Intangibles | 56 | 130 | ||||||
Other | 270 | 231 | ||||||
Total deferred tax liabilities | 3,693 | 3,014 | ||||||
Net deferred tax asset (liability) | $ | 1,755 | $ | (308 | ) | |||
For the Years Ended | ||||||||
December 31, | ||||||||
2008 | 2007 | |||||||
Balance at beginning-of-year | $ | 329 | $ | 309 | ||||
Increases for prior year tax positions | 16 | 7 | ||||||
Decreases for prior year tax positions | (46 | ) | (1 | ) | ||||
Increases for current year tax positions | 21 | 21 | ||||||
Decreases for current year tax positions | (6 | ) | (7 | ) | ||||
Decreases for settlements with taxing authorities | (8 | ) | — | |||||
Decreases for lapse of statute of limitations | (4 | ) | — | |||||
Balance at end-of-year | $ | 302 | $ | 329 | ||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning-of-year | $ | 6,510 | $ | 5,116 | $ | 4,164 | ||||||
Cumulative effect of adoption of SOP 05-1 | — | (31 | ) | — | ||||||||
Deferrals | 1,817 | 2,012 | 1,482 | |||||||||
Amortization, net of interest: | ||||||||||||
Prospective unlocking — assumption changes | (368 | ) | 35 | 6 | ||||||||
Prospective unlocking — model refinements | 44 | (55 | ) | (6 | ) | |||||||
Retrospective unlocking | (199 | ) | 67 | 41 | ||||||||
Other amortization, net of interest | (641 | ) | (824 | ) | (670 | ) | ||||||
Adjustment related to realized gains on available-for-sale securities and derivatives | (203 | ) | 79 | (53 | ) | |||||||
Adjustment related to unrealized losses on available-for-sale securities and derivatives | 1,163 | 103 | 86 | |||||||||
Foreign currency translation adjustment | (129 | ) | 8 | 66 | ||||||||
Balance at end-of-year | $ | 7,994 | $ | 6,510 | $ | 5,116 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning-of-year | $ | 3,070 | $ | 3,304 | $ | 999 | ||||||
Cumulative effect of adoption of SOP 05-1 | — | (35 | ) | — | ||||||||
Business acquired | — | 14 | 2,478 | |||||||||
Deferrals | 40 | 46 | 96 | |||||||||
Amortization, net of interest: | ||||||||||||
Prospective unlocking — assumption changes | 9 | 14 | (3 | ) | ||||||||
Prospective unlocking — model refinements | (15 | ) | (7 | ) | — | |||||||
Retrospective unlocking | (37 | ) | 11 | (1 | ) | |||||||
Other amortization | (361 | ) | (449 | ) | (372 | ) | ||||||
Accretion of interest | 131 | 143 | 128 | |||||||||
Adjustment related to realized gains (losses) on available-for-sale securities and derivatives | 98 | — | (8 | ) | ||||||||
Adjustment related to unrealized gains (losses) on available-for-sale securities and derivatives | 1,074 | 24 | (48 | ) | ||||||||
Foreign currency translation adjustment | (67 | ) | 5 | 35 | ||||||||
Balance at end-of-year | $ | 3,942 | $ | 3,070 | $ | 3,304 | ||||||
2009 | $ | 263 | ||
2010 | 246 | |||
2011 | 215 | |||
2012 | 197 | |||
2013 | 180 | |||
Thereafter | 1,723 | |||
Total | $ | 2,824 | ||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning-of-year | $ | 279 | $ | 194 | $ | 129 | ||||||
Cumulative effect of adoption of SOP 05-1 | — | (3 | ) | — | ||||||||
Deferrals | 96 | 116 | 86 | |||||||||
Amortization, net of interest: | ||||||||||||
Prospective unlocking — assumption changes | (37 | ) | 2 | 1 | ||||||||
Prospective unlocking — model refinements | — | (1 | ) | — | ||||||||
Retrospective unlocking | (13 | ) | 1 | 3 | ||||||||
Other amortization, net of interest | (16 | ) | (35 | ) | (22 | ) | ||||||
Adjustment related to realized gains (losses) on available-for-sale securities and derivatives | (46 | ) | 5 | (3 | ) | |||||||
Balance at end-of-year | $ | 263 | $ | 279 | $ | 194 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning-of-year | $ | 1,183 | $ | 977 | $ | 796 | ||||||
Cumulative effect of adoption of SOP 05-1 | — | (2 | ) | — | ||||||||
Deferrals | 432 | 412 | 249 | |||||||||
Amortization, net of interest: | ||||||||||||
Prospective unlocking — assumption changes | (37 | ) | 4 | 21 | ||||||||
Prospective unlocking — model refinements | 25 | (34 | ) | (4 | ) | |||||||
Retrospective unlocking | (47 | ) | 9 | 9 | ||||||||
Other amortization, net of interest | (161 | ) | (191 | ) | (142 | ) | ||||||
Adjustment related to realized (gains) losses on available-for-sale securities and derivatives | (17 | ) | 2 | (2 | ) | |||||||
Foreign currency translation adjustment | (96 | ) | 6 | 50 | ||||||||
Balance at end-of-year | $ | 1,282 | $ | 1,183 | $ | 977 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Direct insurance premiums and fees | $ | 6,331 | $ | 6,077 | $ | 4,793 | ||||||
Reinsurance assumed | 18 | 12 | 8 | |||||||||
Reinsurance ceded | (1,024 | ) | (952 | ) | (831 | ) | ||||||
Total insurance premiums and fees, net | $ | 5,325 | $ | 5,137 | $ | 3,970 | ||||||
Direct insurance benefits | $ | 4,239 | $ | 3,599 | $ | 2,833 | ||||||
Reinsurance recoveries netted against benefits | (1,082 | ) | (1,037 | ) | (927 | ) | ||||||
Total benefits, net | $ | 3,157 | $ | 2,562 | $ | 1,906 | ||||||
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For the Year Ended December 31, 2008 | ||||||||||||||||||||
Balance At | Purchase | Dispositions | Balance | |||||||||||||||||
Beginning- | Accounting | and | At End- | |||||||||||||||||
of-Year | Adjustments | Impairment | Other | of-Year | ||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 1,046 | $ | (6 | ) | $ | — | $ | — | $ | 1,040 | |||||||||
Defined Contribution | 20 | — | — | — | 20 | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 2,201 | (13 | ) | — | — | 2,188 | ||||||||||||||
Group Protection | 274 | — | — | — | 274 | |||||||||||||||
Investment Management | 247 | 1 | — | — | 248 | |||||||||||||||
Lincoln UK | 17 | — | (12 | ) | (5 | ) | — | |||||||||||||
Other Operations | 339 | (1 | ) | (164 | ) | — | 174 | |||||||||||||
Total goodwill | $ | 4,144 | $ | (19 | ) | $ | (176 | ) | $ | (5 | ) | $ | 3,944 | |||||||
For the Year Ended December 31, 2007 | ||||||||||||||||||||
Balance At | Purchase | Dispositions | Balance | |||||||||||||||||
Beginning- | Accounting | and | At End- | |||||||||||||||||
of-Year | Adjustments | Impairment | Other | of-Year | ||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 1,032 | $ | 14 | $ | — | $ | — | $ | 1,046 | ||||||||||
Defined Contribution | 20 | — | — | — | 20 | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 2,181 | 20 | — | — | 2,201 | |||||||||||||||
Group Protection | 281 | (7 | ) | — | — | 274 | ||||||||||||||
Investment Management | 262 | — | — | (15 | ) | 247 | ||||||||||||||
Lincoln UK | 17 | — | — | — | 17 | |||||||||||||||
Other Operations | 344 | (5 | ) | — | — | 339 | ||||||||||||||
Total goodwill | $ | 4,137 | $ | 22 | $ | — | $ | (15 | ) | $ | 4,144 | |||||||||
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As of December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Gross | Accumulated | Gross | Accumulated | |||||||||||||
Carrying | Amortiza- | Carrying | Amortiza- | |||||||||||||
Amount | tion | Amount | tion | |||||||||||||
Insurance Solutions — Life Insurance: | ||||||||||||||||
Sales force | $ | 100 | $ | 11 | $ | 100 | $ | 7 | ||||||||
Retirement Solutions — Defined Contribution: | ||||||||||||||||
Mutual fund contract rights(1) | 3 | — | 3 | — | ||||||||||||
Investment Management: | ||||||||||||||||
Client lists | 92 | 92 | 92 | 90 | ||||||||||||
Other(1) | 5 | — | 3 | — | ||||||||||||
Other Operations: | ||||||||||||||||
FCC licenses(1) (2) | 167 | — | 384 | — | ||||||||||||
Other | 4 | 3 | 4 | 3 | ||||||||||||
Total | $ | 371 | $ | 106 | $ | 586 | $ | 100 | ||||||||
(1) | No amortization recorded as the intangible asset has indefinite life. | |
(2) | We recorded FCC licenses impairment of $217 million during 2008, as discussed above. |
2009 | $ | 4 | ||
2010 | 4 | |||
2011 | 4 | |||
2012 | 4 | |||
2013 | 4 | |||
Thereafter | 70 | |||
Total | $ | 90 | ||
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As of December 31, | ||||||||
2008 | 2007 | |||||||
Return of Net Deposits | ||||||||
Total account value | $ | 33,907 | $ | 44,833 | ||||
Net amount at risk(1) | 6,337 | 93 | ||||||
Average attained age of contract holders | 56 years | 55 years | ||||||
Minimum Return | ||||||||
Total account value | $ | 191 | $ | 355 | ||||
Net amount at risk(1) | 109 | 25 | ||||||
Average attained age of contract holders | 68 years | 68 years | ||||||
Guaranteed minimum return | 5 | % | 5 | % | ||||
Anniversary Contract Value | ||||||||
Total account value | $ | 16,950 | $ | 25,537 | ||||
Net amount at risk(1) | 8,402 | 359 | ||||||
Average attained age of contract holders | 65 years | 64 years |
(1) | Represents the amount of death benefit in excess of the account balance. The increase in net amount of risk when comparing December 31, 2008, to December 31, 2007, was attributable primarily to the decline in equity markets and associated reduction in the account values. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning-of-year | $ | 38 | $ | 23 | $ | 15 | ||||||
Cumulative effect of adoption of SOP 05-1 | — | (4 | ) | — | ||||||||
Changes in reserves | 312 | 25 | 14 | |||||||||
Benefits paid | (73 | ) | (6 | ) | (6 | ) | ||||||
Balance at end-of-year | $ | 277 | $ | 38 | $ | 23 | ||||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Asset Type | ||||||||
Domestic equity | $ | 24,878 | $ | 44,982 | ||||
International equity | 9,204 | 8,076 | ||||||
Bonds | 6,701 | 8,034 | ||||||
Money market | 5,802 | 6,545 | ||||||
Total | $ | 46,585 | $ | 67,637 | ||||
Percent of total variable annuity separate account values | 99 | % | 97 | % |
As of December 31, | ||||||||
2008 | 2007 | |||||||
Account values and other contract holder funds | $ | 58,931 | $ | 57,698 | ||||
Deferred front-end loads | 1,282 | 1,183 | ||||||
Contract holder dividends payable | 498 | 524 | ||||||
Premium deposit funds | 125 | 140 | ||||||
Undistributed earnings on participating business | 11 | 95 | ||||||
Total other contract holder funds | $ | 60,847 | $ | 59,640 | ||||
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As of December 31, | ||||||||
2008 | 2007 | |||||||
Short-Term Debt | ||||||||
Commercial paper (1) | $ | 315 | $ | 265 | ||||
Current maturities of long-term debt | 500 | 285 | ||||||
Total short-term debt | $ | 815 | $ | 550 | ||||
Long-Term Debt, Excluding Current Portion (2) | ||||||||
Senior notes: | ||||||||
LIBOR + 11 bps notes, due 2009 | $ | — | $ | 500 | ||||
LIBOR + 8 bps notes, due 2010 | 250 | 250 | ||||||
6.2% notes, due 2011 | 250 | 250 | ||||||
EXtendible Liquidity Securities® | — | 15 | ||||||
5.65% notes, due 2012 | 300 | 299 | ||||||
LIBOR + 110 bps loan, due 2013 | 200 | — | ||||||
4.75% notes, due 2014 | 290 | 288 | ||||||
4.75% notes, due 2014 | 199 | 199 | ||||||
LIBOR + 3 bps notes, due 2017 | 250 | — | ||||||
7% notes, due 2018 | 200 | 200 | ||||||
6.15% notes, due 2036 | 497 | 497 | ||||||
6.3% notes, due 2037 | 569 | 394 | ||||||
Total senior notes | 3,005 | 2,892 | ||||||
Junior subordinated debentures issued to affiliated trusts: | ||||||||
Lincoln Capital VI - 6.75% Series F, due 2052 | 155 | 155 | ||||||
Total junior subordinated debentures issued to affiliated trusts | 155 | 155 | ||||||
Capital securities: | ||||||||
6.75%, due 2066 | 275 | 275 | ||||||
7%, due 2066 | 797 | 797 | ||||||
6.05%, due 2067 | 499 | 499 | ||||||
Total capital securities | 1,571 | 1,571 | ||||||
Total long-term debt | $ | 4,731 | $ | 4,618 | ||||
(1) | The weighted-average interest rate of commercial paper was 3.07% and 5.19% as of December 31, 2008 and 2007, respectively. | |
(2) | Amounts include unamortized premiums and discounts and the fair value of any associated fair value hedges on our long-term debt. |
2009 | $ | 500 | ||
2010 | 250 | |||
2011 | 250 | |||
2012 | 300 | |||
2013 | 200 | |||
Thereafter | 3,555 | |||
Total | $ | 5,055 | ||
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Debt/Loans | ||||||||||||||||||||
Maximum Available as of | Outstanding as of | |||||||||||||||||||
Expiration | December 31, | December 31, | ||||||||||||||||||
Date | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||
Commercial paper | N/A | $ | 1,000 | $ | 1,000 | $ | 315 | $ | 265 | |||||||||||
