Lincoln National Life Insurance 10-Q 2022 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

_______________

(Mark One)

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from ____________ to____________

Commission File Number: 000-55871  

_________________

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

_________________

Indiana	35-0472300
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1301 South Harrison Street, Fort Wayne, Indiana	46802
(Address of principal executive offices)	(Zip Code)

(260) 455-2000

(Registrant’s telephone number, including area code)

_________________

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

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

Large Accelerated Filer		Accelerated Filer	
Non-accelerated Filer		Smaller Reporting Company	
		Emerging Growth Company	

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

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

As of November 7, 2022, 10,000,000 shares of common stock of the registrant ($2.50 par value) were outstanding, all of which were directly owned by Lincoln National Corporation.

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

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

The Lincoln National Life Insurance Company

Table of Contents

		Page
PART I
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	1
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended
	September 30, 2022 and 2021	2
	Unaudited Consolidated Statements of Stockholder’s Equity for the three and nine months ended
	September 30, 2022 and 2021	3
	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	4
	Notes to Unaudited Consolidated Financial Statements:
	Note 1 – Nature of Operations and Basis of Presentation	5
	Note 2 – New Accounting Standards	6
	Note 3 – Variable Interest Entities	9
	Note 4 – Investments	10
	Note 5 – Derivatives	20
	Note 6 – Federal Income Taxes	30
	Note 7 – Goodwill	30
	Note 8 – Guaranteed Benefit Features	31
	Note 9 – Liability for Unpaid Claims	32
	Note 10 – Contingencies and Commitments	32
	Note 11 – Shares and Stockholder’s Equity	35
	Note 12 – Realized Gain (Loss)	37
	Note 13 – Fair Value of Financial Instruments	38
	Note 14 – Segment Information	52
Item 2.	Management’s Narrative Analysis of the Results of Operations	54
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
Item 4.	Controls and Procedures	70
PART II
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 6.	Exhibits	71
	Exhibit Index for the Report on Form 10-Q	72
	Signatures	73

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

		As of				As of
	September 30,				December 31,
		2022				2021
	(Unaudited)
ASSETS
Investments:
Fixed maturity available-for-sale securities, at fair value
(amortized cost: 2022 - $110,323; 2021 - $104,526; allowance for credit losses: 2022 - $18; 2021 - $19)		$	97,391			$	117,511
Trading securities			3,527				4,427
Equity securities			427				314
Mortgage loans on real estate, net of allowance for credit losses
(portion at fair value: 2022 - $495; 2021 - $739)			17,975				17,893
Policy loans			2,333				2,349
Derivative investments			3,624				5,437
Other investments			3,627				3,449
Total investments			128,904				151,380
Cash and invested cash			1,291				2,331
Deferred acquisition costs and value of business acquired			13,757				5,985
Premiums and fees receivable			582				580
Accrued investment income			1,238				1,157
Reinsurance recoverables, net of allowance for credit losses			24,256				22,755
Funds withheld reinsurance assets			501				517
Goodwill			1,144				1,778
Other assets			20,765				22,949
Separate account assets			137,295				182,583
Total assets		$	329,733			$	392,015
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Future contract benefits		$	41,162			$	40,416
Other contract holder funds			117,729				111,174
Short-term debt			771				1,084
Long-term debt			2,267				2,334
Reinsurance-related embedded derivatives			-				578
Funds withheld reinsurance liabilities			6,296				7,089
Payables for collateral on investments			6,855				8,936
Other liabilities			11,333				15,441
Separate account liabilities			137,295				182,583
Total liabilities			323,708				369,635
Contingencies and Commitments (See Note 10)
Stockholder’s Equity
Common stock – 10,000,000 shares authorized, issued and outstanding			12,114				11,950
Retained earnings			1,944				3,886
Accumulated other comprehensive income (loss)			(8,033	)			6,544
Total stockholder’s equity			6,025				22,380
Total liabilities and stockholder’s equity		$	329,733			$	392,015

‎

See accompanying Notes to Consolidated Financial Statements

1

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions)

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues
Insurance premiums	$	1,496		$	1,341		$	4,338		$	3,999
Fee income		1,438			1,927			4,386			5,051
Net investment income		1,272			1,511			3,933			4,468
Realized gain (loss)		5			(24	)		353			16
Amortization of deferred gain (loss) on business sold through reinsurance		17			8			52			22
Other revenues		135			149			451			480
Total revenues		4,363			4,912			13,513			14,036
Expenses
Interest credited		717			744			2,109			2,206
Benefits		4,498			1,840			8,748			5,871
Commissions and other expenses		1,208			1,839			3,482			4,272
Interest and debt expense		36			29			96			86
Spark program expense		44			22			118			57
Impairment of intangibles		634			-			634			-
Total expenses		7,137			4,474			15,187			12,492
Income (loss) before taxes		(2,774	)		438			(1,674	)		1,544
Federal income tax expense (benefit)		(487	)		66			(312	)		246
Net income (loss)		(2,287	)		372			(1,362	)		1,298
Other comprehensive income (loss), net of tax		(4,134	)		(617	)		(14,577	)		(2,077	)
Comprehensive income (loss)	$	(6,421	)	$	(245	)	$	(15,939	)	$	(779	)

‎

See accompanying Notes to Consolidated Financial Statements

2

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(Unaudited, in millions)

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Common Stock
Balance as of beginning-of-period	$	12,020		$	11,930		$	11,950		$	11,853
Capital contribution from Lincoln National Corporation		80			-			145			65
Stock compensation/issued for benefit plans		14			10			19			22
Balance as of end-of-period		12,114			11,940			12,114			11,940
Retained Earnings
Balance as of beginning-of-period		4,506			4,598			3,886			4,167
Net income (loss)		(2,287	)		372			(1,362	)		1,298
Dividends paid to Lincoln National Corporation		(275	)		(300	)		(580	)		(795	)
Balance as of end-of-period		1,944			4,670			1,944			4,670
Accumulated Other Comprehensive Income (Loss)
Balance as of beginning-of-period		(3,899	)		7,561			6,544			9,021
Other comprehensive income (loss), net of tax		(4,134	)		(617	)		(14,577	)		(2,077	)
Balance as of end-of-period		(8,033	)		6,944			(8,033	)		6,944
Total stockholder’s equity as of end-of-period	$	6,025		$	23,554		$	6,025		$	23,554

‎

See accompanying Notes to Consolidated Financial Statements

3

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

	For the Nine
	Months Ended
	September 30,
	2022			2021
Cash Flows from Operating Activities
Net income (loss)	$	(1,362	)	$	1,298
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Realized (gain) loss		(353	)		(16	)
Sales and maturities (purchases) of trading securities, net		164			219
Amortization of deferred gain (loss) on business sold through reinsurance		(52	)		(22	)
Impairment of intangibles		634			-
Change in:
Deferred acquisition costs, value of business acquired, deferred sales inducements
and deferred front-end loads deferrals and interest, net of amortization		9			325
Premiums and fees receivable		(2	)		(99	)
Accrued investment income		(77	)		(44	)
Insurance liabilities and reinsurance-related balances		2,311			(300	)
Accrued expenses		(375	)		200
Federal income tax accruals		(301	)		234
Cash management agreement		2,803			(1,367	)
Other		480			(226	)
Net cash provided by (used in) operating activities		3,879			202
Cash Flows from Investing Activities
Purchases of available-for-sale securities and equity securities		(11,961	)		(11,756	)
Sales of available-for-sale securities and equity securities		1,231			1,441
Maturities of available-for-sale securities		4,339			6,897
Purchases of alternative investments		(453	)		(504	)
Sales and repayments of alternative investments		380			258
Issuance of mortgage loans on real estate		(1,928	)		(2,191	)
Repayment and maturities of mortgage loans on real estate		1,866			1,267
Repayment (issuance) of policy loans, net		16			47
Net change in collateral on investments, derivatives and related settlements		(3,667	)		2,132
Other		(83	)		(181	)
Net cash provided by (used in) investing activities		(10,260	)		(2,590	)
Cash Flows from Financing Activities
Capital contribution from Lincoln National Corporation		145			65
Payment of long-term debt, including current maturities		(40	)		(60	)
Issuance (payment) of short-term debt		(313	)		(14	)
Payment related to sale-leaseback transactions		(52	)		-
Proceeds from certain financing arrangements		53			50
Deposits of fixed account values, including the fixed portion of variable		11,054			9,136
Withdrawals of fixed account values, including the fixed portion of variable		(4,916	)		(4,935	)
Transfers from (to) separate accounts, net		12			(252	)
Common stock issued for benefit plans		(21	)		(12	)
Dividends paid to Lincoln National Corporation		(580	)		(795	)
Other		(1	)		(63	)
Net cash provided by (used in) financing activities		5,341			3,120
Net increase (decrease) in cash, invested cash and restricted cash		(1,040	)		732
Cash, invested cash and restricted cash as of beginning-of-year		2,331			1,462
Cash, invested cash and restricted cash as of end-of-period	$	1,291		$	2,194

See accompanying Notes to Consolidated Financial Statements

4

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations and Basis of Presentation

Nature of Operations

The Lincoln National Life Insurance Company (“LNL” or the “Company,” which also may be referred to as “we,” “our” or “us”), a wholly-owned subsidiary of Lincoln National Corporation (“LNC” or the “Parent Company”), is domiciled in the state of Indiana. We own 100% of the outstanding common stock of Lincoln Life & Annuity Company of New York (“LLANY”). We also own several non-insurance companies, including Lincoln Financial Distributors, our wholesale distributor, and Lincoln Financial Advisors Corporation, part of LNC’s retail distributor, Lincoln Financial Network. Through our business segments, we sell a wide range of wealth protection, accumulation, retirement income and group protection products and solutions. These products primarily include fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL and VUL, indexed universal life insurance (“IUL”), term life insurance, employer-sponsored retirement plans and services, and group life, disability and dental. LNL is licensed and sells its products throughout the U.S. and several U.S. territories. See Note 14 for additional information.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2021 Form 10-K.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Interim results for the nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022, especially when considering the risks and uncertainties associated with the COVID-19 pandemic and the future impacts of the pandemic on our business, results of operations and financial condition. All material inter-company accounts and transactions have been eliminated in consolidation.