Revolving credit facilities: | ||||||||||||||||||||
Credit facility with Federal Home Loan Bank of Indianapolis(1) | N/A | 378 | — | 250 | — | |||||||||||||||
Five-year revolving credit facility | Jul-13 | 200 | — | 200 | — | |||||||||||||||
Five-year revolving credit facility | Mar-11 | 1,750 | 1,750 | — | — | |||||||||||||||
Five-year revolving credit facility | Feb-11 | 1,350 | 1,350 | — | — | |||||||||||||||
U.K. revolving credit facility (2) | Nov-08 | — | 20 | — | — | |||||||||||||||
Total | $ | 4,678 | $ | 4,120 | $ | 765 | $ | 265 | ||||||||||||
Letters of credit issued | $ | 2,095 | $ | 1,794 | ||||||||||||||||
(1) | Our borrowing capacity under this credit facility does not have an expiration date and continues while our investment in the Federal Home Loan Bank of Indianapolis (“FHLBI”) common stock remains outstanding. | |
(2) | The U.K. credit facility that provided for a maximum credit of 10 million pounds sterling was not renewed when it expired in November 2008. |
• | LNL’s risk-based capital ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or |
• | The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and |
• | Our consolidated stockholders’ equity (excluding accumulated other comprehensive income and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter) (“adjusted stockholders’ equity”) as of the most recently completed quarter and the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is ten fiscal quarters prior to the last completed quarter (the “benchmark quarter”). |
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2009 | $ | 53 | ||
2010 | 41 | |||
2011 | 35 | |||
2012 | 29 | |||
2013 | 23 | |||
Thereafter | 120 | |||
Total | $ | 301 | ||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Series A Preferred Stock | ||||||||||||
Balance at beginning-of-year | 11,960 | 12,706 | 15,515 | |||||||||
Conversion into common stock | (395 | ) | (746 | ) | (2,809 | ) | ||||||
Balance at end-of-year | 11,565 | 11,960 | 12,706 | |||||||||
Common Stock | ||||||||||||
Balance at beginning-of-year | 264,233,303 | 275,752,668 | 173,768,078 | |||||||||
Issued for acquisition | — | — | 112,301,906 | |||||||||
Conversion of Series A preferred stock | 6,320 | 11,936 | 44,944 | |||||||||
Stock compensation/issued for benefit plans | 945,048 | 3,849,497 | 6,515,230 | |||||||||
Retirement of common stock/cancellation of shares | (9,314,812 | ) | (15,380,798 | ) | (16,877,490 | ) | ||||||
Balance at end-of-year | 255,869,859 | 264,233,303 | 275,752,668 | |||||||||
Common stock at end-of-year: | ||||||||||||
Assuming conversion of preferred stock | 256,054,899 | 264,424,663 | 275,955,964 | |||||||||
Diluted basis | 257,690,111 | 266,186,641 | 280,188,447 |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Weighted-average shares, as used in basic calculation | 257,498,535 | 270,298,843 | 252,363,042 | |||||||||
Shares to cover conversion of preferred stock | 186,578 | 197,140 | 229,113 | |||||||||
Shares to cover non-vested stock | 309,648 | 566,419 | 1,291,868 | |||||||||
Average stock options outstanding during the period | 6,479,521 | 12,826,598 | 14,557,403 | |||||||||
Assumed acquisition of shares with assumed proceeds and benefits from exercising stock options (at average market price for the year) | (6,351,278 | ) | (11,101,999 | ) | (13,313,108 | ) | ||||||
Shares repurchaseable from measured but unrecognized stock option expense | (43,148 | ) | (203,730 | ) | (249,885 | ) | ||||||
Average deferred compensation shares | 1,310,954 | 1,322,231 | 1,290,833 | |||||||||
Weighted-average shares, as used in diluted calculation | 259,390,810 | 273,905,502 | 256,169,266 | |||||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Unrealized Gains (Loss) on Available-for-Sale Securities | ||||||||||||
Balance at beginning-of-year | $ | 86 | $ | 493 | $ | 497 | ||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized holding losses arising during the year | (7,844 | ) | (899 | ) | (126 | ) | ||||||
Change in DAC, VOBA, DSI and other contract holder funds | 2,606 | 172 | 24 | |||||||||
Income tax benefit | 1,822 | 255 | 39 | |||||||||
Change in foreign currency exchange rate adjustment | (66 | ) | (22 | ) | 51 | |||||||
Less: | ||||||||||||
Reclassification adjustment for gains (losses) on available-for-sale securities included in net income | (1,230 | ) | (163 | ) | 28 | |||||||
Reclassification adjustment for losses on derivative instruments included in net income | (112 | ) | — | — | ||||||||
Associated amortization of DAC, VOBA, DSI, DFEL and changes in other contract holder funds | 260 | 29 | (41 | ) | ||||||||
Income tax benefit | 340 | 47 | 5 | |||||||||
Balance at end-of-year | $ | (2,654 | ) | $ | 86 | $ | 493 | |||||
Unrealized Gains (Loss) on Derivative Instruments | ||||||||||||
Balance at beginning-of-year | $ | 53 | $ | 39 | $ | 7 | ||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized holding gains (losses) arising during the year | (1 | ) | 29 | 26 | ||||||||
Change in DAC, VOBA, DSI and other contract holder funds | (36 | ) | (6 | ) | 1 | |||||||
Income tax benefit | 37 | 15 | 2 | |||||||||
Change in foreign currency exchange rate adjustment | 1 | (30 | ) | 4 | ||||||||
Less: | ||||||||||||
Reclassification adjustment for gains (losses) included in net income | (112 | ) | (11 | ) | 2 | |||||||
Associated amortization of DAC, VOBA, DSI, DFEL and changes in other contract holder funds | — | 1 | — | |||||||||
Income tax (expense) benefit | 39 | 4 | (1 | ) | ||||||||
Balance at end-of-year | $ | 127 | $ | 53 | $ | 39 | ||||||
Foreign Currency Translation Adjustment | ||||||||||||
Balance at beginning-of-year | $ | 175 | $ | 165 | $ | 83 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustment arising during the year | (263 | ) | 15 | 126 | ||||||||
Income tax (expense) benefit | 94 | (5 | ) | (44 | ) | |||||||
Balance at end-of-year | $ | 6 | $ | 175 | $ | 165 | ||||||
Minimum Pension Liability Adjustment | ||||||||||||
Balance at beginning-of-year | $ | — | $ | — | $ | (60 | ) | |||||
Other comprehensive income: adjustment for adoption of SFAS 158, net of tax | — | — | 60 | |||||||||
Balance at end-of-year | $ | — | $ | — | $ | — | ||||||
Funded Status of Employee Benefit Plans | ||||||||||||
Balance at beginning-of-year | $ | (89 | ) | $ | (84 | ) | $ | — | ||||
Other comprehensive income (loss): | ||||||||||||
Adjustment arising during the year | (316 | ) | (8 | ) | — | |||||||
Income tax benefit | 123 | 3 | — | |||||||||
Adjustment for adoption of SFAS 158, net of tax | — | — | (84 | ) | ||||||||
Balance at end-of-year | $ | (282 | ) | $ | (89 | ) | $ | (84 | ) | |||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Total realized loss on investments and certain derivative instruments, excluding trading securities(1) | $ | (1,050 | ) | $ | (126 | ) | $ | (7 | ) | |||
Gain on certain reinsurance derivative/ trading securities(2) | 3 | 2 | 4 | |||||||||
Indexed annuity net derivative results(3): | ||||||||||||
Gross | 13 | (17 | ) | (2 | ) | |||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL | (6 | ) | 9 | 2 | ||||||||
Guaranteed living benefits(4): | ||||||||||||
Gross | 792 | (70 | ) | 37 | ||||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL | (356 | ) | 28 | (19 | ) | |||||||
Guaranteed death benefits(5): | ||||||||||||
Gross | 75 | (2 | ) | (4 | ) | |||||||
Associated amortization expense of DAC, VOBA, DSI and DFEL | (17 | ) | 1 | 2 | ||||||||
Gain on sale of subsidiaries/businesses | 9 | 6 | — | |||||||||
Total realized gain (loss) | $ | (537 | ) | $ | (169 | ) | $ | 13 | ||||
(1) | See “Realized Loss Related to Investments” section in Note 5 for detail. | |
(2) | Represents changes in the fair value of total return swaps (embedded derivatives) related to various modified coinsurance and coinsurance with funds withheld reinsurance arrangements that have contractual returns related to various assets and liabilities associated with these arrangements. Changes in the fair value of these derivatives are offset by the change in fair value of trading securities in the portfolios that support these arrangements. | |
(3) | Represents the net difference between the change in the fair value of the S&P 500 call options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity products along with changes in the fair value of embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products as required under SFAS 133 and 157. The year ended December 31, 2008, includes a $10 million gain from the initial impact of adopting SFAS 157. | |
(4) | Represents the net difference in the change in fair value of the embedded derivative liabilities of our GLB products and the change in the fair value of the derivative instruments we own to hedge, including the cost of purchasing the hedging instruments. The year ended December 31, 2008, includes a $34 million loss from the initial impact of adopting SFAS 157. | |
(5) | Represents the change in the fair value of the derivatives used to hedge our GDB riders. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Commissions | $ | 1,946 | $ | 2,169 | $ | 1,625 | ||||||
General and administrative expenses | 1,722 | 1,757 | 1,572 | |||||||||
DAC and VOBA deferrals and interest, net of amortization | (420 | ) | (993 | ) | (701 | ) | ||||||
Other intangibles amortization | 6 | 10 | 12 | |||||||||
Media expenses | 60 | 56 | 41 | |||||||||
Taxes, licenses and fees | 210 | 218 | 178 | |||||||||
Merger-related expenses | 52 | 103 | 49 | |||||||||
Total | $ | 3,576 | $ | 3,320 | $ | 2,776 | ||||||
Total | ||||
Restructuring reserve at December 31, 2007 | $ | 3 | ||
Amounts incurred in 2008 | ||||
Employee severance and termination benefits | $ | 2 | ||
Other | — | |||
Total 2008 restructuring charges | 2 | |||
Amounts expended in 2008 | (4 | ) | ||
Restructuring reserve at December 31, 2008 | $ | 1 | ||
Additional amounts expended in 2008 that do not qualify as restructuring charges | $ | 49 | ||
Total expected costs | 225 | |||
Expected completion date: 4th Quarter 2009 |
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As of and for the Years Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||
U.S. | Non-U.S. | Other | ||||||||||||||||||||||
Pension Benefits | Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||
Change in Plan Assets | ||||||||||||||||||||||||
Fair value at beginning-of-year | $ | 1,012 | $ | 1,017 | $ | 338 | $ | 339 | $ | 30 | $ | 28 | ||||||||||||
Actual return on plan assets | (216 | ) | 59 | (10 | ) | 6 | 2 | 2 | ||||||||||||||||
Company and participant contributions | 14 | 10 | 2 | 1 | 15 | 14 | ||||||||||||||||||
Benefits paid | (80 | ) | (74 | ) | (13 | ) | (14 | ) | (17 | ) | (15 | ) | ||||||||||||
Medicare Part D subsidy | — | — | — | — | 2 | 1 | ||||||||||||||||||
Foreign exchange translation | — | — | (85 | ) | 6 | — | — | |||||||||||||||||
Fair value at end-of-year | 730 | 1,012 | 232 | 338 | 32 | 30 | ||||||||||||||||||
Change in Benefit Obligation | ||||||||||||||||||||||||
Balance at beginning-of-year | 1,030 | 1,046 | 353 | 361 | 127 | 152 | ||||||||||||||||||
Service cost | — | 33 | 2 | 2 | 3 | 3 | ||||||||||||||||||
Interest cost | 62 | 59 | 19 | 18 | 8 | 8 | ||||||||||||||||||
Plan participants’ contributions | — | — | — | — | 5 | 5 | ||||||||||||||||||
Amendments | 17 | — | — | — | — | (8 | ) | |||||||||||||||||
Curtailments | — | (2 | ) | — | — | — | — | |||||||||||||||||
Settlements | — | (12 | ) | — | — | — | — | |||||||||||||||||
Actuarial (gains) losses | 25 | 16 | (35 | ) | (20 | ) | 9 | (19 | ) | |||||||||||||||
Benefits paid | (80 | ) | (74 | ) | (13 | ) | (14 | ) | (17 | ) | (15 | ) | ||||||||||||
Medicare Part D subsidy | — | — | — | — | 2 | 1 | ||||||||||||||||||
Purchase accounting adjustments | — | (36 | ) | — | — | — | — | |||||||||||||||||
Foreign exchange translation | — | — | (88 | ) | 6 | — | — | |||||||||||||||||
Balance at end-of-year | 1,054 | 1,030 | 238 | 353 | 137 | 127 | ||||||||||||||||||
Funded status of the plans | $ | (324 | ) | $ | (18 | ) | $ | (6 | ) | $ | (15 | ) | $ | (105 | ) | $ | (97 | ) | ||||||
Amounts Recognized on the Consolidated Balance Sheets | ||||||||||||||||||||||||
Other assets | $ | 5 | $ | 82 | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Other liabilities | (329 | ) | (100 | ) | (6 | ) | (15 | ) | (105 | ) | (97 | ) | ||||||||||||
Net amount recognized | $ | (324 | ) | $ | (18 | ) | $ | (6 | ) | $ | (15 | ) | $ | (105 | ) | $ | (97 | ) | ||||||
Amounts Recognized in Accumulated OCI, Net of Tax | ||||||||||||||||||||||||
Net (gain) loss | $ | 256 | $ | 52 | $ | 35 | $ | 54 | $ | (5 | ) | $ | (13 | ) | ||||||||||
Prior service credit | — | — | — | — | (4 | ) | (4 | ) | ||||||||||||||||
Net amount recognized | $ | 256 | $ | 52 | $ | 35 | $ | 54 | $ | (9 | ) | $ | (17 | ) | ||||||||||
Rate of Increase in Compensation | ||||||||||||||||||||||||
Salary continuation plan | N/A | 4.00 | % | 0.00 | % | 0.00 | % | N/A | 0.00 | % | ||||||||||||||
All other plans | N/A | 4.00 | % | 3.80 | % | 4.40 | % | 4.00 | % | 4.00 | % | |||||||||||||
Weighted-Average Assumptions | ||||||||||||||||||||||||
Benefit obligations: | ||||||||||||||||||||||||
Weighted-average discount rate | 6.00 | % | 6.08 | % | 6.30 | % | 6.00 | % | 6.00 | % | 6.00 | % | ||||||||||||
Expected return on plan assets | 8.00 | % | 8.00 | % | 6.20 | % | 6.40 | % | 6.50 | % | 6.50 | % | ||||||||||||
Net periodic benefit cost: | ||||||||||||||||||||||||
Weighted-average discount rate | 6.00 | % | 6.00 | % | 6.00 | % | 5.10 | % | 6.00 | % | 6.00 | % | ||||||||||||
Expected return on plan assets | 8.00 | % | 8.00 | % | 6.40 | % | 5.90 | % | 6.50 | % | 6.50 | % |
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As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Health care cost trend rate | N/A | 12 | % | 12 | % | |||||||
Pre-65 health care cost trend rate | 10 | % | N/A | N/A | ||||||||
Post-65 health care cost trend rate | 12 | % | N/A | N/A | ||||||||
Ultimate trend rate | 5 | % | 5 | % | 5 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2019 | 2018 | 2017 |
As of December 31, | ||||||||
2008 | 2007 | |||||||
U.S. Plan | ||||||||
Accumulated benefit obligation | $ | 1,030 | $ | 101 | ||||
Projected benefit obligation | 1,030 | 101 | ||||||
Fair value of plan assets | 700 | — | ||||||
Non-U.S. Plan | ||||||||
Accumulated benefit obligation | $ | 236 | $ | 349 | ||||
Projected benefit obligation | 238 | 353 | ||||||
Fair value of plan assets | 232 | 338 |
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For the Years Ended December 31, | ||||||||||||||||||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||
U.S. Plans | ||||||||||||||||||||||||
Service cost | $ | — | $ | 33 | $ | 32 | $ | 3 | $ | 3 | $ | 3 | ||||||||||||
Interest cost | 62 | 59 | 53 | 8 | 8 | 8 | ||||||||||||||||||
Expected return on plan assets | (77 | ) | (79 | ) | (66 | ) | (2 | ) | (2 | ) | (1 | ) | ||||||||||||
Amortization of prior service cost | — | — | (2 | ) | (1 | ) | — | — | ||||||||||||||||
Recognized net actuarial (gain) loss | 4 | 1 | 4 | (1 | ) | (2 | ) | 1 | ||||||||||||||||
Recognized actuarial (gain) loss due to curtailments | — | (7 | ) | 1 | — | — | — | |||||||||||||||||
Recognized actuarial gain due to settlements | — | (13 | ) | — | — | — | — | |||||||||||||||||
Recognized actuarial loss due to special termination benefits | — | — | 2 | — | — | — | ||||||||||||||||||
Net periodic benefit expense (recovery) | $ | (11 | ) | $ | (6 | ) | $ | 24 | $ | 7 | $ | 7 | $ | 11 | ||||||||||
Non-U.S. Plans | ||||||||||||||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 2 | ||||||||||||||||||
Interest cost | 19 | 18 | 16 | |||||||||||||||||||||
Expected return on plan assets | (19 | ) | (20 | ) | (17 | ) | ||||||||||||||||||
Amortization of prior service cost | — | — | — | |||||||||||||||||||||
Recognized net actuarial loss | 3 | 4 | 4 | |||||||||||||||||||||
Net periodic benefit expense | $ | 5 | $ | 4 | $ | 5 | ||||||||||||||||||
As of December 31, | Target | |||||||||||
2008 | 2007 | Allocation | ||||||||||
U.S. Plans | ||||||||||||
Domestic large cap equity | 32 | % | 37 | % | 35 | % | ||||||
International equity | 14 | % | 15 | % | 15 | % | ||||||
Fixed income securities | 53 | % | 48 | % | 50 | % | ||||||
Cash and cash equivalents | 1 | % | 0 | % | 0 | % | ||||||
Total | 100 | % | 100 | % | ||||||||
Non-U.S. Plans | ||||||||||||
Equity securities | 26 | % | 29 | % | 30 | % | ||||||
Fixed income securities | 73 | % | 69 | % | 70 | % | ||||||
Cash and cash equivalents | 1 | % | 2 | % | 0 | % | ||||||
Total | 100 | % | 100 | % | ||||||||
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Pension Plans | U.S. Postretirement Plans | |||||||||||||||||||||||
Qualified | Nonqualified | Qualified | ||||||||||||||||||||||
U.S. | U.S. | non-U.S. | Not | |||||||||||||||||||||
Defined | Defined | Defined | Reflecting | Reflecting | ||||||||||||||||||||
Benefit | Benefit | Benefit | Medicare | Medicare | Medicare | |||||||||||||||||||
Pension | Pension | Pension | Part D | Part D | Part D | |||||||||||||||||||
Plans | Plans | Plans | Subsidy | Subsidy | Subsidy | |||||||||||||||||||
2009 | $ | 65 | $ | 10 | $ | 10 | $ | 10 | $ | (2 | ) | $ | 12 | |||||||||||
2010 | 65 | 10 | 11 | 10 | (2 | ) | 12 | |||||||||||||||||
2011 | 66 | 10 | 12 | 10 | (2 | ) | 12 | |||||||||||||||||
2012 | 70 | 10 | 12 | 10 | (2 | ) | 12 | |||||||||||||||||
2013 | 70 | 10 | 12 | 10 | (2 | ) | 12 | |||||||||||||||||
Following Five Years Thereafter | 347 | 50 | 68 | 58 | (12 | ) | 70 |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Total expenses for the 401(k) and profit sharing plans | $ | 67 | $ | 41 | $ | 45 |
As of December 31, | ||||||||
2008 | 2007 | |||||||
Total liabilities | $ | 336 | $ | 410 | ||||
Investment held to fund liabilities | 100 | 134 |
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Employer matching contributions | $ | 7 | $ | 12 | $ | 11 | ||||||
Increase in measurement of liabilities, net of total return swap | 4 | 16 | 10 | |||||||||
Total DC SERP expenses | $ | 11 | $ | 28 | $ | 21 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Total expenses for non-employee directors | $ | — | $ | 1 | $ | 4 |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Employer matching contributions | $ | 2 | $ | 3 | $ | — | ||||||
Increase in measurement of liabilities, net of total return swap | 2 | 6 | 8 | |||||||||
Total expenses for certain agents | $ | 4 | $ | 9 | $ | 8 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Total expenses for certain Delaware Investments employees | $ | — | $ | 6 | $ | 5 |
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Stock options | $ | 11 | $ | 18 | $ | 14 | ||||||
Shares | (3 | ) | 9 | 25 | ||||||||
Cash awards | (1 | ) | 1 | 4 | ||||||||
DIUS stock options | 11 | 10 | 10 | |||||||||
SARs | 4 | 5 | (1 | ) | ||||||||
Restricted stock | 17 | 11 | 4 | |||||||||
Total | $ | 39 | $ | 54 | $ | 56 | ||||||
Recognized tax benefit | $ | 14 | $ | 19 | $ | 20 |
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For the Years Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Expense | Period | Expense | Period | Expense | Period | |||||||||||||||||||
Stock options | $ | 7 | 1.7 | $ | 11 | 1.7 | $ | 12 | 1.9 | |||||||||||||||
Shares | 3 | 1.9 | 6 | 1.7 | 11 | 1.5 | ||||||||||||||||||
DIUS stock options | — | — | 15 | 2.3 | 35 | 3.1 | ||||||||||||||||||
DIUS restricted stock | 25 | 3.3 | 24 | 4.0 | — | — | ||||||||||||||||||
SARs | 1 | 3.9 | 4 | 3.3 | 6 | 3.4 | ||||||||||||||||||
Restricted stock | 16 | 1.4 | 24 | 1.6 | 12 | 2.0 | ||||||||||||||||||
Total unrecognized stock-based incentive compensation expense | $ | 52 | $ | 84 | $ | 76 | ||||||||||||||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Dividend yield | 3.2 | % | 2.2 | % | 2.7 | % | ||||||
Expected volatility | 19.0 | % | 17.6 | % | 23.1 | % | ||||||
Risk-free interest rate | 2.0–3.2 | % | 3.9–5.1 | % | 4.3%–5.0 | % | ||||||
Expected life (in years) | 5.8 | 5.1 | 4.2 | |||||||||
Weighted-average fair value per option granted(1) | $ | 7.54 | $ | 12.28 | $ | 11.02 |
(1) | Determined using a Black-Scholes options valuation methodology. |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value | |||||||||||||
Outstanding as of December 31, 2007 | 1,185,283 | $ | 49.42 | |||||||||||||
Granted-original | 1,511,878 | 52.43 | ||||||||||||||
Exercised (includes shares tendered) | (45,919 | ) | 51.35 | |||||||||||||
Forfeited or expired | (188,262 | ) | 48.31 | |||||||||||||
Outstanding as of December 31, 2008 | 2,462,980 | $ | 51.30 | 6.68 | $ | — | ||||||||||
Vested or expected to vest as of December 31, 2008(1) | 2,341,225 | $ | 51.44 | 6.61 | $ | — | ||||||||||
Exercisable as of December 31, 2008 | 933,672 | $ | 49.00 | 4.07 | $ | — | ||||||||||
(1) | Includes estimated forfeitures. |
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Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value | |||||||||||||
Outstanding as of December 31, 2007 | 11,447,459 | $ | 48.35 | |||||||||||||
Granted-original | 1,625,824 | 52.75 | ||||||||||||||
Granted-reloads | 14,326 | 54.55 | ||||||||||||||
Exercised (includes shares tendered) | (525,182 | ) | 41.87 | |||||||||||||
Forfeited or expired | (809,485 | ) | 55.72 | |||||||||||||
Outstanding as of December 31, 2008 | 11,752,942 | $ | 48.79 | 4.95 | $ | — | ||||||||||
Vested or expected to vest as of December 31, 2008(1) | 11,657,465 | $ | 48.72 | 4.92 | $ | — | ||||||||||
Exercisable as of December 31, 2008 | 9,496,444 | $ | 46.90 | 4.11 | $ | — | ||||||||||
(1) | Includes estimated forfeitures. |
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
Nonvested as of December 31, 2007 | 511,424 | $ | 51.69 | |||||
Granted | 245,847 | 47.59 | ||||||
Vested(1) | (349,411 | ) | 43.15 | |||||
Forfeited | (69,333 | ) | 58.09 | |||||
Nonvested as of December 31, 2008 | 338,527 | 56.21 | ||||||
(1) | Shares vested as of December 31, 2007, but were not issued until the second quarter of 2008. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Dividend yield | N/A | (1) | 1.1 | % | 1.1 | % | ||||||
Expected volatility | N/A | (1) | 32.0 | % | 32.3 | % | ||||||
Risk-free interest rate | N/A | (1) | 4.5 | % | 4.5 | % | ||||||
Expected life (in years) | N/A | (1) | 4.1 | 4.1 | ||||||||
Weighted-average fair value per option granted | N/A | (1) | $ | 61.03 | $ | 60.55 |
(1) | We did not grant DIUS incentive plan stock options in 2008. |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value | |||||||||||||
Outstanding as of December 31, 2007 | 1,042,544 | $ | 158.90 | |||||||||||||
Exercised (includes shares tendered) | (273,183 | ) | 139.92 | |||||||||||||
Forfeited or expired | (31,000 | ) | 183.05 | |||||||||||||
Cancellation of all options upon modification | (738,361 | ) | 164.90 | |||||||||||||
Outstanding as of December 31, 2008 | — | $ | — | — | $ | — | ||||||||||
Vested or expected to vest as of December 31, 2008 | — | $ | — | — | $ | — | ||||||||||
Exercisable as of December 31, 2008 | — | $ | — | — | $ | — | ||||||||||
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Weighted- | ||||||||
Average | ||||||||
Grant Date | ||||||||
Fair Market | ||||||||
Units | Value | |||||||
Nonvested as of December 31, 2007 | 142,217 | $ | 195.98 | |||||
Granted — original | 2,726 | 194.38 | ||||||
Vested | (34,570) | 195.98 | ||||||
Forfeited | (3,826 | ) | 195.98 | |||||
Nonvested as of December 31, 2008 | 106,547 | $ | 195.94 | |||||
Weighted- | ||||||||
Average | ||||||||
Grant Date | ||||||||
Fair Market | ||||||||
Units | Value | |||||||
Nonvested as of December 31, 2007 | — | $ | — | |||||
Granted — original | — | — | ||||||
Vested | — | — | ||||||
Forfeited | — | — | ||||||
Granted due to modification — cancellation and replacement of all options | 129,877 | 63.23 | ||||||
Nonvested as of December 31, 2008 | 129,877 | $ | 63.23 | |||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Dividend yield | 1.2 | % | 2.3 | % | 2.8 | % | ||||||
Expected volatility | 37.0 | % | 23.2 | % | 23.0 | % | ||||||
Risk-free interest rate | 3.3 | % | 5.0 | % | 5.1%-5.4 | % | ||||||