‎

5

2.  New Accounting Standards

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

Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2020-04, Reference Rate Reform (Topic 848) and related amendments	The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. Additionally, changes to the critical terms of a hedging relationship affected by reference rate reform will not require entities to de-designate the relationship if certain requirements are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with certain exceptions. The amendments are effective for contract modifications made between March 12, 2020, and December 31, 2022.	March 12, 2020 through December 31, 2022	This standard may be elected and applied prospectively as reference rate reform unfolds. We have elected practical expedients to maintain hedge accounting for certain derivatives. We will continue to evaluate our options under this guidance as our reference rate reform adoption process continues. This ASU has not had a material impact to our consolidated financial condition and results of operations, but we will continue to evaluate those impacts as our transition progresses.

‎

6

Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments	These amendments make changes to the accounting and reporting for long-duration contracts issued by an insurance entity that will significantly change how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and deferred acquisition costs. Under this ASU, insurers will be required to review cash flow assumptions at least annually and update them if necessary. They also will have to make quarterly updates to the discount rate assumptions they use to measure the liability for future policyholder benefits. The ASU creates a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value. The ASU provides various transition methods by topic that entities may elect upon adoption. The ASU is effective January 1, 2023, and early adoption is permitted.	January 1, 2023	We will adopt this ASU effective January 1, 2023, with a transition date of January 1, 2021, using a modified retrospective approach, except for market risk benefits in which we will apply a full retrospective transition approach. ‎ ‎We continue to make progress in our implementation process that includes, but is not limited to, refining significant accounting policy decisions, employing appropriate internal controls, modifying actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures. We currently estimate that, at the transition date of January 1, 2021, the adoption of this standard and related amendments will result in an increase to previously reported stockholder’s equity in an after-tax range of approximately $2.5 billion to $3.5 billion, including a decrease to previously reported retained earnings in an after-tax range of approximately $1.3 billion to $2.3 billion, and an increase to previously reported accumulated other comprehensive income (loss) (“AOCI”) in an after-tax range of approximately $4.3 billion to $5.3 billion. We are continuing to evaluate the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to better assess the effects as we continue to progress with our implementation efforts. The remeasurement of certain current benefits (e.g., guaranteed death benefits on variable annuities) to fair valued market risk benefits, excluding the portion attributable to non-performance risk (“NPR”), is expected to have the most significant impact to retained earnings. The most significant drivers of the cumulative adjustment to AOCI are expected to be the NPR associated with the fair valued market risk benefits, the elimination of deferred acquisition costs (“DAC”) and DAC-like intangible balances recorded in AOCI related to changes in unrealized gains and losses on investments, and the changes in the discount rate assumption since the inception of the contracts to reflect the changes in the upper-medium-grade fixed-income instrument (single-A) interest rate for the liability for future policy benefits

7

Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters (Continued)
ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments			associated with certain long-duration contracts. The effect this standard adoption has on stockholder’s equity will be impacted by economic conditions, including fluctuations in both the capital markets and interest rates, as well as certain actuarial assumptions.

‎

8

3. Variable Interest Entities

Unconsolidated Variable Interest Entities

Structured Securities

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

Limited Partnerships and Limited Liability Companies

We invest in certain limited partnerships (“LPs”) and limited liability companies (“LLCs”) that we have concluded are VIEs. Our exposure to loss is limited to the capital we invest in the LPs and LLCs. We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs. Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs. The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $2.8 billion as of September 30, 2022, and December 31, 2021.

9

4. Investments

Fixed Maturity AFS Securities

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

	As of September 30, 2022
							Allowance
	Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	88,844	$	593	$	11,746	$	7	$	77,684
U.S. government bonds		382		6		31		-		357
State and municipal bonds		5,199		186		481		-		4,904
Foreign government bonds		369		16		54		-		331
RMBS		2,052		26		200		5		1,873
CMBS		1,780		-		238		-		1,542
ABS		11,335		34		1,023		5		10,341
Hybrid and redeemable preferred securities		362		28		30		1		359
Total fixed maturity AFS securities	$	110,323	$	889	$	13,803	$	18	$	97,391

	As of December 31, 2021
							Allowance
	Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	86,197	$	11,569	$	326	$	17	$	97,423
U.S. government bonds		348		54		2		-		400
State and municipal bonds		5,113		1,275		11		-		6,377
Foreign government bonds		365		63		5		-		423
RMBS		2,132		178		4		1		2,305
CMBS		1,542		62		14		-		1,590
ABS		8,433		127		54		-		8,506
Hybrid and redeemable preferred securities		396		103		11		1		487
Total fixed maturity AFS securities	$	104,526	$	13,431	$	427	$	19	$	117,511

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

	Amortized		Fair
	Cost		Value
Due in one year or less	$	2,970	$	2,937
Due after one year through five years		17,244		16,322
Due after five years through ten years		19,381		17,241
Due after ten years		55,561		47,135
Subtotal		95,156		83,635
Structured securities (RMBS, CMBS, ABS)		15,167		13,756
Total fixed maturity AFS securities	$	110,323	$	97,391

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

10

The fair value and gross unrealized losses of fixed maturity AFS securities (dollars in millions) for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

	As of September 30, 2022
	Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses (1)
Fixed maturity AFS securities:
Corporate bonds	$	61,490		$	10,502	$	3,429		$	1,244	$	64,919		$	11,746
U.S. government bonds		244			25		22			6		266			31
State and municipal bonds		1,921			445		96			36		2,017			481
Foreign government bonds		123			25		76			29		199			54
RMBS		1,475			193		33			7		1,508			200
CMBS		1,315			178		216			60		1,531			238
ABS		8,286			845		1,596			178		9,882			1,023
Hybrid and redeemable
preferred securities		95			6		67			24		162			30
Total fixed maturity AFS securities	$	74,949		$	12,219	$	5,535		$	1,584	$	80,484		$	13,803
Total number of fixed maturity AFS securities in an unrealized loss position															8,051

	As of December 31, 2021
	Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total
				Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses (1)
Fixed maturity AFS securities:
Corporate bonds	$	10,611		$	230	$	1,386		$	96	$	11,997		$	326
U.S. government bonds		6			-		26			2		32			2
State and municipal bonds		498			10		19			1		517			11
Foreign government bonds		61			3		56			2		117			5
RMBS		261			3		20			1		281			4
CMBS		440			12		33			2		473			14
ABS		4,646			49		165			5		4,811			54
Hybrid and redeemable
preferred securities		47			1		76			10		123			11
Total fixed maturity AFS securities	$	16,570		$	308	$	1,781		$	119	$	18,351		$	427
Total number of fixed maturity AFS securities in an unrealized loss position															2,577

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

11

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

	As of September 30, 2022
			Gross			Number
	Fair		Unrealized			of
	Value		Losses		Securities (1)
Less than six months	$	18,195	$	6,892			2,149
Six months or greater, but less than nine months		394		266			78
Nine months or greater, but less than twelve months		1		-			2
Twelve months or greater		1		-			13
Total	$	18,591	$	7,158			2,242

	As of December 31, 2021
			Gross			Number
	Fair		Unrealized			of
	Value		Losses		Securities (1)
Less than six months	$	12	$	3			6
Twelve months or greater		58		8			24
Total	$	70	$	11			30

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

Our gross unrealized losses on fixed maturity AFS securities increased by $13.4 billion for the nine months ended September 30, 2022. As discussed further below, we believe the unrealized loss position as of September 30, 2022, did not require an impairment recognized in earnings as (i) we did not intend to sell these fixed maturity AFS securities; (ii) it is not more likely than not that we will be required to sell the fixed maturity AFS securities before recovery of their amortized cost basis; and (iii) the difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation as of September 30, 2022, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums, fee income and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our impaired securities.

As of September 30, 2022, the unrealized losses associated with our corporate bond, U.S. government bond, state and municipal bond and foreign government bond securities were attributable primarily to rising interest rates and widening credit spreads since purchase. We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost of each impaired security.

Credit ratings express opinions about the credit quality of a security. Securities rated investment grade (those rated BBB- or higher by S&P Global Ratings (“S&P”) or Baa3 or higher by Moody’s Investors Service (“Moody’s”)) are generally considered by the rating agencies and market participants to be low credit risk. As of September 30, 2022, and December 31, 2021, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of September 30, 2022, and December 31, 2021, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.6 billion and $3.5 billion, respectively, and a fair value of $3.3 billion and $3.7 billion, respectively. Based upon the analysis discussed above, we believe that as of September 30, 2022, and December 31, 2021, we would have recovered the amortized cost of each corporate bond.

As of September 30, 2022, the unrealized losses associated with our mortgage-backed securities and ABS were attributable primarily to rising interest rates and widening credit spreads since purchase. We assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities and prepayment rates. We estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost of each impaired security.

As of September 30, 2022, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of underlying issuers. For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each impaired security.

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Credit Loss Impairment on Fixed Maturity AFS Securities

We regularly review our fixed maturity AFS securities for declines in fair value that we determine to be impairment-related, including those attributable to credit risk factors that may require an allowance for credit losses. Changes in the allowance for credit losses on fixed maturity AFS securities (in millions), aggregated by investment category, were as follows:

	For the Three
	Months Ended
	September 30, 2022
	Corporate
	Bonds		RMBS		Other		Total
Balance as of beginning-of-period	$	7	$	3	$	2	$	12
Additions from purchases of PCD debt securities (1)		-		-		-		-
Additions for securities for which credit losses were not
previously recognized		-		2		1		3
Additions (reductions) for securities for which credit losses
were previously recognized		-		-		3		3
Balance as of end-of-period (2)	$	7	$	5	$	6	$	18

	For the Nine
	Months Ended
	September 30, 2022
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-year	$	17		$	1	$	1	$	19
Additions from purchases of PCD debt securities (1)		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		2			2		1		5
Additions (reductions) for securities for which credit losses
were previously recognized		1			2		4		7
Reductions for securities disposed		(1	)		-		-		(1	)
Reductions for securities charged-off		(12	)		-		-		(12	)
Balance as of end-of-period (2)	$	7		$	5	$	6	$	18

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

‎

13

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

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

⁽²⁾As of September 30, 2022 and 2021, accrued investment income on fixed maturity AFS securities totaled $1.1 billion and $1.0 billion, respectively, and was excluded from the estimate of credit losses.