Expected life (in years) | 5.0 | 5.0 | 5.0 | |||||||||
Weighted-average fair value per SAR granted | $ | 15.26 | $ | 16.59 | $ | 11.06 |
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Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Shares | Price | Term | Value | |||||||||||||
Outstanding as of December 31, 2007 | 620,447 | $ | 53.28 | |||||||||||||
Granted-original | 234,800 | 50.60 | ||||||||||||||
Exercised (includes shares tendered) | (68,989 | ) | 33.17 | |||||||||||||
Forfeited or expired | (40,458 | ) | 53.99 | |||||||||||||
Outstanding as of December 31, 2008 | 745,800 | $ | 54.26 | 2.68 | $ | — | ||||||||||
Vested or expected to vest at December 31, 2008(1) | 732,257 | $ | 54.25 | 2.68 | $ | — | ||||||||||
Exercisable as of December 31, 2008 | 269,845 | $ | 52.24 | 1.52 | $ | — | ||||||||||
(1) | Includes estimated forfeitures. |
Weighted- | ||||||||
Average | ||||||||
Grant-Date | ||||||||
Fair Market | ||||||||
Shares | Value | |||||||
Nonvested at December 31, 2007 | 652,840 | $ | 61.50 | |||||
Granted | — | — | ||||||
Vested | (223,968 | ) | 56.97 | |||||
Nonvested at December 31, 2008 | 428,872 | $ | 63.94 | |||||
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As of December 31, | ||||||||
2008 | 2007 | |||||||
U.S. capital and surplus | $ | 4,925 | $ | 5,284 |
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
U.S. net income (loss) | $ | (234 | ) | $ | 1,030 | $ | 382 | |||||
U.S. dividends to LNC Parent Company | 450 | 1,211 | 569 |
As of December 31, | ||||||||
2008 | 2007 | |||||||
Calculation of reserves using the Indiana universal life method | $ | 289 | $ | 246 | ||||
Calculation of reserves using continuous CARVM | (10 | ) | (10 | ) | ||||
Conservative valuation rate on certain variable annuities | (12 | ) | (14 | ) | ||||
Less conservative mortality tables on certain life insurance products | 16 | — | ||||||
Less conservative standard in determining the amount of deferred tax assets | 312 | — |
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As of December 31, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Value | Value | Value | Value | |||||||||||||
Assets | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Fixed maturities | $ | 48,935 | $ | 48,935 | $ | 56,276 | $ | 56,276 | ||||||||
Equity | 288 | 288 | 518 | 518 | ||||||||||||
Trading securities | 2,333 | 2,333 | 2,730 | 2,730 | ||||||||||||
Mortgage loans on real estate | 7,715 | 7,424 | 7,423 | 7,602 | ||||||||||||
Derivative instruments | 3,397 | 3,397 | 807 | 807 | ||||||||||||
Other investments | 1,624 | 1,624 | 1,075 | 1,075 | ||||||||||||
Cash and invested cash | 5,926 | 5,926 | 1,665 | 1,665 | ||||||||||||
Liabilities | ||||||||||||||||
Future contract benefits: | ||||||||||||||||
Remaining guaranteed interest and similar contracts | (782 | ) | (782 | ) | (619 | ) | (619 | ) | ||||||||
Embedded derivative instruments — living benefits (liabilities) contra liabilities | (2,904 | ) | (2,904 | ) | (229 | ) | (229 | ) | ||||||||
Other contract holder funds: | ||||||||||||||||
Account value of certain investment contracts | (21,974 | ) | (22,372 | ) | (22,503 | ) | (21,819 | ) | ||||||||
Reinsurance related derivative assets (liabilities) | 31 | 31 | (220 | ) | (220 | ) | ||||||||||
Short-term debt(1) | (815 | ) | (775 | ) | (550 | ) | (550 | ) | ||||||||
Long-term debt | (4,731 | ) | (2,909 | ) | (4,618 | ) | (4,511 | ) | ||||||||
Off-Balance-Sheet | ||||||||||||||||
Guarantees | — | (1 | ) | — | (2 | ) |
(1) | Difference between the carrying value and fair value of short-term debt as of December 31, 2008, relates to current maturities of long-term debt. |
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As of December 31, 2008 | ||||||||||||||||
Quoted | ||||||||||||||||
Prices | ||||||||||||||||
in Active | ||||||||||||||||
Markets for | Significant | Significant | ||||||||||||||
Identical | Observable | Unobservable | Total | |||||||||||||
Assets | Inputs | Inputs | Fair | |||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
Assets | ||||||||||||||||
Investments: | ||||||||||||||||
Available-for-sale securities: | ||||||||||||||||
Fixed maturities | $ | 274 | $ | 45,395 | $ | 3,266 | $ | 48,935 | ||||||||
Equity | 41 | 153 | 94 | 288 | ||||||||||||
Trading securities | 2 | 2,250 | 81 | 2,333 | ||||||||||||
Derivative instruments | — | 1,249 | 2,148 | 3,397 | ||||||||||||
Cash and invested cash | — | 5,926 | — | 5,926 | ||||||||||||
Separate account assets | — | 60,633 | — | 60,633 | ||||||||||||
Reinsurance related derivative assets | — | 31 | — | 31 | ||||||||||||
Total assets | $ | 317 | $ | 115,637 | $ | 5,589 | $ | 121,543 | ||||||||
Liabilities | ||||||||||||||||
Future contract benefits: | ||||||||||||||||
Remaining guaranteed interest and similar contracts | $ | — | $ | — | $ | (252 | ) | $ | (252 | ) | ||||||
Embedded derivative instruments — living benefits liabilities | — | — | (2,904 | ) | (2,904 | ) | ||||||||||
Total liabilities | $ | — | $ | — | $ | (3,156 | ) | $ | (3,156 | ) | ||||||
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For the Year Ended December 31, 2008 | ||||||||||||||||||||||||
Sales, | Transfers | |||||||||||||||||||||||
Items | Issuances, | In or | ||||||||||||||||||||||
Included | Gains | Maturities, | Out | |||||||||||||||||||||
Beginning | in | (Losses) | Settlements, | of | Ending | |||||||||||||||||||
Fair | Net | in | Calls, | Level 3, | Fair | |||||||||||||||||||
Value | Income | OCI | Net | Net(1) | Value | |||||||||||||||||||
Investments: | ||||||||||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||
Fixed maturities | $ | 4,420 | $ | (171 | ) | $ | (1,217 | ) | $ | 48 | $ | 186 | $ | 3,266 | ||||||||||
Equity | 54 | (30 | ) | (17 | ) | 87 | — | 94 | ||||||||||||||||
Trading securities | 112 | (29 | ) | — | (14 | ) | 12 | 81 | ||||||||||||||||
Derivative instruments | 767 | 1,204 | 30 | 147 | — | 2,148 | ||||||||||||||||||
Future contract benefits: | ||||||||||||||||||||||||
Remaining guaranteed interest and similar contracts | (389 | ) | 37 | — | 100 | — | (252 | ) | ||||||||||||||||
Embedded derivative instruments — living benefits liabilities | (279 | ) | (2,476 | ) | — | (149 | ) | — | (2,904 | ) | ||||||||||||||
Total, net | $ | 4,685 | $ | (1,465 | ) | $ | (1,204 | ) | $ | 219 | $ | 198 | $ | 2,433 | ||||||||||
(1) | Transfers in or out of Level 3 for available-for-sale and trading securities are displayed at amortized cost at the beginning of the period. For available-for-sale and trading securities, the difference between beginning of period amortized cost and beginning of period fair value was included in OCI and earnings, respectively, in prior periods. |
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For the Year Ended December 31, 2008 | ||||||||||||||||||||
Gains | ||||||||||||||||||||
(Losses) | ||||||||||||||||||||
from | ||||||||||||||||||||
Other- | Sales, | Unrealized | ||||||||||||||||||
(Amortization) | Than- | Maturities, | Holding | |||||||||||||||||
Accretion, | Temporary | Settlements, | Gains | |||||||||||||||||
Net | Impairment | Calls | (Losses)(3) | Total | ||||||||||||||||
Investments: | ||||||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||
Fixed maturities(1) | $ | 2 | $ | (170 | ) | $ | (3 | ) | $ | — | $ | (171 | ) | |||||||
Equity | — | (31 | ) | 1 | — | (30 | ) | |||||||||||||
Trading securities(1) | 2 | (7 | ) | — | (24 | ) | (29 | ) | ||||||||||||
Derivative instruments(2) | — | — | 90 | 1,114 | 1,204 | |||||||||||||||
Future contract benefits: | ||||||||||||||||||||
Remaining guaranteed interest and similar contracts (2) | — | — | 14 | 23 | 37 | |||||||||||||||
Embedded derivative instruments — living benefits liabilities(2) | — | — | 8 | (2,484 | ) | (2,476 | ) | |||||||||||||
Total, net | $ | 4 | $ | (208 | ) | $ | 110 | $ | (1,371 | ) | $ | (1,465 | ) | |||||||
(1) | Amortization and accretion, net and unrealized holding losses are included in net investment income on our Consolidated Statements of Income. All other amounts are included in realized gain (loss) on our Consolidated Statements of Income. | |
(2) | All amounts are included in realized gain (loss) on our Consolidated Statements of Income. | |
(3) | This change in unrealized gains or losses relates to assets and liabilities that we still held as of December 31, 2008. |
As of December 31, 2008 | ||||||||
Fair | % of Total | |||||||
Value | Fair Value | |||||||
Corporate bonds | $ | 2,116 | 64.8 | % | ||||
Asset-backed securities | 264 | 8.1 | % | |||||
Commercial mortgage-backed securities | 244 | 7.5 | % | |||||
Collateralized mortgage obligations | 158 | 4.8 | % | |||||
Mortgage pass-through securities | 20 | 0.5 | % | |||||
Municipals | 113 | 3.5 | % | |||||
Government and government agencies | 254 | 7.8 | % | |||||
Redeemable preferred stock | 97 | 3.0 | % | |||||
Total available-for-sale fixed maturity securities | $ | 3,266 | 100.0 | % | ||||
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As of December 31, 2007 | ||||||||
Fair | % of Total | |||||||
Value | Fair Value | |||||||
Corporate bonds | $ | 2,143 | 48.5 | % | ||||
Asset-backed securities | 1,113 | 25.2 | % | |||||
Commercial mortgage-backed securities | 395 | 8.9 | % | |||||
Collateralized mortgage obligations | 296 | 6.7 | % | |||||
Mortgage pass-through securities | 31 | 0.7 | % | |||||
Municipals | 139 | 3.1 | % | |||||
Government and government agencies | 272 | 6.2 | % | |||||
Redeemable preferred stock | 31 | 0.7 | % | |||||
Total available-for-sale fixed maturity securities | $ | 4,420 | 100.0 | % | ||||
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• | Realized gains and losses associated with the following (“excluded realized gain (loss)”): |
• | Sale or disposal of securities; | ||
• | Impairments of securities; | ||
• | Change in the fair value of embedded derivatives within certain reinsurance arrangements and the change in the fair value of related trading securities; | ||
• | Change in the fair value of the embedded derivatives of our GLBs within our variable annuities net of the change in the fair value of the derivatives we own to hedge the changes in the embedded derivative; | ||
• | Net difference between the benefit ratio unlocking of SOP 03-1 reserves on our GDB riders within our variable annuities and the change in the fair value of the derivatives excluding our expected cost of purchasing the hedging instruments; and | ||
• | Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products as required under SFAS 133 and 157. |
• | Income (loss) from the initial adoption of changes in accounting principles; | |
• | Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance; | |
• | Losses on early retirement of debt, including subordinated debt; | |
• | Losses from the impairment of intangible assets; and | |
• | Income (loss) from discontinued operations. |
• | Excluded realized gain (loss); | |
• | Amortization of deferred gains arising from the reserve changes on business sold through reinsurance; and | |
• | Revenue adjustments from the initial impact of the adoption of changes in accounting principles. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Operating revenues: | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | 2,610 | $ | 2,533 | $ | 2,060 | ||||||
Defined Contribution | 936 | 986 | 988 | |||||||||
Total Retirement Solutions | 3,546 | 3,519 | 3,048 | |||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 4,250 | 4,189 | 3,470 | |||||||||
Group Protection | 1,640 | 1,500 | 1,032 | |||||||||
Total Insurance Solutions | 5,890 | 5,689 | 4,502 | |||||||||
Investment Management(1) | 438 | 590 | 564 | |||||||||
Lincoln UK(2) | 327 | 370 | 308 | |||||||||
Other Operations | 439 | 473 | 444 | |||||||||
Excluded realized gain (loss), pre-tax | (760 | ) | (175 | ) | 12 | |||||||
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax | 3 | 9 | 1 | |||||||||
Total revenues | $ | 9,883 | $ | 10,475 | $ | 8,879 | ||||||