Mortgage Loans on Real Estate

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

	As of September 30, 2022									As of December 31, 2021
	Commercial			Residential			Total			Commercial			Residential			Total
Current	$	16,803		$	1,214		$	18,017		$	17,068		$	837		$	17,905
30 to 59 days past due		-			12			12			15			21			36
60 to 89 days past due		-			5			5			-			5			5
90 or more days past due		-			28			28			-			29			29
Allowance for credit losses		(80	)		(11	)		(91	)		(78	)		(17	)		(95	)
Unamortized premium (discount)		(9	)		34			25			(11	)		27			16
Mark-to-market gains (losses) (1)		(21	)		-			(21	)		(3	)		-			(3	)
Total carrying value	$	16,693		$	1,282		$	17,975		$	16,991		$	902		$	17,893

⁽¹⁾Represents the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 12 for additional information.

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

As of September 30, 2022, our residential mortgage loan portfolio had the largest concentrations in California and New Jersey, which accounted for 18% and 11% of residential mortgage loans on real estate, respectively. As of December 31, 2021, our residential mortgage loan portfolio had the largest concentrations in California and Florida, which accounted for 22% and 14% of residential mortgage loans on real estate, respectively.

As of September 30, 2022, and December 31, 2021, we had 64 and 65 residential mortgage loans, respectively, that were either delinquent or in foreclosure. As of September 30, 2022, and December 31, 2021, we had 42 and 34 residential mortgage loans in foreclosure, respectively, with an aggregate carrying value of $19 million and $15 million, respectively.

As of September 30, 2022, and December 31, 2021, there were three and four specifically identified impaired commercial mortgage loans, respectively, with an aggregate carrying value of $1 million.

As of September 30, 2022, and December 31, 2021, there were 36 and 50 specifically identified impaired residential mortgage loans, respectively, with an aggregate carrying value of $14 million and $22 million, respectively.

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

	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Average aggregate carrying value for impaired mortgage loans on real estate	$	13	$	31	$	16	$	33
Interest income recognized on impaired mortgage loans on real estate		-		-		-		-
Interest income collected on impaired mortgage loans on real estate		-		-		-		-

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

	As of September 30, 2022				As of December 31, 2021
	Nonaccrual				Nonaccrual
	with no				with no
	Allowance				Allowance
	for Credit				for Credit
	Losses		Nonaccrual		Losses		Nonaccrual
Commercial mortgage loans on real estate	$	-	$	-	$	-	$	-
Residential mortgage loans on real estate		-		29		-		30
Total	$	-	$	29	$	-	$	30

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

	As of September 30, 2022
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2022	$	1,338	2.16	$	76	1.51	$	1	1.57	$	1,415
2021		2,341	3.05		73	1.52		-	-		2,414
2020		1,287	2.98		18	1.54		-	-		1,305
2019		2,667	2.12		103	1.54		-	-		2,770
2018		2,169	2.13		141	1.54		14	0.54		2,324
2017 and prior		6,392	2.37		173	1.55		1	1.06		6,566
Total	$	16,194		$	584		$	16		$	16,794

	As of December 31, 2021
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2021	$	2,361	3.05	$	136	1.74	$	-	-	$	2,497
2020		1,349	3.02		144	2.06		-	-		1,493
2019		2,875	2.14		187	1.42		-	-		3,062
2018		2,272	2.13		168	1.59		15	1.02		2,455
2017		1,648	2.33		149	1.74		27	0.83		1,824
2016 and prior		5,543	2.41		171	1.76		27	1.08		5,741
Total	$	16,048		$	955		$	69		$	17,072

15

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

	As of September 30, 2022
	Performing		Nonperforming			Total
Origination Year
2022	$	423		$	-	$	423
2021		542			5		547
2020		95			2		97
2019		134			18		152
2018		70			4		74
2017 and prior		-			-		-
Total	$	1,264		$	29	$	1,293

	As of December 31, 2021
	Performing		Nonperforming			Total
Origination Year
2021	$	467		$	2	$	469
2020		129			2		131
2019		189			21		210
2018		104			5		109
2017		-			-		-
2016 and prior		-			-		-
Total	$	889		$	30	$	919

Credit Losses on Mortgage Loans on Real Estate

In connection with our recognition of an allowance for credit losses for mortgage loans on real estate, we perform a quantitative analysis using a probability of default/loss given default/exposure at default approach to estimate expected credit losses in our mortgage loan portfolio as well as unfunded commitments related to commercial mortgage loans, exclusive of certain mortgage loans held at fair value.

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

	For the Three
	Months Ended
	September 30, 2022
	Commercial		Residential		Total
Balance as of beginning-of-period	$	72	$	9	$	81
Additions (reductions) from provision for credit loss expense (1)		8		2		10
Additions from purchases of PCD mortgage loans on real estate		-		-		-
Balance as of end-of-period (2)	$	80	$	11	$	91

	For the Nine
	Months Ended
	September 30, 2022
	Commercial		Residential			Total
Balance as of beginning-of-year	$	78	$	17		$	95
Additions (reductions) from provision for credit loss expense (1)		2		(6	)		(4	)
Additions from purchases of PCD mortgage loans on real estate		-		-			-
Balance as of end-of-period (2)	$	80	$	11		$	91

16

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

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

⁽¹⁾We recognized $1 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the three months ended September 30, 2022 and 2021. We recognized less than $1 million and $4 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the nine months ended September 30, 2022 and 2021, respectively.

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

Alternative Investments 

As of September 30, 2022, and December 31, 2021, alternative investments included investments in 323 and 305 different partnerships, respectively, and represented approximately 2% of total investments.

17

Impairments on Fixed Maturity AFS Securities

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Credit Loss Benefit (Expense)
Fixed maturity AFS securities:
Corporate bonds	$	-		$	(8	)	$	(2	)	$	(9	)
RMBS		(2	)		-			(4	)		-
ABS		(3	)		-			(5	)		-
Gross credit loss benefit (expense)		(5	)		(8	)		(11	)		(9	)
Associated amortization of DAC, VOBA, DSI and DFEL (1)		-			-			-			-
Net credit loss benefit (expense)	$	(5	)	$	(8	)	$	(11	)	$	(9	)

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

Payables for Collateral on Investments

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

	As of September 30, 2022				As of December 31, 2021
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Collateral payable for derivative investments (1)	$	3,425	$	3,425	$	5,565	$	5,565
Securities pledged under securities lending agreements (2)		300		289		241		235
Investments pledged for Federal Home Loan Bank of
Indianapolis (3)		3,130		3,911		3,130		4,876
Total payables for collateral on investments	$	6,855	$	7,625	$	8,936	$	10,676

⁽¹⁾We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. This also includes interest payable on collateral. See Note 5 for additional information.

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

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

We have repurchase agreements through which we can obtain liquidity by pledging securities. The collateral requirements are generally 80% to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received in our repurchase program is typically invested in fixed maturity AFS securities. As of September 30, 2022, and December 31, 2021, we were not participating in any open repurchase agreements.

18

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

	For the Nine
	Months Ended
	September 30,
	2022			2021
Collateral payable for derivative investments	$	(2,140	)	$	1,978
Securities pledged under securities lending agreements		59			185
Total increase (decrease) in payables for collateral on investments	$	(2,081	)	$	2,163

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

	As of September 30, 2022
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	298	$	-	$	-	$	-	$	298
Foreign government bonds		2		-		-		-		2
Total gross secured borrowings	$	300	$	-	$	-	$	-	$	300

	As of December 31, 2021
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	239	$	-	$	-	$	-	$	239
Foreign government bonds		1		-		-		-		1
Equity securities		1		-		-		-		1
Total gross secured borrowings	$	241	$	-	$	-	$	-	$	241

We accept collateral in the form of securities in connection with repurchase agreements. In instances where we are permitted to sell or re-pledge the securities received, we report the fair value of the collateral received and a related obligation to return the collateral in the consolidated financial statements. In addition, we receive securities in connection with securities borrowing agreements that we are permitted to sell or re-pledge. As of September 30, 2022, the fair value of all collateral received that we are permitted to sell or re-pledge was $25 million, and we had re-pledged all of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative investments.

Investment Commitments

As of September 30, 2022, our investment commitments were $2.7 billion, which included $1.6 billion of LPs, $690 million of private placement securities and $339 million of mortgage loans on real estate.

Concentrations of Financial Instruments

As of September 30, 2022, our most significant investments in one issuer were our investments in securities issued by White Chapel LLC and by the Federal National Mortgage Association with a fair value of $1.0 billion and $709 million, respectively, or 1% of total investments. As of December 31, 2021, our most significant investments in one issuer were our investments in securities issued by White Chapel LLC and by the Federal Home Loan Mortgage Corporation with a fair value of $995 million and $910 million, respectively, or 1% of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

As of September 30, 2022, and December 31, 2021, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of $18.9 billion and $21.7 billion, respectively, or 15% and 14%, respectively, of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of $14.1 billion and $18.6 billion, respectively, or 11% and 12%, respectively, of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

19

5. Derivative Instruments

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

Derivative activities are monitored by various management committees. The committees are responsible for overseeing the implementation of various hedging strategies that are developed through the analysis of financial simulation models and other internal and industry sources. The resulting hedging strategies are incorporated into our overall risk management strategies.

See Note 13 for additional disclosures related to the fair value of our derivative instruments.