(1) | Revenues for the Investment Management segment included inter-segment revenues for asset management services provided to our other segments. These inter-segment revenues totaled $82 million, $87 million and $97 million for the years ended December 31, 2008, 2007 and 2006, respectively. | |
(2) | Revenues from our Lincoln UK segment are from a foreign country. |
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net Income | ||||||||||||
Income (loss) from operations: | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | 193 | $ | 485 | $ | 399 | ||||||
Defined Contribution | 123 | 181 | 204 | |||||||||
Total Retirement Solutions | 316 | 666 | 603 | |||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 541 | 719 | 531 | |||||||||
Group Protection | 104 | 114 | 99 | |||||||||
Total Insurance Solutions | 645 | 833 | 630 | |||||||||
Investment Management | 28 | 76 | 55 | |||||||||
Lincoln UK | 50 | 46 | 39 | |||||||||
Other Operations | (180 | ) | (173 | ) | (38 | ) | ||||||
Excluded realized gain (loss), after-tax | (494 | ) | (120 | ) | 9 | |||||||
Early extinguishment of debt | — | — | (4 | ) | ||||||||
Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 2 | (7 | ) | 1 | ||||||||
Impairment of intangibles, after-tax | (305 | ) | — | — | ||||||||
Income from continuing operations, after-tax | 62 | 1,321 | 1,295 | |||||||||
Income (loss) from discontinued operations, after-tax | (5 | ) | (106 | ) | 21 | |||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net Investment Income | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | 972 | $ | 1,032 | $ | 976 | ||||||
Defined Contribution | 695 | 709 | 738 | |||||||||
Total Retirement Solutions | 1,667 | 1,741 | 1,714 | |||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 1,988 | 2,069 | 1,685 | |||||||||
Group Protection | 117 | 115 | 80 | |||||||||
Total Insurance Solutions | 2,105 | 2,184 | 1,765 | |||||||||
Lincoln UK | 78 | 81 | 71 | |||||||||
Other Operations | 358 | 372 | 373 | |||||||||
Total net investment income | $ | 4,208 | $ | 4,378 | $ | 3,923 | ||||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Amortization of DAC and VOBA, Net of Interest | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | 675 | $ | 373 | $ | 302 | ||||||
Defined Contribution | 129 | 94 | 74 | |||||||||
Total Retirement Solutions | 804 | 467 | 376 | |||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 551 | 514 | 447 | |||||||||
Group Protection | 36 | 31 | 16 | |||||||||
Total Insurance Solutions | 587 | 545 | 463 | |||||||||
Lincoln UK | 46 | 53 | 38 | |||||||||
Total amortization of DAC and VOBA, net of interest | $ | 1,437 | $ | 1,065 | $ | 877 | ||||||
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Federal Income Tax Expense (Benefit) | ||||||||||||
Retirement Solutions: | ||||||||||||
Annuities | $ | (55 | ) | $ | 159 | $ | 90 | |||||
Defined Contribution | 29 | 72 | 76 | |||||||||
Total Retirement Solutions | (26 | ) | 231 | 166 | ||||||||
Insurance Solutions: | ||||||||||||
Life Insurance | 267 | 366 | 266 | |||||||||
Group Protection | 56 | 61 | 53 | |||||||||
Total Insurance Solutions | 323 | 427 | 319 | |||||||||
Investment Management | 17 | 43 | 29 | |||||||||
Lincoln UK | 27 | 24 | 21 | |||||||||
Other Operations | (89 | ) | (114 | ) | (54 | ) | ||||||
Excluded realized gain (loss) | (266 | ) | (54 | ) | 4 | |||||||
Loss on early retirement of debt | — | — | (2 | ) | ||||||||
Amortization of deferred gain on reinsurance related to reserve changes | 1 | (4 | ) | — | ||||||||
Impairment of intangibles | (74 | ) | — | — | ||||||||
Total federal income tax expense (benefit) | $ | (87 | ) | $ | 553 | $ | 483 | |||||
As of December 31, | ||||||||
2008 | 2007 | |||||||
Assets | ||||||||
Retirement Solutions: | ||||||||
Annuities | $ | 69,280 | $ | 81,424 | ||||
Defined Contribution | 22,906 | 30,180 | ||||||
Total Retirement Solutions | 92,186 | 111,604 | ||||||
Insurance Solutions: | ||||||||
Life Insurance | 48,778 | 50,476 | ||||||
Group Protection | 2,482 | 2,430 | ||||||
Total Insurance Solutions | 51,260 | 52,906 | ||||||
Investment Management | 531 | 629 | ||||||
Lincoln UK | 6,555 | 11,167 | ||||||
Other Operations | 12,604 | 15,129 | ||||||
Total | $ | 163,136 | $ | 191,435 | ||||
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For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Interest paid | $ | 282 | $ | 268 | $ | 195 | ||||||
Income taxes paid | 418 | 177 | 320 | |||||||||
Significant non-cash investing and financing transactions: | ||||||||||||
Business combinations: | ||||||||||||
Fair value of assets acquired (includes cash and invested cash) | $ | — | $ | 86 | $ | 39,197 | ||||||
Fair value of common stock issued and stock options recognized | — | (20 | ) | (5,632 | ) | |||||||
Cash paid for common shares | — | (1 | ) | (1,865 | ) | |||||||
Liabilities assumed | $ | — | $ | 65 | $ | 31,700 | ||||||
Business Dispositions: | ||||||||||||
Assets disposed (includes cash and invested cash) | $ | (732 | ) | $ | (45 | ) | $ | — | ||||
Liabilities disposed | 127 | 6 | — | |||||||||
Cash received | 647 | 42 | — | |||||||||
Realized gain on disposal | 42 | 3 | — | |||||||||
Estimated gain on net assets held-for-sale in 2007 | (54 | ) | 54 | — | ||||||||
Gain (loss) on dispositions | $ | (12 | ) | $ | 57 | $ | — | |||||
Sale of subsidiaries/businesses: | ||||||||||||
Proceeds from sale of subsidiaries/businesses | $ | 10 | $ | 25 | $ | — | ||||||
Assets disposed (includes cash and invested cash) | (1 | ) | (19 | ) | — | |||||||
Gain on sale of subsidiaries/businesses | $ | 9 | $ | 6 | $ | — | ||||||
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For the Three Months Ended | ||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2008 | ||||||||||||||||
Total revenues(1) | $ | 2,592 | $ | 2,582 | $ | 2,436 | $ | 2,273 | ||||||||
Total benefits and expenses(1) | 2,174 | 2,382 | 2,284 | 3,068 | ||||||||||||
Income (loss) from continuing operations | 293 | 125 | 149 | (505 | ) | |||||||||||
Loss from discontinued operations, net of federal income taxes | (4 | ) | — | (1 | ) | — | ||||||||||
Net income (loss) | 289 | 125 | 148 | (505 | ) | |||||||||||
Earnings (loss)per common share — basic: | ||||||||||||||||
Income (loss) from continuing operations | 1.13 | 0.48 | 0.58 | (1.98 | ) | |||||||||||
Loss from discontinued operations | (0.02 | ) | — | — | — | |||||||||||
Net income (loss) | 1.11 | 0.48 | 0.58 | (1.98 | ) | |||||||||||
Earnings (loss)per common share — diluted:(2) | ||||||||||||||||
Income (loss) from continuing operations | 1.12 | 0.48 | 0.58 | (1.98 | ) | |||||||||||
Loss from discontinued operations | (0.02 | ) | — | — | — | |||||||||||
Net income (loss) | 1.10 | 0.48 | 0.58 | (1.98 | ) | |||||||||||
2007 | ||||||||||||||||
Total revenues(1) | $ | 2,621 | $ | 2,671 | $ | 2,600 | $ | 2,583 | ||||||||
Total benefits and expenses(1) | 2,063 | 2,145 | 2,153 | 2,240 | ||||||||||||
Income from continuing operations | 388 | 370 | 323 | 240 | ||||||||||||
Income (loss) from discontinued operations, net of federal income taxes | 8 | 6 | 7 | (127 | ) | |||||||||||
Net income | 396 | 376 | 330 | 113 | ||||||||||||
Earnings (loss) per common share — basic: | ||||||||||||||||
Income from continuing operations | 1.41 | 1.37 | 1.20 | 0.91 | ||||||||||||
Income (loss) from discontinued operations | 0.03 | 0.02 | 0.02 | (0.46 | ) | |||||||||||
Net income | 1.44 | 1.39 | 1.22 | 0.45 | ||||||||||||
Earnings (loss) per common share — diluted: | ||||||||||||||||
Income from continuing operations | 1.39 | 1.35 | 1.18 | 0.90 | ||||||||||||
Income (loss) from discontinued operations | 0.03 | 0.02 | 0.03 | (0.47 | ) | |||||||||||
Net income | 1.42 | 1.37 | 1.21 | 0.43 |
(1) | See Note 1 for a description of the reclassification of certain derivatives and embedded derivatives, which resulted in increases (decreases) to total revenues and total benefits and expenses of $68 million, $(24) million, $(47) million, $(41) million and $(7) million, for the three months ended March 31,2008, December 31, 2007, September 30, 2007, June 30, 2007 and March 31, 2007, respectively. | |
(2) | As a result of the net loss in the fourth quarter of 2008, shares used in the earnings (loss) per share calculation represent basic shares because using diluted shares would have been anti-dilutive to the calculation. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Management Report on Internal Control Over Financial Reporting |
Reports of Independent Registered Public Accounting Firm |
Consolidated Balance Sheets — December 31, 2008 and 2007 |
Consolidated Statements of Income — Years ended December 31, 2008, 2007 and 2006 |
Consolidated Statements of Stockholders’ Equity — Years ended December 31, 2008, 2007 and 2006 |
Consolidated Statements of Cash Flows — Years ended December 31, 2008, 2007 and 2006 |
Notes to Consolidated Financial Statements |
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LINCOLN NATIONAL CORPORATION | ||||
Date: February 27, 2009 | By: | /s/ Frederick J. Crawford | ||
Frederick J. Crawford | ||||
Executive Vice President and Chief Financial Officer |
Signature | Title | |
/s/ Dennis R. Glass | President, Chief Executive Officer and Director (Principal Executive Officer) | |
/s/ Frederick J. Crawford | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
/s/ Douglas N. Miller | Vice President and Chief Accounting Officer (Principal Accounting Officer) | |
/s/ William J. Avery | Director | |
/s/ J. Patrick Barrett | Director | |
/s/ William H. Cunningham | Director | |
/s/ George W. Henderson, III | Director | |
/s/ Eric G. Johnson | Director | |
/s/ M. Leanne Lachman | Director | |
/s/ Michael F. Mee | Director |
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Signature | Title | |
/s/ William Porter Payne | Director | |
/s/ Patrick S. Pittard | Director | |
/s/ David A. Stonecipher | Director | |
/s/ Isaiah Tidwell | Director |
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FS-2 | ||||
FS-3 | ||||
FS-6 | ||||
FS-8 | ||||
FS-9 |
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RELATED PARTIES (in millions)
Column A | Column B | Column C | Column D | |||||||||
As of December 31, 2008 | ||||||||||||
Fair | Carrying | |||||||||||
Type of Investment | Cost | Value | Value | |||||||||
Available-For-Sale Fixed Maturity Securities(1) | ||||||||||||
Bonds: | ||||||||||||
U.S. government and government agencies and authorities | $ | 204 | $ | 246 | $ | 246 | ||||||
States, municipalities and political subdivisions | 125 | 125 | 125 | |||||||||
Asset and mortgage-backed securities | 11,328 | 10,130 | 10,130 | |||||||||
Foreign governments | 755 | 760 | 760 | |||||||||
Public utilities | 5,809 | 5,457 | 5,457 | |||||||||
Convertibles and bonds with warrants attached | 8 | 8 | 8 | |||||||||
All other corporate bonds | 35,402 | 31,247 | 31,247 | |||||||||
Hybrid and redeemable preferred stocks | 1,563 | 962 | 962 | |||||||||
Total available-for-sale fixed maturity securities | 55,194 | 48,935 | 48,935 | |||||||||
Available-For-Sale Equity Securities(1) | ||||||||||||
Common stocks: | ||||||||||||
Banks, trusts and insurance companies | 298 | 164 | 164 | |||||||||
Industrial, miscellaneous and all other | 85 | 70 | 70 | |||||||||
Nonredeemable preferred stocks | 83 | 54 | 54 | |||||||||
Total available-for-sale equity securities | 466 | 288 | 288 | |||||||||
Trading securities | 2,307 | 2,333 | 2,333 | |||||||||
Derivative instruments | 931 | 3,397 | 3,397 | |||||||||
Mortgage loans on real estate | 7,715 | 7,424 | 7,715 | |||||||||
Real estate | 125 | N/A | 125 | |||||||||
Policy loans | 2,924 | N/A | 2,924 | |||||||||
Other investments | 1,624 | 1,624 | 1,624 | |||||||||
Total investments | $ | 71,286 | $ | 67,341 | ||||||||
(1) | Investments deemed to have declines in value that are other-than-temporary are written down or reserved for to reduce the carrying value to their estimated realizable value. |
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Table of Contents
BALANCE SHEETS
(Parent Company Only) (in millions, except share data)
As of December 31, | ||||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Investments in subsidiaries(1) | $ | 11,652 | $ | 15,231 | ||||