Interest Rate Contracts

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

Forward-Starting Interest Rate Swaps

We use forward-starting interest rate swaps designated and qualifying as cash flow hedges to hedge our exposure to interest rate fluctuations related to the forecasted purchases of certain assets.

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

Interest Rate Cap Corridors

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

Interest Rate Futures

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

Interest Rate Swap Agreements

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

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

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

Reverse Treasury Locks

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

20

Foreign Currency Contracts

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

Currency Futures

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

Foreign Currency Swaps

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

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

Foreign Currency Forwards

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

Equity Market Contracts

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

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

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

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

Consumer Price Index Swaps

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

Equity Futures

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

Put Options

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

Total Return Swaps

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

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

Commodity Contracts

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

Credit Contracts

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

Credit Default Swaps – Buying Protection

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

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

CDSs – Selling Protection

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

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

Other Derivatives

Lapse Protection Rider Ceded Derivative

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

Embedded Derivatives

We have embedded derivatives that include:

GLB Reserves Embedded Derivatives

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

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

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Indexed Annuity and IUL Contracts Embedded Derivatives

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

Reinsurance-Related Embedded Derivatives

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

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

	As of September 30, 2022						As of December 31, 2021
	Notional		Fair Value				Notional		Fair Value
	Amounts		Asset		Liability		Amounts		Asset		Liability
Qualifying Hedges
Cash flow hedges:
Interest rate contracts (1)	$	1,740	$	2	$	303	$	2,009	$	98	$	11
Foreign currency contracts (1)		4,323		959		4		3,979		283		51
Total cash flow hedges		6,063		961		307		5,988		381		62
Fair value hedges:
Interest rate contracts (1)		524		1		47		526		-		210
Non-Qualifying Hedges
Interest rate contracts (1)		98,366		957		955		82,786		897		176
Foreign currency contracts (1)		504		51		5		487		7		2
Equity market contracts (1)		91,675		4,950		2,262		92,278		6,461		2,108
Commodity contracts (1)		10		15		11		-		-		-
Credit contracts (1)		258		-		-		49		-		-
LPR ceded derivative (2)		-		191		-		-		318		-
Embedded derivatives:
GLB direct (3)		-		1,442		-		-		1,963		-
GLB ceded (3)		-		37		1,475		-		56		2,015
Reinsurance-related (4)		-		783		-		-		-		578
Indexed annuity and IUL contracts (3) (5)		-		456		3,194		-		528		6,131
Total derivative instruments	$	197,400	$	9,844	$	8,256	$	182,114	$	10,611	$	11,282

⁽¹⁾Reported in derivative investments and other liabilities on our Consolidated Balance Sheets.

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

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

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

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

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

	Remaining Life as of September 30, 2022
	Less Than		1 – 5		6 – 10		11 – 30		Over 30
	1 Year		Years		Years		Years		Years		Total
Interest rate contracts (1)	$	30,996	$	30,208	$	21,979	$	17,447	$	-	$	100,630
Foreign currency contracts (2)		321		707		1,710		1,892		197		4,827
Equity market contracts		50,962		22,177		7,741		10		10,785		91,675
Commodity contracts		10		-		-		-		-		10
Credit contracts		-		6		252		-		-		258
Total derivative instruments
with notional amounts	$	82,289	$	53,098	$	31,682	$	19,349	$	10,982	$	197,400

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

⁽²⁾As of September 30, 2022, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 16, 2061.

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

value hedges:

					Cumulative Fair Value
					Hedging Adjustment
					Included in the
	Amortized Cost of the				Amortized Cost of the
	Hedged				Hedged
	Assets / (Liabilities)				Assets / (Liabilities)
	As of		As of		As of		As of
	September 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Line Item in the Consolidated Balance Sheets in
which the Hedged Item is Included
Fixed maturity AFS securities, at fair value	$	597	$	764	$	47	$	211

‎

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

	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	240		$	42
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period:
Cash flow hedges:
Interest rate contracts		(392	)		(58	)
Foreign currency contracts		178			113
Change in foreign currency exchange rate adjustment		623			129
Change in DAC, VOBA, DSI and DFEL		28			-
Income tax benefit (expense)		(92	)		(40	)
Less:
Reclassification adjustment for gains (losses)
included in net income (loss):
Cash flow hedges:
Interest rate contracts (1)		1			2
Foreign currency contracts (1)		48			34
Foreign currency contracts (2)		29			(2	)
Associated amortization of DAC, VOBA, DSI and DFEL		(9	)		(1	)
Income tax benefit (expense)		(14	)		(7	)
Balance as of end-of-period	$	530		$	160

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

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

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

	Gain (Loss) Recognized in Income
	For the Three Months Ended September 30,
	2022								2021
	Realized			Net					Realized			Net
	Gain			Investment					Gain			Investment
	(Loss)			Income			Benefits		(Loss)			Income			Benefits
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	5		$	1,272		$	4,498	$	(24	)	$	1,511		$	1,840
Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(42	)		-		-			(10	)		-
Derivatives designated as
hedging instruments		-			42			-		-			10			-
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			-			-		-			1			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		25			19			-		-			13			-
Non-Qualifying Hedges
Interest rate contracts		(552	)		-			-		(149	)		-			-
Foreign currency contracts		4			-			-		-			-			-
Equity market contracts		(188	)		-			-		387			-			-
Commodity contracts		(6	)		-			-		-			-			-
Credit contracts		(2	)		-			-		-			-			-
LPR ceded derivative		-			-			24		-			-			1
Embedded derivatives:
Reinsurance-related		382			-			-		37			-			-
Indexed annuity and IUL
contracts		347			-			-		33			-			-

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	Gain (Loss) Recognized in Income
	For the Nine Months Ended September 30,
	2022								2021
	Realized			Net					Realized			Net
	Gain			Investment					Gain			Investment
	(Loss)			Income			Benefits		(Loss)			Income			Benefits
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	353		$	3,933		$	8,748	$	16		$	4,468		$	5,871
Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(164	)		-		-			(59	)		-
Derivatives designated as																-
hedging instruments		-			164			-		-			59
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			1			-		-			2			-
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		29			48			-		(2	)		34			-
Non-Qualifying Hedges
Interest rate contracts		(1,998	)		-			-		(876	)		-			-
Foreign currency contracts		6			-			-		(1	)		-			-
Equity market contracts		(2,100	)		-			-		2,342			-			-
Commodity contracts		4			-			-		-			-			-
Credit contracts		(2	)		-			-		-			-			-
LPR ceded derivative		-			-			127		-			-			77
Embedded derivatives:
GLB		-			-			-		3			-			-
Reinsurance-related		1,361			-			-		166			-			-
Indexed annuity and IUL
contracts		3,030			-			-		(1,296	)		-			-

As of September 30, 2022, $70 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements.

For the nine months ended September 30, 2022 and 2021, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.

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As of September 30, 2022, and December 31, 2021, we did not have any exposure related to CDSs for which we are the seller.

Credit Risk

We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or NPR. The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure, less collateral held. As of September 30, 2022, the NPR adjustment was zero. The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, we and LLANY have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts. In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor. We did not have any exposure as of September 30, 2022, or December 31, 2021.

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

	As of September 30, 2022					As of December 31, 2021
	Collateral		Collateral			Collateral		Collateral
	Posted by		Posted by			Posted by		Posted by
S&P	Counter-		LNL			Counter-		LNL
Credit	Party		(Held by			Party		(Held by
Rating of	(Held by		Counter-			(Held by		Counter-
Counterparty	LNL)		Party)			LNL)		Party)
AA-	$	614	$	(6	)	$	2,346	$	-
A+		2,758		(143	)		2,762		(44	)
A		47		-			456		-
	$	3,419	$	(149	)	$	5,564	$	(44	)

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Balance Sheet Offsetting

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

		As of September 30, 2022
					Embedded
	Derivative				Derivative
	Instruments				Instruments			Total
Financial Assets
Gross amount of recognized assets		$	6,482			$	2,718	$	9,200
Gross amounts offset			(3,157	)			-		(3,157	)
Net amount of assets (1)			3,325				2,718		6,043
Gross amounts not offset:
Cash collateral (2)			(3,325	)			-		(3,325	)
Non-cash collateral			-				-		-
Net amount		$	-			$	2,718	$	2,718
Financial Liabilities
Gross amount of recognized liabilities		$	294			$	4,669	$	4,963
Gross amounts offset			(154	)			-		(154	)
Net amount of liabilities			140				4,669		4,809
Gross amounts not offset:
Cash collateral (2)			(140	)			-		(140	)
Non-cash collateral			-				-		-
Net amount		$	-			$	4,669	$	4,669

⁽¹⁾Includes deferred premiums receivable (payable) of $(299) million reported in other assets and other liabilities on our Consolidated Balance Sheets.

⁽²⁾Excludes excess cash collateral received of $94 million and excess cash collateral pledged of $9 million, as the cash collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.

		As of December 31, 2021
					Embedded
	Derivative				Derivative
	Instruments				Instruments			Total
Financial Assets
Gross amount of recognized assets		$	7,938			$	2,547	$	10,485
Gross amounts offset			(2,241	)			-		(2,241	)
Net amount of assets (1)			5,697				2,547		8,244
Gross amounts not offset:
Cash collateral			(5,564	)			-		(5,564	)
Non-cash collateral			(133	)			-		(133	)
Net amount		$	-			$	2,547	$	2,547
Financial Liabilities
Gross amount of recognized liabilities		$	349			$	8,724	$	9,073
Gross amounts offset			(68	)			-		(68	)
Net amount of liabilities			281				8,724		9,005
Gross amounts not offset:
Cash collateral			(44	)			-		(44	)
Non-cash collateral			-				-		-
Net amount		$	237			$	8,724	$	8,961

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

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6. Federal Income Taxes

The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss). The effective tax rate was 18% and 19% for the three and nine months ended September 30, 2022, respectively, compared to 15% and 16%, respectively, for the corresponding periods in 2021. The effective tax rate on pre-tax income is typically lower than the prevailing corporate federal income tax rate of 21% due to benefits from preferential tax items including the separate accounts dividends-received deduction and tax credits.

For the three and nine months ended September 30, 2022, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to a tax benefit at 21% from pre-tax losses in addition to the effects of preferential tax items.

For the three and nine months ended September 30, 2021, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to the effects of the preferential tax items.

7. Goodwill

The changes in the carrying amount of goodwill (in millions) by reportable segment were as follows:

									For the Nine Months Ended September 30, 2022
	Gross			Accumulated				Net
	Goodwill			Impairment				Goodwill				Net
	as of			as of				as of				Goodwill
	Beginning-			Beginning-				Beginning-				as of End-
		of-Year			of-Year			of-Year		Impairment		of-Period
Annuities		$	1,040		$	(600	)	$	440	$	-	$	440
Retirement Plan Services			20			-			20		-		20
Life Insurance			2,186			(1,552	)		634		(634)		-
Group Protection			684			-			684		-		684
Total goodwill		$	3,930		$	(2,152	)	$	1,778	$	(634)	$	1,144

The fair values of our reporting units (Level 3 fair value estimates) are comprised of the value of in-force (i.e., existing) business and the value of new business. Specifically, new business is representative of cash flows and profitability associated with policies or contracts we expect to issue in the future, reflecting our forecasts of future sales volume and product mix over a 10-year period. To determine the values of in-force and new business, we use a discounted cash flows technique that applies a discount rate reflecting the market expected, weighted-average rate of return adjusted for the risk factors associated with operations to the projected future cash flows for each reporting unit.

As a result of the current capital market environment, including (i) declining equity markets and (ii) the impact of rising interest rates on our discount rate assumption, we accelerated our quantitative goodwill impairment test for our Life Insurance reporting unit as we concluded that there were indicators of impairment. Based on this quantitative test, which includes updating our best estimate assumptions therein, we incurred an impairment during the third quarter of 2022 of the Life Insurance reporting unit goodwill of $634 million, which represents a write-off of the entire balance of goodwill for the reporting unit.

We concluded that, for the third quarter, there were not indicators of impairment for our remaining reporting units (Annuities, Retirement Plan Services and Group Protection). During the fourth quarter, we will perform our annual quantitative goodwill impairment test as of October 1, 2022, on these other reporting units.

‎

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8. Guaranteed Benefit Features

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

	As of		As of
	September 30,		December 31,
	2022 (1)			2021 (1)
Return of Net Deposits
Total account value	$	91,411		$	117,503
Net amount at risk (2)		2,035			84
Average attained age of contract holders		67 years			67 years
Minimum Return
Total account value	$	69		$	102
Net amount at risk (2)		16			11
Average attained age of contract holders		79 years			79 years
Guaranteed minimum return		5%			5%
Anniversary Contract Value
Total account value	$	20,910		$	28,788
Net amount at risk (2)		4,701			400
Average attained age of contract holders		73 years			73 years

⁽¹⁾Our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive.

⁽²⁾Represents the amount of death benefit in excess of the account balance that is subject to market fluctuations.

The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following summarizes the balances of and changes in the liabilities for GDBs (in millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:

	For the Nine
	Months Ended
	September 30,
	2022			2021
Balance as of beginning-of-year	$	132		$	121
Changes in reserves		262			31
Benefits paid		(38	)		(16	)
Balance as of end-of-period	$	356		$	136

Variable Annuity Contracts

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

	As of		As of
	September 30,		December 31,
	2022			2021
Asset Type
Domestic equity	$	56,039		$	77,290
International equity		15,161			21,223
Fixed income		35,512			45,231
Total	$	106,712		$	143,744

Secondary Guarantee Products

Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment. Reserves on UL and VUL products with secondary guarantees represented 38% and 37% of total life insurance in-force reserves as of September 30, 2022, and December 31, 2021, respectively.

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9. Liability for Unpaid Claims

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

	For the Nine
	Months Ended
	September 30,
	2022			2021
Balance as of beginning-of-year	$	6,280		$	5,934
Reinsurance recoverable		147			151
Net balance as of beginning-of-year		6,133			5,783
Incurred related to:
Current year		2,972			2,999
Prior years:
Interest		123			112
All other incurred (1)		(206	)		(284	)
Total incurred		2,889			2,827
Paid related to:
Current year		(1,362	)		(1,393	)
Prior years		(1,363	)		(1,222	)
Total paid		(2,725	)		(2,615	)
Net balance as of end-of-period		6,297			5,995
Reinsurance recoverable		144			145
Balance as of end-of-period	$	6,441		$	6,140

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

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

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

10.  Contingencies and Commitments

Contingencies

Regulatory and Litigation Matters

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

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

Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the

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credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.

We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of September 30, 2022.

For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Accordingly, the estimate contained in this paragraph reflects two types of matters. For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued. In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount. For other matters included within this estimation, no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable. In these cases, the estimate reflects the reasonably possible loss or range of loss. As of September 30, 2022, we estimate the aggregate range of reasonably possible losses, including amounts in excess of amounts accrued for these matters as of such date, to be up to approximately $190 million, after-tax. Any estimate is not an indication of expected loss, if any, or of the Company’s maximum possible loss exposure on such matters.

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

Among other matters, we are presently engaged in litigation, including relating to cost of insurance rates (“Cost of Insurance and Other Litigation”), as described below. No accrual has been made for several of these matters. Although a loss is believed to be reasonably possible for these matters, for some of these matters, we are not able to estimate a reasonably possible amount or range of potential liability. An adverse outcome in one or more of these matters may have a material impact on the consolidated financial statements, but, based on information currently known, management does not believe those cases are likely to have such an impact.

Reinsurance Disputes

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

Cost of Insurance and Other Litigation

Cost of Insurance Litigation

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

EFG Bank AG, Cayman Branch, et al. v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:17-cv-02592, is a civil action filed on February 1, 2017. Plaintiffs own universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Plaintiffs allege that LNL breached the terms of policyholders’ contracts when it increased non-guaranteed cost of insurance rates beginning in 2016. We are vigorously defending this matter.

In re: Lincoln National COI Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:16-cv-06605-GJP, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 20, 2017. Plaintiffs purport to own certain universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2016. Plaintiffs sought to represent classes of policyowners and sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion. We are vigorously defending this matter.

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In re: Lincoln National 2017 COI Rate Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:17-cv-04150, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 28, 2018. Plaintiffs purport to own certain universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2017. Plaintiffs sought to represent classes of policyholders and sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion. We are vigorously defending this matter.

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

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

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

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

Other Litigation

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

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11. Shares and Stockholder’s Equity

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

AOCI

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

	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS Securities and Certain Other
Investments
Balance as of beginning-of-year	$	6,315		$	8,993
Unrealized holding gains (losses) arising during the period		(25,927	)		(4,049	)
Change in foreign currency exchange rate adjustment		(621	)		(123	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		7,632			1,360
Income tax benefit (expense)		4,040			599
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(9	)		(5	)
Associated amortization of DAC, VOBA, DSI and DFEL		(3	)		(18	)
Income tax benefit (expense)		3			5
Balance as of end-of-period	$	(8,552	)	$	6,798
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	240		$	42
Unrealized holding gains (losses) arising during the period		(214	)		55
Change in foreign currency exchange rate adjustment		623			129
Change in DAC, VOBA, DSI and DFEL		28			-
Income tax benefit (expense)		(92	)		(40	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		78			34
Associated amortization of DAC, VOBA, DSI and DFEL		(9	)		(1	)
Income tax benefit (expense)		(14	)		(7	)
Balance as of end-of-period	$	530		$	160
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(11	)	$	(14	)
Adjustment arising during the period		-			-
Balance as of end-of-period	$	(11	)	$	(14	)

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

	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS
Securities and Certain Other Investments
Gross reclassification	$	(9	)	$	(5	)	Realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(3	)		(18	)	Realized gain (loss)
Reclassification before income
tax benefit (expense)		(12	)		(23	)	Income (loss) before taxes
Income tax benefit (expense)		3			5		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(9	)	$	(18	)	Net income (loss)
Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	1		$	2		Net investment income
Foreign currency contracts		48			34		Net investment income
Foreign currency contracts		29			(2	)	Realized gain (loss)
Total gross reclassifications		78			34
Associated amortization of DAC,
VOBA, DSI and DFEL		(9	)		(1	)	Commissions and other expenses
Reclassifications before income
tax benefit (expense)		69			33		Income (loss) before taxes
Income tax benefit (expense)		(14	)		(7	)	Federal income tax expense (benefit)
Reclassifications, net of income tax	$	55		$	26		Net income (loss)

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12. Realized Gain (Loss)

Realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss) includes realized gains and losses from the sale of investments, write-downs for impairments of investments and changes in the allowance for credit losses for financial assets, changes in fair value for mortgage loans on real estate accounted for under the fair value option, changes in fair value of equity securities, certain derivative and embedded derivative gains and losses, gains and losses on the sale of subsidiaries and businesses and net gains and losses on reinsurance embedded derivatives and trading securities. Realized gains and losses on the sale of investments are determined using the specific identification method. Realized gain (loss) is recognized in net income, net of associated amortization of DAC, VOBA, DSI and DFEL. Realized gain (loss) is also net of allocations of investment gains and losses to certain contract holders and certain funds withheld on reinsurance arrangements for which we have a contractual obligation. Details underlying realized gain (loss) (in millions) were as follows:

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed maturity AFS securities:
Gross gains	$	10		$	1		$	14		$	15
Gross losses		(14	)		(3	)		(23	)		(20	)
Credit loss benefit (expense) (1)		(5	)		(8	)		(11	)		(9	)
Realized gain (loss) on equity securities (2)		6			4			(4	)		35
Credit loss benefit (expense) on mortgage loans on real estate		(9	)		40			4			77
Credit loss benefit (expense) on reinsurance-related assets (3)		(131	)		(2	)		(136	)		(6	)
Realized gain (loss) on the mark-to-market on certain instruments (4)(5)		250			23			710			111
Other gain (loss) on investments		(26	)		(1	)		(28	)		-
Associated amortization of DAC, VOBA, DSI and DFEL
and changes in other contract holder funds		(6	)		(9	)		(12	)		(19	)
Total realized gain (loss) related to financial instruments
and reinsurance-related assets		75			45			514			184
Indexed annuity and IUL contracts net derivative results: (6)
Gross gain (loss)		(15	)		(24	)		132			16
Associated amortization of DAC, VOBA, DSI and DFEL		18			19			(75	)		9
GLB fees ceded to LNBAR and attributed fees:
Gross gain (loss)		(66	)		(56	)		(195	)		(168	)
Associated amortization of DAC, VOBA, DSI and DFEL		(7	)		(8	)		(23	)		(25	)
Total realized gain (loss)	$	5		$	(24	)	$	353		$	16

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

⁽²⁾Includes mark-to-market adjustments on equity securities still held of $5 million and $4 million for the three months ended September 30, 2022 and 2021, respectively, and $1 million and $37 million for the nine months ended September 30, 2022 and 2021, respectively.