Derivative instruments | 407 | 68 | ||||||
Other investments | 187 | 442 | ||||||
Cash and invested cash | 117 | 271 | ||||||
Loans to subsidiaries(1) | 1,785 | 1,640 | ||||||
Other assets | 147 | 281 | ||||||
Total assets | $ | 14,295 | $ | 17,933 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
Dividends payable | $ | 54 | $ | 109 | ||||
Short-term debt | 815 | 550 | ||||||
Long-term debt | 4,481 | 4,772 | ||||||
Loans from subsidiaries(1) | 388 | 327 | ||||||
Other liabilities | 580 | 457 | ||||||
Total liabilities | 6,318 | 6,215 | ||||||
Contingencies and Commitments | ||||||||
Stockholders’ Equity | ||||||||
Series A preferred stock - 10,000,000 shares authorized | — | — | ||||||
Common stock — 800,000,000 shares authorized | 7,035 | 7,200 | ||||||
Retained earnings | 3,745 | 4,293 | ||||||
Total accumulated other comprehensive income (loss) | (2,803 | ) | 225 | |||||
Total stockholders’ equity | 7,977 | 11,718 | ||||||
Total liabilities and stockholders’ equity | $ | 14,295 | $ | 17,933 | ||||
(1) | Eliminated in consolidation. |
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Table of Contents
SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENTS OF INCOME
(Parent Company Only) (in millions)
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues | ||||||||||||
Dividends from subsidiaries(1) | $ | 1,239 | $ | 1,613 | $ | 907 | ||||||
Interest from subsidiaries(1) | 99 | 102 | 87 | |||||||||
Net investment income | 17 | 21 | 19 | |||||||||
Realized gain (loss) on investments | (156 | ) | (49 | ) | 1 | |||||||
Other | 22 | 14 | (1 | ) | ||||||||
Total revenues | 1,221 | 1,701 | 1,013 | |||||||||
Expenses | ||||||||||||
Operating and administrative | 52 | 64 | 67 | |||||||||
Interest — subsidiaries(1) | 25 | 93 | 22 | |||||||||
Interest — other | 280 | 281 | 190 | |||||||||
Total expenses | 357 | 438 | 279 | |||||||||
Income before federal income tax benefit, equity in income of subsidiaries, less dividends | 864 | 1,263 | 734 | |||||||||
Federal income tax benefit | (136 | ) | (126 | ) | (91 | ) | ||||||
Income before equity in income of subsidiaries, less dividends | 1,000 | 1,389 | 825 | |||||||||
Equity in income of subsidiaries, less dividends | (943 | ) | (174 | ) | 491 | |||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | ||||||
(1) | Eliminated in consolidation. |
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Table of Contents
SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)
STATEMENTS OF CASH FLOWS
(Parent Company Only) (in millions)
For the Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash Flows from Operating Activities | ||||||||||||
Net income | $ | 57 | $ | 1,215 | $ | 1,316 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Equity in income of subsidiaries greater than distributions(1) | 943 | (318 | ) | (491 | ) | |||||||
Realized (gain) loss on investments | 156 | 49 | (1 | ) | ||||||||
Change in fair value of equity collar | 109 | — | — | |||||||||
Change in federal income tax accruals | (240 | ) | (12 | ) | 67 | |||||||
Other | (34 | ) | 26 | 7 | ||||||||
Net cash provided by operating activities | 991 | 960 | 898 | |||||||||
Cash Flows from Investing Activities | ||||||||||||
Net sales (purchases) of investments | — | (1 | ) | 25 | ||||||||
Purchases of derivatives | — | (26 | ) | — | ||||||||
Proceeds received on stock monetization | — | 170 | — | |||||||||
Purchase of Jefferson-Pilot stock | — | — | (1,865 | ) | ||||||||
Increase in investment in subsidiaries (1) | — | (325 | ) | (68 | ) | |||||||
Cash acquired through affiliated mergers | — | 16 | — | |||||||||
Net cash used in investing activities | — | (166 | ) | (1,908 | ) | |||||||
Cash Flows from Financing Activities | ||||||||||||
Payment of long-term debt, including current maturities | (300 | ) | (350 | ) | (178 | ) | ||||||
Issuance of long-term debt | 200 | 1,443 | 2,045 | |||||||||
Issuance (decrease) in commercial paper | 50 | 265 | (120 | ) | ||||||||
Net increase (decrease) in loans from subsidiaries(1) | 61 | (378 | ) | 433 | ||||||||
Net increase in loans to subsidiaries(1) | (299 | ) | (308 | ) | (47 | ) | ||||||
Common stock issued for benefit plans | 49 | 91 | 167 | |||||||||
Retirement of common stock | (476 | ) | (989 | ) | (1,002 | ) | ||||||
Dividends paid to stockholders | (430 | ) | (429 | ) | (385 | ) | ||||||
Net cash provided by (used in) financing activities | (1,145 | ) | (655 | ) | 913 | |||||||
Net increase (decrease) in cash and invested cash | (154 | ) | 139 | (97 | ) | |||||||
Cash and invested cash at beginning-of-year | 271 | 132 | 229 | |||||||||
Cash and invested cash at end-of-year | $ | 117 | $ | 271 | $ | 132 | ||||||
(1) | Eliminated in consolidation. |
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Table of Contents
(in millions)
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Future | Other Contract | |||||||||||||||||||
DAC and | Contract | Unearned | Holder | Insurance | ||||||||||||||||
Segment | VOBA | Benefits | Premiums(1) | Funds | Premiums | |||||||||||||||
As of or for the Year Ended December 31, 2008 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 2,977 | $ | 3,958 | $ | — | $ | 17,220 | $ | 136 | ||||||||||
Defined Contribution | 883 | 25 | — | 11,628 | — | |||||||||||||||
Total Retirement Solutions | 3,860 | 3,983 | — | 28,848 | 136 | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 7,383 | 6,380 | — | 29,998 | 360 | |||||||||||||||
Group Protection | 146 | 1,378 | — | 149 | 1,518 | |||||||||||||||
Total Insurance Solutions | 7,529 | 7,758 | — | 30,147 | 1,878 | |||||||||||||||
Investment Management | — | — | — | — | — | |||||||||||||||
Lincoln UK | 534 | 828 | — | 277 | 78 | |||||||||||||||
Other Operations | 13 | 6,691 | — | 1,575 | 4 | |||||||||||||||
Total | $ | 11,936 | $ | 19,260 | $ | — | $ | 60,847 | $ | 2,096 | ||||||||||
As of or for the Year Ended December 31, 2007 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 2,477 | $ | 817 | $ | — | $ | 17,750 | $ | 118 | ||||||||||
Defined Contribution | 514 | — | — | 10,892 | — | |||||||||||||||
Total Retirement Solutions | 2,991 | 817 | — | 28,642 | 118 | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 5,692 | 6,255 | — | 28,427 | 351 | |||||||||||||||
Group Protection | 123 | 1,273 | — | 17 | 1,380 | |||||||||||||||
Total Insurance Solutions | 5,815 | 7,528 | — | 28,444 | 1,731 | |||||||||||||||
Investment Management | — | — | — | — | — | |||||||||||||||
Lincoln UK | 772 | 1,147 | — | 403 | 95 | |||||||||||||||
Other Operations | 2 | 6,515 | — | 2,151 | 3 | |||||||||||||||
Total | $ | 9,580 | $ | 16,007 | $ | — | $ | 59,640 | $ | 1,947 | ||||||||||
As of or for the Year Ended December 31, 2006 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 2,050 | $ | 438 | $ | — | $ | 18,230 | $ | 47 | ||||||||||
Defined Contribution | 498 | — | — | 10,983 | — | |||||||||||||||
Total Retirement Solutions | 2,548 | 438 | — | 29,213 | 47 | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 4,924 | 5,657 | — | 27,231 | 322 | |||||||||||||||
Group Protection | 138 | 1,183 | — | 17 | 949 | |||||||||||||||
Total Insurance Solution | 5,062 | 6,840 | — | 27,248 | 1,271 | |||||||||||||||
Investment Management | — | — | — | — | — | |||||||||||||||
Lincoln UK | 809 | 1,119 | — | 436 | 79 | |||||||||||||||
Other Operations | 1 | 6,374 | — | 2,248 | 9 | |||||||||||||||
Total | $ | 8,420 | $ | 14,771 | $ | — | $ | 59,145 | $ | 1,406 | ||||||||||
(1) | Unearned premiums are included in Column E, other contract holder funds. |
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Table of Contents
SCHEDULE III—CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION (Continued)
(in millions)
Column A | Column G | Column H | Column I | Column J | Column K | |||||||||||||||
Benefits | Amortization | |||||||||||||||||||
Net | and | of DAC | Other | |||||||||||||||||
Investment | Interest | and | Operating | Premiums | ||||||||||||||||
Segment | Income | Credited | VOBA | Expenses(2) | Written | |||||||||||||||
For the Year Ended December 31, 2008 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 972 | $ | 1,150 | $ | 675 | $ | 647 | $ | — | ||||||||||
Defined Contribution | 695 | 443 | 129 | 212 | — | |||||||||||||||
Total Retirement Solutions | 1,667 | 1,593 | 804 | 859 | — | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 1,988 | 2,565 | 551 | 326 | — | |||||||||||||||
Group Protection | 117 | 1,108 | 36 | 335 | — | |||||||||||||||
Total Insurance Solutions | 2,105 | 3,673 | 587 | 661 | — | |||||||||||||||
Investment Management | — | — | — | 393 | — | |||||||||||||||
Lincoln UK | 78 | 107 | 46 | 97 | — | |||||||||||||||
Other Operations | 358 | 285 | — | 410 | — | |||||||||||||||
Total | $ | 4,208 | $ | 5,658 | $ | 1,437 | $ | 2,420 | $ | — | ||||||||||
For the Year Ended December 31, 2007 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 1,032 | $ | 830 | $ | 373 | $ | 686 | $ | — | ||||||||||
Defined Contribution | 709 | 418 | 94 | 221 | — | |||||||||||||||
Total Retirement Solutions | 1,741 | 1,248 | 467 | 907 | — | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 2,069 | 2,262 | 514 | 328 | — | |||||||||||||||
Group Protection | 115 | 999 | 31 | 295 | — | |||||||||||||||
Total Insurance Solutions | 2,184 | 3,261 | 545 | 623 | — | |||||||||||||||
Investment Management | — | — | — | 471 | — | |||||||||||||||
Lincoln UK | 81 | 138 | 53 | 109 | — | |||||||||||||||
Other Operations | 372 | 350 | — | 429 | — | |||||||||||||||
Total | $ | 4,378 | $ | 4,997 | $ | 1,065 | $ | 2,539 | $ | — | ||||||||||
For the Year Ended December 31, 2006 | ||||||||||||||||||||
Retirement Solutions: | ||||||||||||||||||||
Annuities | $ | 976 | $ | 717 | $ | 302 | $ | 552 | $ | — | ||||||||||
Defined Contributions | 738 | 411 | 74 | 223 | — | |||||||||||||||
Total Retirement Solutions | 1,714 | 1,128 | 376 | 775 | — | |||||||||||||||
Insurance Solutions: | ||||||||||||||||||||
Life Insurance | 1,685 | 1,908 | 447 | 318 | — | |||||||||||||||
Group Protection | 80 | 663 | 16 | 200 | — | |||||||||||||||
Total Insurance Solutions | 1,765 | 2,571 | 463 | 518 | — | |||||||||||||||
Investment Management | — | — | — | 479 | — | |||||||||||||||
Lincoln UK | 71 | 108 | 38 | 102 | — | |||||||||||||||
Other Operations | 373 | 290 | — | 253 | — | |||||||||||||||
Total | $ | 3,923 | $ | 4,097 | $ | 877 | $ | 2,127 | $ | — | ||||||||||
(2) | Excludes impairment of intangibles of $393 million for the year ended December 31, 2008. The allocation of expenses between investments and other operations is based on a number of assumptions and estimates. Results would change if different methods were applied. |
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(in millions)
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Assumed | Percentage | |||||||||||||||||||
Ceded | from | of Amount | ||||||||||||||||||
Gross | to Other | Other | Net | Assumed | ||||||||||||||||
Description | Amount | Companies | Companies | Amount | to Net | |||||||||||||||
As of or for the Year Ended December 31, 2008 | ||||||||||||||||||||
Individual life insurance in force | $ | 777,700 | $ | 346,900 | $ | 3,700 | $ | 434,500 | 0.9 | % | ||||||||||
Premiums: | ||||||||||||||||||||
Life insurance and annuities(1) | 5,255 | 1,002 | 18 | 4,271 | 0.4 | % | ||||||||||||||
Health insurance | 1,076 | 22 | — | 1,054 | — | |||||||||||||||
Total | $ | 6,331 | $ | 1,024 | $ | 18 | $ | 5,325 | ||||||||||||
As of or for the Year Ended December 31, 2007 | ||||||||||||||||||||
Individual life insurance in force | $ | 744,500 | $ | 350,500 | $ | 3,700 | $ | 397,700 | 0.9 | % | ||||||||||
Premiums: | ||||||||||||||||||||
Life insurance and annuities(1) | 5,109 | 925 | 12 | 4,196 | 0.3 | % | ||||||||||||||
Health insurance | 968 | 27 | — | 941 | — | |||||||||||||||
Total | $ | 6,077 | $ | 952 | $ | 12 | $ | 5,137 | ||||||||||||
As of or for the Year Ended December 31, 2006 | ||||||||||||||||||||
Individual life insurance in force | $ | 697,900 | $ | 333,800 | $ | 4,700 | $ | 368,800 | 1.3 | % | ||||||||||
Premiums: | ||||||||||||||||||||