⁽³⁾In connection with our recognition of an allowance for credit losses for reinsurance-related assets, we perform a quantitative analysis using a probability of loss approach to estimate expected credit losses for reinsurance recoverables, inclusive of similar assets recognized using the deposit method of accounting. Our allowance for credit losses was $324 million and $188 million as of September 30, 2022, and December 31, 2021, respectively. The increase was attributable to updates to policyholder behavior assumptions that impacted ceded reserves.

⁽⁴⁾Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts net derivative results), reinsurance-related embedded derivatives, mortgage loans on real estate accounted for under the fair value option and trading securities.

⁽⁵⁾Includes gains and losses from fair value changes on mortgage loans on real estate accounted for under the fair value option of $(1) million and $2 million for the three months ended September 30, 2022 and 2021, respectively, and $(18) million and $2 million for the nine months ended September 30, 2022 and 2021, respectively.

⁽⁶⁾Represents the net difference between the change in fair value of the index options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity and IUL contracts along with changes in the fair value of embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.

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13. Fair Value of Financial Instruments

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

	As of September 30, 2022						As of December 31, 2021
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	97,391		$	97,391		$	117,511		$	117,511
Trading securities		3,527			3,527			4,427			4,427
Equity securities		427			427			314			314
Mortgage loans on real estate		17,975			16,348			17,893			18,599
Derivative investments (1)		3,624			3,624			5,437			5,437
Other investments		3,618			3,618			3,439			3,439
Cash and invested cash		1,291			1,291			2,331			2,331
Other assets:
GLB direct embedded derivatives		1,442			1,442			1,963			1,963
GLB ceded embedded derivatives		37			37			56			56
Reinsurance-related embedded derivatives		783			783			-			-
Indexed annuity ceded embedded derivatives		456			456			528			528
LPR ceded derivative		191			191			318			318
Separate account assets		137,295			137,295			182,583			182,583
Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(3,194	)		(3,194	)		(6,131	)		(6,131	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(1,739	)		(1,739	)		(1,788	)		(1,788	)
Account values of certain investment contracts		(42,895	)		(35,115	)		(41,164	)		(47,828	)
Short-term debt		(771	)		(771	)		(1,084	)		(1,084	)
Long-term debt		(2,267	)		(2,194	)		(2,334	)		(2,675	)
Reinsurance-related embedded derivatives		-			-			(578	)		(578	)
Other liabilities:
Derivative liabilities (1)		(276	)		(276	)		(249	)		(249	)
GLB ceded embedded derivatives		(1,475	)		(1,475	)		(2,015	)		(2,015	)

⁽¹⁾We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty.

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

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

Mortgage Loans on Real Estate

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

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Other Investments

The carrying value of our assets classified as other investments, excluding short-term investments, approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. Other investments also includes FHLB stock carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. The inputs used to measure the fair value of our LPs, other privately held investments and FHLB stock are classified as Level 3 within the fair value hierarchy. The remaining assets in other investments include cash collateral receivables and securities that are not LPs or other privately held investments. The inputs used to measure the fair value of these assets are classified as Level 2 within the fair value hierarchy.

Separate Account Assets

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

Other Contract Holder Funds

Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of September 30, 2022, and December 31, 2021, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.

Short-Term and Long-Term Debt

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

Fair Value Option

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

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

	As of		As of
	September 30,		December 31,
	2022		2021
Fair value	$	495	$	739
Aggregate contractual principal		516		742

As of September 30, 2022, and December 31, 2021, no loans for which the fair value option was elected were in non-accrual status, and none were more than 90 days past due and still accruing interest.

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Financial Instruments Carried at Fair Value

Short-Term Investments

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

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2022, or December 31, 2021.

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

		As of September 30, 2022
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	-		$	69,714			$	7,970		$	77,684
U.S. government bonds			337			20				-			357
State and municipal bonds			-			4,904				-			4,904
Foreign government bonds			-			297				34			331
RMBS			-			1,863				10			1,873
CMBS			-			1,542				-			1,542
ABS			-			9,250				1,091			10,341
Hybrid and redeemable preferred securities			43			258				58			359
Trading securities			-			2,925				602			3,527
Equity securities			13			246				168			427
Mortgage loans on real estate			-			-				495			495
Derivative investments (1)			-			6,299				636			6,935
Other investments – short-term investments			-			99				-			99
Cash and invested cash			-			1,291				-			1,291
Other assets:
GLB direct embedded derivatives			-			-				1,442			1,442
GLB ceded embedded derivatives			-			-				37			37
Reinsurance-related embedded derivatives			-			783				-			783
Indexed annuity ceded embedded derivatives			-			-				456			456
LPR ceded derivative			-			-				191			191
Separate account assets			420			136,875				-			137,295
Total assets		$	813		$	236,366			$	13,190		$	250,369
Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(3,194	)	$	(3,194	)
Other liabilities:
Derivative liabilities (1)			-			(2,956	)			(631	)		(3,587	)
GLB ceded embedded derivatives			-			-				(1,475	)		(1,475	)
Total liabilities		$	-		$	(2,956	)		$	(5,300	)	$	(8,256	)

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		As of December 31, 2021
		Quoted
		Prices
		in Active
	Markets for			Significant				Significant
		Identical		Observable				Unobservable				Total
		Assets			Inputs				Inputs			Fair
		(Level 1)			(Level 2)				(Level 3)			Value
Assets
Investments:
Fixed maturity AFS securities:
Corporate bonds		$	-		$	88,622			$	8,801		$	97,423
U.S. government bonds			395			5				-			400
State and municipal bonds			-			6,377				-			6,377
Foreign government bonds			-			382				41			423
RMBS			-			2,302				3			2,305
CMBS			-			1,590				-			1,590
ABS			-			7,636				870			8,506
Hybrid and redeemable preferred securities			53			344				90			487
Trading securities			32			3,567				828			4,427
Equity securities			7			216				91			314
Mortgage loans on real estate			-			-				739			739
Derivative investments (1)			-			7,597				149			7,746
Other investments – short-term investments			-			114				-			114
Cash and invested cash			-			2,331				-			2,331
Other assets:
GLB direct embedded derivatives			-			-				1,963			1,963
GLB ceded embedded derivatives			-			-				56			56
Indexed annuity ceded embedded derivatives			-			-				528			528
LPR ceded derivative			-			-				318			318
Separate account assets			646			181,929				-			182,575
Total assets		$	1,133		$	303,012			$	14,477		$	318,622
Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(6,131	)	$	(6,131	)
Reinsurance-related embedded derivatives			-			(578	)			-			(578	)
Other liabilities:
Derivative liabilities (1)			-			(2,430	)			(128	)		(2,558	)
GLB ceded embedded derivatives			-			-				(2,015	)		(2,015	)
Total liabilities		$	-		$	(3,008	)		$	(8,274	)	$	(11,282	)

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

‎

41

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of DAC, VOBA, DSI and DFEL. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.

	For the Three Months Ended September 30, 2022
							Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net			Value
Investments: (2)
Fixed maturity AFS securities:
Corporate bonds	$	8,531		$	1		$	(512	)	$	(34	)	$	(16	)	$	7,970
Foreign government bonds		37			-			(3	)		-			-			34
RMBS		1			-			-			9			-			10
ABS		1,153			-			(38	)		123			(147	)		1,091
Hybrid and redeemable preferred
securities		99			(1	)		(34	)		(6	)		-			58
Trading securities		620			(24	)		-			3			3			602
Equity securities		145			24			-			(1	)		-			168
Mortgage loans on real estate		528			(1	)		(4	)		(28	)		-			495
Derivative investments		3			3			-			-			(1	)		5
Other assets:
GLB direct embedded derivatives (3)		1,400			42			-			-			-			1,442
GLB ceded embedded derivatives (3)		41			(4	)		-			-			-			37
Indexed annuity ceded embedded
derivatives (3)		440			(47	)		-			63			-			456
LPR ceded derivative (4)		215			(24	)		-			-			-			191
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives (3)		(3,366	)		394			-			(222	)		-			(3,194	)
Other liabilities – GLB ceded embedded
derivatives (3)		(1,437	)		(38	)		-			-			-			(1,475	)
Total, net	$	8,410		$	325		$	(591	)	$	(93	)	$	(161	)	$	7,890

‎

42

	For the Three Months Ended September 30, 2021
							Gains		Issuances,				Transfers
				Items			(Losses)			Sales,			Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net			Value
Investments: (2)
Fixed maturity AFS securities:
Corporate bonds	$	8,047		$	1		$	(87	)	$	476		$	(25	)	$	8,412
Foreign government bonds		43			-			(3	)		66			-			106
RMBS		1			-			-			-			-			1
CMBS		9			-			-			-			(8	)		1
ABS		629			-			(1	)		144			(38	)		734
Hybrid and redeemable preferred
securities		100			-			5			(27	)		-			78
Trading securities		630			3			-			(33	)		-			600
Equity securities		79			5			-			-			-			84
Mortgage loans on real estate		818			4			3			(33	)		-			792
Derivative investments		1			-			-			-			-			1
Other assets:
GLB direct embedded derivatives (3)		1,767			(69	)		-			-			-			1,698
GLB ceded embedded derivatives (3)		53			2			-			-			-			55
Indexed annuity ceded embedded
derivatives (3)		-			(14	)		-			(6	)		515			495
LPR ceded derivative (4)		294			(1	)					-			-			293
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives (3)		-			47			-			86			(4,937	)		(4,804	)
Other liabilities – GLB ceded embedded
derivatives (3)		(1,816	)		67			-			-			-			(1,749	)
Total, net	$	10,655		$	45		$	(83	)	$	673		$	(4,493	)	$	6,797

43

	For the Nine Months Ended September 30, 2022
							Gains		Issuances,				Transfers
				Items			(Losses)		Sales,				Into or
				Included			in		Maturities,				Out
	Beginning			in			OCI		Settlements,				of			Ending
	Fair			Net			and			Calls,			Level 3,			Fair
	Value			Income			Other (1)			Net			Net			Value
Investments: (2)
Fixed maturity AFS securities:
Corporate bonds	$	8,801		$	2		$	(1,514	)	$	583		$	98		$	7,970
Foreign government bonds		41			-			(7	)		-			-			34
RMBS		3			-			-			21			(14	)		10
CMBS		-			-			-			17			(17	)		-
ABS		870			-			(98	)		576			(257	)		1,091
Hybrid and redeemable preferred
securities		90			(1	)		(25	)		(6	)		-			58
Trading securities		828			(82	)		-			(143	)		(1	)		602
Equity securities		91			54			-			23			-			168
Mortgage loans on real estate		739			(16	)		(10	)		(218	)		-			495
Derivative investments		21			5			(6	)		-			(15	)		5
Other assets:
GLB direct embedded derivatives (3)		1,963			(521	)		-			-			-			1,442
GLB ceded embedded derivatives (3)		56			(19	)		-			-			-			37
Indexed annuity ceded embedded
derivatives (3)		528			(214	)		-			142			-			456
LPR ceded derivative (4)		318			(127	)		-			-			-			191
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives (3)		(6,131	)		3,244			-			(307	)		-			(3,194	)
Other liabilities – GLB ceded embedded
derivatives (3)		(2,015	)		540			-			-			-			(1,475	)
Total, net	$	6,203		$	2,865		$	(1,660	)	$	688		$	(206	)	$	7,890

44

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

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

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

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

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

‎

45

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

	For the Three Months Ended September 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	207		$	(138	)	$	(50	)	$	(51	)	$	(2	)	$	(34	)
RMBS		9			-			-			-			-			9
ABS		213			-			-			(90	)		-			123
Hybrid and redeemable preferred
securities		-			-			-			-			(6	)		(6	)
Trading securities		11			-			-			(8	)		-			3
Equity securities		-			(1	)		-			-			-			(1	)
Mortgage loans on real estate		2			-			-			(30	)		-			(28	)
Other assets – indexed annuity ceded
embedded derivatives		37			-			-			26			-			63
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(181	)		-			-			(41	)		-			(222	)
Total, net	$	298		$	(139	)	$	(50	)	$	(194	)	$	(8	)	$	(93	)

	For the Three Months Ended September 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	635		$	(17	)	$	(82	)	$	(60	)	$	-		$	476
Foreign government bonds		66			-			-			-			-			66
ABS		195			-			-			(51	)		-			144
Hybrid and redeemable preferred
securities		3			-			-			-			(30	)		(27	)
Trading securities		3			(15	)		-			(21	)		-			(33	)
Mortgage loans on real estate		8			-			(22	)		(19	)		-			(33	)
Other assets – indexed annuity ceded
embedded derivatives		19			-			-			(25	)		-			(6	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(47	)		-			-			133			-			86
Total, net	$	882		$	(32	)	$	(104	)	$	(43	)	$	(30	)	$	673

‎

46

	For the Nine Months Ended September 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,105		$	(236	)	$	(74	)	$	(179	)	$	(33	)	$	583
RMBS		21			-			-			-			-			21
CMBS		17			-			-			-			-			17
ABS		768			-			-			(185	)		(7	)		576
Hybrid and redeemable preferred
securities		-			-			-			-			(6	)		(6	)
Trading securities		282			(220	)		-			(205	)		-			(143	)
Equity securities		32			(9	)		-			-			-			23
Mortgage loans on real estate		14			-			-			(232	)		-			(218	)
Other assets – indexed annuity ceded
embedded derivatives		76			-			-			66			-			142
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(410	)		-			-			103			-			(307	)
Total, net	$	1,905		$	(465	)	$	(74	)	$	(632	)	$	(46	)	$	688

	For the Nine Months Ended September 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,356		$	(90	)	$	(103	)	$	(306	)	$	(17	)	$	840
U.S. government bonds		-			-			(5	)		-			-			(5	)
Foreign government bonds		80			-			-			-			-			80
CMBS		8			-			-			-			-			8
ABS		563			-			-			(137	)		-			426
Hybrid and redeemable preferred
securities		9			(20	)		-			-			(30	)		(41	)
Trading securities		127			(24	)		-			(134	)		-			(31	)
Equity securities		5			(9	)		-			-			-			(4	)
Mortgage loans on real estate		89			(101	)		(26	)		(19	)		-			(57	)
Derivative investments		174			(124	)		(182	)		-			-			(132	)
Other assets – indexed annuity ceded
embedded derivatives		22			-			-			(82	)		-			(60	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(155	)		-			-			291			-			136
Total, net	$	2,278		$	(368	)	$	(316	)	$	(387	)	$	(47	)	$	1,160

‎

47

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Trading securities (1)	$	(23	)	$	3		$	(81	)	$	3
Equity securities (1)		23			5			54			33
Mortgage loans on real estate (1)		(1	)		4			(16	)		12
Derivative investments (1)		2			-			5			-
Other assets – LPR ceded derivative (2)		(24	)		(1	)		(127	)		(25	)
Embedded derivatives: (1)
Indexed annuity and IUL contracts		(55	)		(36	)		4			22
Other assets – GLB direct and ceded		231			141			53			1,839
Other liabilities – GLB ceded		(231	)		(141	)		(52	)		(1,836	)
Total, net	$	(78	)	$	(25	)	$	(160	)	$	48

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

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

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed maturity AFS securities:
Corporate bonds	$	(517	)	$	(82	)	$	(1,521	)	$	(139	)
Foreign government bonds		(2	)		(3	)		(7	)		(11	)
ABS		(39	)		(1	)		(101	)		(5	)
Hybrid and redeemable preferred
securities		(35	)		5			(25	)		18
Mortgage loans on real estate		(4	)		3			(10	)		5
Total, net	$	(597	)	$	(78	)	$	(1,664	)	$	(132	)

48

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

	For the Three								For the Three
	Months Ended								Months Ended
	September 30, 2022								September 30, 2021
	Transfers		Transfers						Transfers			Transfers
	Into		Out of						Into			Out of
	Level 3		Level 3			Total			Level 3			Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	37	$	(53	)	$	(16	)	$	-		$	(25	)	$	(25	)
CMBS		-		-			-			-			(8	)		(8	)
ABS		15		(162	)		(147	)		8			(46	)		(38	)
Trading securities		4		(1	)		3			-			-			-
Derivative investments		-		(1	)		(1	)		-			-			-
Other assets – indexed annuity ceded
embedded derivatives		-		-			-			515			-			515
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		-		-			-			(4,937	)		-			(4,937	)
Total, net	$	56	$	(217	)	$	(161	)	$	(4,414	)	$	(79	)	$	(4,493	)

1
	For the Nine								For the Nine
	Months Ended								Months Ended
	September 30, 2022								September 30, 2021
	Transfers		Transfers						Transfers			Transfers
	Into		Out of						Into			Out of
	Level 3		Level 3			Total			Level 3			Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	265	$	(167	)	$	98		$	11		$	(64	)	$	(53	)
Foreign government bonds		-		-			-			-			(37	)		(37	)
RMBS		-		(14	)		(14	)		-			(1	)		(1	)
CMBS		-		(17	)		(17	)		-			(8	)		(8	)
ABS		16		(273	)		(257	)		8			(266	)		(258	)
Trading securities		4		(5	)		(1	)		12			(26	)		(14	)
Derivative investments		-		(15	)		(15	)		-			(2,658	)		(2,658	)
Other assets:
Indexed annuity ceded embedded
derivatives		-		-			-			515			(527	)		(12	)
LPR ceded derivative		-		-			-			318			-			318
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		-		-			-			(4,937	)		4,170			(767	)
Total, net	$	285	$	(491	)	$	(206	)	$	(4,073	)	$	583		$	(3,490	)

Transfers into and out of Level 3 are generally the result of observable market information on financial instruments no longer being available or becoming available to our pricing vendors. For the three and nine months ended September 30, 2022 and 2021, transfers in and out of Level 3 were attributable primarily to the financial instruments’ observable market information no longer being available or becoming available. In 2021, transfers out of Level 3 included derivative instruments for which we changed valuation techniques. This change in valuation technique was primarily from unobservable inputs in counterparty models to a mathematical model provided by a third party. The updated valuation technique is considered industry standard and provides us with greater visibility into the economic valuation inputs.