Life insurance and annuities(1) | 4,116 | 810 | 8 | 3,314 | 0.2 | % | ||||||||||||||
Health insurance | 677 | 21 | — | 656 | — | |||||||||||||||
Total | $ | 4,793 | $ | 831 | $ | 8 | $ | 3,970 | ||||||||||||
(1) | Includes insurance fees on universal life and other interest-sensitive products. |
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(in millions)
Column C | ||||||||||||||||||||
Column A | Column B | Additions | Column D | Column E | ||||||||||||||||
Charged | ||||||||||||||||||||
Balance at | Charged to | to Other | Balance | |||||||||||||||||
Beginning- | Costs | Accounts - | Deductions - | at End | ||||||||||||||||
Description | of-Year | Expenses(1) | Describe | Describe(2) | of-Year | |||||||||||||||
As of December 31, 2008 | ||||||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||||||
Reserve for mortgage loans on real estate | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Included in other liabilities: | ||||||||||||||||||||
Investment guarantees | — | — | — | — | — | |||||||||||||||
As of December 31, 2007 | ||||||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||||||
Reserve for mortgage loans on real estate | $ | 2 | $ | — | $ | — | $ | (2 | ) | $ | — | |||||||||
Included in other liabilities: | ||||||||||||||||||||
Investment guarantees | — | — | — | — | — | |||||||||||||||
As of December 31, 2006 | ||||||||||||||||||||
Deducted from asset accounts: | ||||||||||||||||||||
Reserve for mortgage loans on real estate | $ | 9 | $ | 2 | $ | — | $ | (9 | ) | $ | 2 | |||||||||
Included in other liabilities: | ||||||||||||||||||||
Investment guarantees | — | — | — | — | — |
(1) | Excludes charges for the direct write-off assets. | |
(2) | Deductions reflect sales, foreclosures of the underlying holdings or change in reserves. |
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2.1 | Agreement and Plan of Merger dated as of October 9, 2005, among LNC, Quartz Corporation and Jefferson-Pilot Corporation is incorporated by reference to Exhibit 2.1 to LNC’s Current Report on Form 8-K (File No. 1-6028) filed with the SEC on October 11, 2005. | |
2.2 | Amendment No. 1 to the Agreement and Plan of Merger dated as of January 26, 2006 among LNC, Lincoln JP Holdings, L.P., Quartz Corporation and Jefferson-Pilot Corporation is incorporated by reference to Exhibit 2.1 to LNC’s Current Report on Form 8-K (File No. 1-6028) filed with the SEC on January 31, 2006. | |
2.3 | Stock Purchase Agreement between Lincoln Financial Media Company and Raycom Holdings, LLC is incorporated by reference to Exhibit 2.3 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.*** | |
3.1 | LNC Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 10, 2007. | |
3.2 | Amended and Restated Bylaws of LNC (effective November 6, 2008) are incorporated by reference to Exhibit 3.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2008. | |
4.1 | Indenture of LNC, dated as of January 15, 1987, between LNC and Morgan Guaranty Trust Company of New York is incorporated by reference to Exhibit 4(a) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1994. | |
4.2 | First Supplemental Indenture, dated as of July 1, 1992, to Indenture dated as of January 15, 1987 is incorporated by reference to Exhibit 4(b) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001. | |
4.3 | Indenture of LNC, dated as of September 15, 1994, between LNC and The Bank of New York, as trustee, is incorporated by reference to Exhibit 4(c) to LNC’s Registration Statement on Form S-3/A (File No. 33-55379) filed with the SEC on September 15, 1994. | |
4.4 | First Supplemental Indenture, dated as of November 1, 2006, to Indenture dated as of September 15, 1994 is incorporated by reference to Exhibit 4.4 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2006. | |
4.5 | Junior Subordinated Indenture, dated as of May 1, 1996, between LNC and The Bank of New York Trust Company, N.A. (successor in interest to J.P. Morgan Trust Company and The First National Bank of Chicago) is incorporated by reference to Exhibit 4(j) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001. | |
4.6 | First Supplemental Indenture, dated as of August 14, 1998, to Junior Subordinated Indenture dated as of May 1, 1996 is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on August 27, 1998. | |
4.7 | Second Supplemental Junior Subordinated Indenture, dated April 20, 2006, to Junior Subordinated Indenture, dated as of May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 20, 2006. | |
4.8 | Third Supplemental Junior Subordinated Indenture dated May 17, 2006, to Junior Subordinated Indenture, dated as of May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 17, 2006. | |
4.9 | Fourth Supplemental Junior Subordinated Indenture, dated as of November 1, 2006, to Junior Subordinated Indenture, dated May 1, 1996, is incorporated by reference to Exhibit 4.9 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2006. | |
4.10 | Fifth Supplemental Junior Subordinated Indenture, dated as of March 13, 2007, to Junior Subordinated Indenture, dated May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007. | |
4.11 | Indenture, dated as of November 21, 1995, between Jefferson-Pilot Corporation and U.S. National Bank Association (as successor in interest to Wachovia Bank, National Association), is incorporated by reference to Exhibit 4.7 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006. | |
4.12 | Third Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.8 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006. |
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4.13 | Fourth Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.9 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006. | |
4.14 | Fifth Supplemental Indenture, dated as of April 3, 2006, to Indenture, dated as of November 21, 1995, incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 3, 2006. | |
4.15 | Sixth Supplemental Indenture, dated as of March 1, 2007, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.4 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2007. | |
4.16 | Form of 7% Notes due March 15, 2018 incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 24, 1998. | |
4.17 | Form of 6.20% Note dated December 7, 2001 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on December 11, 2001. | |
4.18 | Form of 6.75% Trust Preferred Security Certificate is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003. | |
4.19 | Form of 6.75% Junior Subordinated Deferrable Interest Debentures, Series F is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003. | |
4.20 | Form of 4.75% Note due February 15, 2014 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 4, 2004. | |
4.21 | Form of 7% Capital Securities due 2066 of LNC is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File NO. 1-6028) filed with the SEC on May 17, 2006. | |
4.22 | Form of 6.75% Capital Securities due 2066 of Lincoln Financial Corporation is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 20, 2006. | |
4.23 | Form of Floating Rate Senior Note due April 6, 2009 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006. | |
4.24 | Form of 6.15% Senior Note due April 6, 2036 is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006. | |
4.25 | Amended and Restated Trust Agreement dated September 11, 2003, among LNC, as Depositor, Bank One Trust Company, National Association, as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein is incorporated by reference to Exhibit 4.1 of Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003. | |
4.26 | Guarantee Agreement, dated September 11, 2003, between LNC, as Guarantor, and Bank One Trust Company, National Association, as Guarantee Trustee is incorporated by reference to Exhibit 4.4 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003. | |
4.27 | Form of 6.05% Capital Securities due 2067 is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007. | |
4.28 | Form of Floating Rate Senior Notes due 2010 is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007. | |
4.29 | Form of 5.65% Senior Notes due 2012 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on August 27, 2007. | |
4.30 | Form of 6.30% Senior Notes due 2037 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on October 9, 2007. | |
4.31 | First Supplemental Indenture, dated as of April 3, 2006, among Lincoln JP Holdings, L.P. and JPMorgan Chase Bank, N.A., as trustee, to the Indenture, dated as of January 15, 1997, among Jefferson-Pilot and JPMorgan Chase Bank, N.A., as trustee, is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 3, 2006. |
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10.1 | LNC Amended and Restated Incentive Compensation Plan (as amended and restated on May 10, 2007) is incorporated by reference to Exhibit 4 to LNC’s Proxy Statement (File No. 1-6028) filed with the SEC on April 4, 2007.* | |
10.2 | Amendment Nos. 1 and 2 to the LNC Amended and Restated Incentive Compensation Plan are incorporated by reference to Exhibit 10.3 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.* | |
10.3 | Form of Restricted Stock Unit Award Agreement under the LNC Amended and Restated Incentive Compensation Plan, adopted February 7, 2008 is incorporated by reference to Exhibit 10.6 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.* | |
10.4 | Form of Restricted Stock Award Agreement is incorporated by reference to Exhibit 10.7 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.* | |
10.5 | Form of Restricted Stock Unit Award Agreement under the LNC Amended and Restated Incentive Compensation Plan, adopted May 2008, is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 6, 2008.* | |
10.6 | LNC Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 5 to LNC’s Proxy Statement (File No. 1-6028) filed with the SEC on April 4, 2007.* | |
10.7 | Non-Qualified Stock Option Agreement for the LNC Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 10, 2007.* | |
10.8 | Retirement and Release Agreement, dated July 6, 2007, between Jon A. Boscia and LNC is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on July 11, 2007.* | |
10.9 | Description of Change in Compensation Arrangement in connection with promotion of Dennis R. Glass to CEO is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2007.* | |
10.10 | 2007 Non-Employee Director Fees (revised to include fee for non-Executive Chairman) (unchanged for 2008) is incorporated by reference to Exhibit 10.3 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2007.* | |
10.11 | Form of Restricted Stock Award Agreement (2007) is incorporated by reference to Exhibit 10.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2007.* | |
10.12 | Amended and Restated LNC Supplemental Retirement Plan is incorporated by reference to Exhibit 10.10 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.* | |
10.13 | The Salary Continuation Plan for Executives of LNC and Affiliates as amended and restated through August 1, 2000 is incorporated by reference to Exhibit 10(b) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.* | |
10.14 | Amended and Restated Salary Continuation Plan for Executives of LNC and Affiliates is incorporated by reference to Exhibit 10.13 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.* | |
10.15 | The LNC Outside Directors’ Value Sharing Plan, last amended March 8, 2001, is incorporated by reference to Exhibit 10(e) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.* | |
10.16 | LNC Deferred Compensation and Supplemental/Excess Retirement Plan is incorporated by reference to LNC’s Registration Statement for the plan on Form S-8 (File No. 333-155385) filed November 14, 2008.* | |
10.17 | LNC 1993 Stock Plan for Non-Employee Directors, as last amended May 10, 2001, is incorporated by reference to Exhibit 10(g), to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.* | |
10.18 | Amendment No. 2 to the LNC 1993 Stock Plan for Non-Employee Directors (effective February 1, 2006) is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 13, 2006.* | |
10.19 | Non-Qualified Stock Option Agreement (For Non-Employee Directors) under the LNC 1993 Stock Plan for Non-Employee Directors is incorporated by reference to Exhibit 10(z) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2004.* |
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10.20 | Amendment of outstanding Non-Qualified Option Agreements (for Non-Employee Directors) under the LNC 1993 Stock Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 12, 2006.* | |
10.21 | Amended and Restated LNC Executives’ Severance Benefit Plan (effective August 7, 2008) is incorporated by reference to Exhibit 10.3 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2008.* | |
10.22 | Amended and Restated LNC Excess Retirement Plan is incorporated by reference to Exhibit 10.26 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.* | |
10.23 | LNC Deferred Compensation Plan for Non-Employee Directors, as amended and restated November 5, 2008 is filed herewith.* | |
10.24 | Revised Framework for Long-Term performance awards under the Amended and Restated Incentive Compensation Plan is incorporated by reference to Exhibit 10(a) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 12, 2005.* | |
10.25 | Form of LNC Restricted Stock Agreement is incorporated by reference to Exhibit 10(b) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.* | |
10.26 | Form of LNC Stock Option Agreement is incorporated by reference to Exhibit 10(c) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.* | |
10.27 | Overview of 2006 long-term incentives for senior management committee members under the Amended and Restated Incentive Compensation Plan is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 18, 2006.* | |
10.28 | 2006-2008 Long-Term Incentive Award Measures under the LNC Amended and Restated Annual Incentive Compensation Plan and certain compensation information, is incorporated by reference to Exhibit 10.3 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.* | |
10.29 | Form of Long-Term Incentive Award Agreement for senior management committee members (2006-2008 cycle) is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 18, 2006.* | |
10.30 | Form of 2008-2010 Performance Cycle Agreement under the LNC Amended and Restated Incentive Compensation Plan, is incorporated by reference to Exhibit 10.1 of LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2008.* | |
10.31 | Description of Special 2008 Annual Incentive Payout Arrangement with Terrance J. Mullen, Former President of Lincoln Financial Distributors, is incorporated by reference to Exhibit 10.4 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.* | |
10.32 | Agreement, Waiver and General Release between Elizabeth L. Reeves and LNC is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2008.* | |
10.33 | Form of 2008 Non-Qualified Stock Option Agreement under the LNC Amended and Restated Incentive Compensation Plan is incorporated by reference to Exhibit 10.2 of LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2008.* | |
10.34 | LNC Employees’ Supplemental Pension Benefit Plan is incorporated by reference to Exhibit 10(e) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.* | |
10.35 | Description of resolution dated January 13, 2005 amending the LNC Employees’ Supplemental Pension benefit Plan incorporated by reference to Exhibit 10(d) to LNC’s Form 10-Q (File No 1-6028) for the quarter ended March 31, 2005.* | |
10.36 | Amended and Restated Delaware Investments U.S., Inc. Incentive Compensation Plan is filed herewith.* | |
10.37 | Non-qualified Stock Option Agreement Under the Delaware Investments U.S., Inc. Stock Option Plan is incorporated by reference to Exhibit 10(bb) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2005.* | |
10.38 | Form of Restricted Stock Unit Agreement under the Delaware Investments U.S., Inc. Incentive Compensation Plan is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2008.* |
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10.39 | LNC Non-Employee Director Compensation is incorporated by reference from Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 15, 2006.* | |
10.40 | Form of Stock Option Agreement is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 18, 2006.* | |
10.41 | Form of nonqualified LNC restricted stock award agreement is incorporated by reference to Exhibit 10.15 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006.* | |
10.42 | Employment Agreement of Dennis R. Glass, dated December 6, 2003, is incorporated by reference to Exhibit 10(ii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2003.* | |
10.43 | Amendment No. 1 to Employment Agreement of Dennis R. Glass, dated March 23, 2005, is incorporated by reference to Exhibit 10.1 of Jefferson-Pilot’s Form 10-Q (File No. 1-5955) for the quarter ended September 30, 2005.* | |
10.44 | Amendment No. 2 to Employment Agreement of Dennis R. Glass, dated April 2, 2007, is incorporated by reference to Exhibit 10.4 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2007.* | |
10.45 | Amendment No. 3 to Employment Agreement of Dennis R. Glass, effective as of August 6, 2008, is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2008.* | |
10.46 | Jefferson Pilot Corporation Long Term Stock Incentive Plan, as amended in February 2005, is incorporated by reference to Exhibit 10(iii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004.* | |
10.47 | Jefferson Pilot Corporation Non-Employee Directors’ Stock Option Plan, as amended in February 2005, is incorporated by reference to Exhibit 10(iv) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004.* | |
10.48 | Jefferson Pilot Corporation Non-Employee Directors’ Stock Option Plan, as last amended in 1999, is incorporated by reference to Exhibit 10(vii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 1998.* | |
10.49 | Jefferson Pilot Corporation Executive Change in Control Severance Plan, is incorporated by reference to Exhibit 10(xi) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 1998.* | |
10.50 | 1999 Amendment to the Jefferson Pilot Corporation Executive Change in Control Severance Plan, is incorporated by reference to Exhibit 10(ix) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 1999.* | |
10.51 | 2005 Amendment to the Jefferson Pilot Corporation Executive Change in Control Severance Plan, is incorporated by reference to Exhibit 10(vii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2005.* | |
10.52 | Jefferson Pilot Corporation Separation Pay Plan, adopted February 12, 2006, is incorporated by reference to Exhibit 10(viii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2005.* | |
10.53 | Jefferson Pilot Corporation forms of stock option terms for non-employee directors are incorporated by reference to Exhibit 10(xi) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004 and to Exhibit 10.2 of Jefferson-Pilot’s Form 8-K filed with the SEC on February 17, 2006.* | |
10.54 | Jefferson Pilot Corporation forms of stock option terms for officers are incorporated by reference to Exhibit 10(xi) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004 and to Exhibit 10.1 of Jefferson-Pilot’s Form 8-K filed with the SEC on February 17, 2006.* | |
10.55 | Jefferson-Pilot Deferred Fee Plan for Non-Employee Directors, as amended and restated November 5, 2008 is filed herewith.* | |
10.56 | Lease and Agreement dated August 1, 1984, with respect to LNL’s offices located at Clinton Street and Harrison Street, Fort Wayne, Indiana is incorporated by reference to Exhibit 10(n) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1995. | |
10.57 | First Amendment of Lease, dated as of June 16, 2006, between Trona Cogeneration Corporation and The Lincoln National Life Insurance Company, is incorporated by reference to Exhibit 10.22 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006. |
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10.58 | Agreement of Lease dated February 17, 1998, with respect to LNL’s offices located at 350 Church Street, Hartford, Connecticut is incorporated by reference to Exhibit 10(q) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1997. | |
10.59 | Lease and Agreement dated December 10, 1999 with respect to Delaware Management Holdings, Inc., offices located at One Commerce Square, Philadelphia, Pennsylvania is incorporated by reference to Exhibit 10(r) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1999. | |
10.60 | First Amendment to Lease dated December 10, 1999 with respect to Delaware Management Holdings, Inc. for property located at Commerce Square, Philadelphia, Pennsylvania is incorporated by reference to Exhibit 10(e) to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2005. | |
10.61 | Sublease and Agreement dated December 10, 1999 between Delaware Management Holdings, Inc. and New York Central Lines LLC for property located at Two Commerce Square, Philadelphia, Pennsylvania is incorporated by reference to Exhibit 10(s) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1999. | |
10.62 | Consent to Sublease dated December 10, 1999 with respect to Delaware Management Holdings, Inc. for property located at Two Commerce Square and Philadelphia Plaza Phase II, Philadelphia, Pennsylvania is incorporated by reference to Exhibit 10(t) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1999. | |
10.63 | Stock and Asset Purchase Agreement by and among LNC, The Lincoln National Life Insurance Company, Lincoln National Reinsurance Company (Barbados) Limited and Swiss Re Life & Health America Inc. dated July 27, 2001 is incorporated by reference to Exhibit 99.1 to LNC’s Form 8-K (File No. 1-6028) filed with the Commission on August 1, 2001.*** | |
10.64 | Fifth Amended and Restated Credit Agreement, dated as of March 10, 2006, among LNC, as an Account Party and Guarantor, the Subsidiary Account Parties, as additional Account Parties, JPMorgan Chase Bank, N.A. as administrative agent, J.P. Morgan Securities Inc. and Wachovia Capital Markets LLC, as joint lead arrangers and joint bookrunners, Wachovia Bank, National Association, as syndication agent, Citibank, N.A., HSBC Bank USA, N.A. and The Bank of New York, as documentation agents, and the other lenders named therein is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 15, 2006. | |
10.65 | Credit Agreement, dated as of February 8, 2006, among LNC, JPMorgan Chase Bank, N.A. as administrative agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as joint lead arrangers and joint bookrunners, Bank of America N.A., as syndication agent, and the other lenders named therein is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2006. | |
10.66 | Master Confirmation Agreement and related Supplemental Confirmation, dated March 14, 2007, and Trade Notification, dated March 16, 2007, relating to LNC’s Accelerated Stock Repurchase with Citibank, N.A. is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2007.** | |
10.67 | Indemnity Reinsurance Agreement, dated as of January 1, 1998, between Connecticut General Life Insurance Company and Lincoln Life & Annuity Company of New York is filed herewith.*** | |
10.68 | Coinsurance Agreement, dated as of October 1, 1998, AETNA Life Insurance and Annuity Company and Lincoln Life & Annuity Company of New York is filed herewith.*** | |
12 | Historical Ratio of Earnings to Fixed Charges. | |
21 | Subsidiaries List. | |
23 | Consent of Independent Registered Public Accounting Firm. | |
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31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | This exhibit is a management contract or compensatory plan or arrangement. | |
** | Portions of the exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission (“SEC”) pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | |
*** | Schedules to the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. LNC will furnish supplementally a copy of the schedules to the SEC, upon request. |
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