49

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of September 30, 2022:

											Weighted
											Average
	Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range (1)
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	2,844		Discounted cash flow	Liquidity/duration adjustment (2)	0.9	%	-	7.3	%	2.1	%
Foreign government
bonds		34		Discounted cash flow	Liquidity/duration adjustment (2)	1.2	%	-	19.1	%	16.4	%
ABS		15		Discounted cash flow	Liquidity/duration adjustment (2)	2.4	%	-	2.4	%	2.4	%
Hybrid and redeemable
preferred securities		7		Discounted cash flow	Liquidity/duration adjustment (2)	1.4	%	-	1.5	%	1.5	%
Equity securities		19		Discounted cash flow	Liquidity/duration adjustment (2)	4.2	%	-	4.5	%	4.3	%
Other assets:
GLB direct and ceded
embedded derivatives		1,479		Discounted cash flow	Long-term lapse rate (3)	1	%	-	30	%	(10)
					Utilization of guaranteed withdrawals (4)	85	%	-	100	%	94	%
					Claims utilization factor (5)	60	%	-	100	%	(10)
					Premiums utilization factor (5)	80	%	-	115	%	(10)
					NPR (6)	0.31	%	-	2.38	%	1.67	%
					Mortality rate (7)				(9)		(10)
					Volatility (8)	1	%	-	28	%	14.30	%
Indexed annuity ceded
embedded derivatives		456		Discounted cash flow	Lapse rate (3)	0	%	-	9	%	(10)
					Mortality rate (7)				(9)		(10)
LPR ceded derivative		191		Discounted cash flow	Long-term lapse rate (3)	0	%	-	1.65	%	(10)
					NPR (6)	0.31	%	-	2.38	%	1.67	%
					Mortality rate (7)				(9)		(10)
Liabilities
Future contract benefits –
indexed annuity contracts
embedded derivatives	$	(3,293	)	Discounted cash flow	Lapse rate (3)	0	%	-	9	%	(10)
					Mortality rate (7)				(9)		(10)
Other liabilities –
GLB ceded embedded
derivatives		(1,475	)	Discounted cash flow	Long-term lapse rate (3)	1	%	-	30	%	(10)
					Utilization of guaranteed withdrawals (4)	85	%	-	100	%	94	%
					Claims utilization factor (5)	60	%	-	100	%	(10)
					Premiums utilization factor (5)	80	%	-	115	%	(10)
					NPR (6)	0.31	%	-	2.38	%	1.67	%
					Mortality rate (7)				(9)		(10)
					Volatility (8)	1	%	-	28	%	14.30	%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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14. Segment Information

We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments. We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business. A discussion of these segments and Other Operations is found in Note 21 to the Consolidated Financial Statements in our 2021 Form 10-K.

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

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

Sales or disposals and impairments of financial assets;

Changes in the fair value of equity securities;

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

GLB rider fees ceded to LNBAR;

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

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

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

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

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

Losses from the impairment of intangible assets;

Income (loss) from discontinued operations;

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

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

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

Excluded realized gain (loss);

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

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

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

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022		2021
Revenues
Operating revenues:
Annuities	$	1,087		$	1,158		$	3,272	$	3,389
Retirement Plan Services		312			325			937		977
Life Insurance		1,644			2,225			5,055		5,956
Group Protection		1,332			1,243			3,958		3,742
Other Operations		31			36			93		109
Excluded realized gain (loss), pre-tax		(46	)		(75	)		195		(137	)
Amortization of DFEL associated with benefit ratio unlocking, pre-tax		3			-			3		-
Total revenues	$	4,363		$	4,912		$	13,513	$	14,036

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	347		$	375		$	1,045		$	993
Retirement Plan Services		49			57			152			170
Life Insurance		(1,961	)		153			(1,882	)		448
Group Protection		36			(32	)		54			(12	)
Other Operations		(71	)		(120	)		(201	)		(202	)
Excluded realized gain (loss), after-tax		(35	)		(59	)		153			(108	)
Benefit ratio unlocking, after-tax		(18	)		(2	)		(49	)		9
Impairment of intangibles		(634	)		-			(634	)		-
Net income (loss)	$	(2,287	)	$	372		$	(1,362	)	$	1,298

Other segment information (in millions) was as follows:

	As of		As of
	September 30,		December 31,
	2022		2021
Assets
Annuities	$	163,339	$	200,827
Retirement Plan Services		41,096		47,633
Life Insurance		95,240		106,973
Group Protection		9,914		10,522
Other Operations		20,144		26,060
Total assets	$	329,733	$	392,015

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Item 2. Management’s Narrative Analysis of the Results of Operations

Index to Management’s Narrative Analysis of the Results of Operations

	Page
Forward-Looking Statements – Cautionary Language	55
Introduction	56
Critical Accounting Policies and Estimates	57
Results of Consolidated Operations	59
Results of Annuities	60
Results of Retirement Plan Services	61
Results of Life Insurance	62
Results of Group Protection	64
Results of Other Operations	65
Realized Gain (Loss)	66
Liquidity and Capital Resources	68

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

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

In this report, in addition to providing consolidated revenues and net income (loss), we also provide segment operating revenues and income (loss) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments. Operating revenues and income (loss) from operations are the financial performance measures we use to evaluate and assess the results of our segments. Accordingly, we define and report operating revenues and income (loss) from operations by segment in Note 14. Our management believes that operating revenues and income (loss) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses. Certain items are excluded from operating revenue and income (loss) from operations because they are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in many instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. In addition, we believe that our definitions of operating revenues and income (loss) from operations will provide readers with a more valuable measure of our performance because it better reveals trends in our business.

Management’s Narrative Analysis is presented pursuant to General Instructions H(2)(a) of Form 10-Q in lieu of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

This Quarterly Report on Form 10-Q, including “Risk Factors” and “Management’s Narrative Analysis of the Results of Operations,” contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements may contain words like: “anticipate,” “believe,” “estimate,” “expect,” “project,” “shall,” “will” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:

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

Weak general economic and business conditions that may affect demand for our products, account values, investment results and claims experience;

Adverse global capital and credit market conditions that may affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments;

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

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

The impact of Regulation Best Interest or other regulations adopted by the SEC, the Department of Labor or other federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers that could affect our distribution model;

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

Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products;

Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities;

The impact of the implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the regulation of derivatives transactions;

The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;

A decline or continued volatility in the equity markets causing a reduction in the sales of our products; a reduction of asset-based fees that we charge on various investment and insurance products; and an increase in liabilities related to guaranteed benefit features of our variable annuity products;

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

Ineffectiveness of our risk management policies and procedures;

A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our products;

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

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

Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems, including from cyberattacks or other breaches of our data security systems;

The inability to realize or sustain the benefits we expect from, greater than expected investments in, and the potential impact of efforts related to, our strategic initiatives, including the Spark Initiative;

The adequacy and collectability of reinsurance that we have obtained;

Future pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;

Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that we can charge for our products;

The unknown effect on our businesses resulting from evolving market preferences and the changing demographics of our client base; and

The unanticipated loss of key management, financial planners or wholesalers.

The risks and uncertainties included here are not exhaustive.  Our most recent Form 10-K as well as other reports that we file with the SEC include additional factors that could affect our businesses and financial performance.  Moreover, we operate in a rapidly changing and competitive environment.  New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

We do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in “Part I – Item 1A. Risk Factors” in our 2021 Form 10-K for a discussion of certain risks relating to our business.

INTRODUCTION

COVID-19 Pandemic

The health, economic and business conditions precipitated by the worldwide COVID-19 pandemic that emerged in 2020 continue to adversely affect us and are expected to continue to adversely affect our business, results of operations and financial condition in the fourth quarter of 2022. We continue to monitor U.S. CDC reports related to COVID-19 and the potential impacts of the COVID-19 pandemic on our Life Insurance and Group Protection segments. See “Additional Information” within Results of Life Insurance and Results of Group Protection below for expected impacts of the COVID-19 pandemic in the fourth quarter of 2022.

The ultimate impact on our business, results of operations and financial condition depends on the severity and duration of the COVID-19 pandemic and related health, economic and business impacts and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict. For more information on the risks related to the COVID-19 pandemic, see “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Interest Rate Environment

In light of substantial progress since 2020 in the labor markets, elevated inflation and geopolitical events, the Federal Reserve announced in March 2022 the first increase to the federal funds rate target range since December 2018. Subsequently, the Federal Reserve announced consecutive increases to the federal funds rate target range through September 2022. In November 2022, the Federal Reserve announced an additional 75 basis points increase, when it set the range at 3.75% to 4.00% and reiterated that it will implement policy as needed to combat inflation. Additionally, the Federal Reserve announced that it will continue the reduction it started in June 2022 of its holdings of Treasury securities, agency debt and agency mortgage-backed securities. As interest rates are rising, which impacts our portfolio yields, we continue to be proactive in our investment strategies, product designs, crediting rate strategies, expense management actions and overall asset-liability practices to mitigate the risk of unfavorable consequences in this interest rate environment.

We have provided disclosures around interest rate risk in “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals,” “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Critical Accounting Policies and Estimates – Annual Assumption

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Review – Long-Term New Money Investment Yield Sensitivity” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K.

Critical Accounting Policies and Estimates

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

DAC, VOBA, DSI and DFEL

Reversion to the Mean

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

If we had unlocked our RTM assumption as of September 30, 2022, we would have recorded unfavorable unlocking of approximately $155 million, pre-tax, primarily within our Annuities segment.

Investments

Investment Valuation

For more information about the valuation of our financial instruments carried at fair value, see “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Critical Accounting Policies and Estimates – Investments – Investment Valuation” in our 2021 Form 10-K and Note 13 herein.

Derivatives

For information on our accounting policies for derivatives, see Note 5 herein. For information on market exposures associated with our derivatives, including sensitivities, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K.

Annual Assumption Review

During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used for our EGPs underlying the amortization of DAC, VOBA, DSI and DFEL as well as our reserves and embedded derivatives. For more information on our comprehensive review, see Note 1 in our 2021 Form 10-K. Details underlying the effect to net income (loss) from our annual assumption review (in millions) were as follows:

	For the Three
	Months Ended
	September 30,
	2022			2021
Income (loss) from operations:
Annuities	$	35		$	18
Retirement Plan Services		6			-
Life Insurance		(1,971	)		(51)
Group Protection		1			16
Excluded realized gain (loss)		(102	)		(11)
Net income (loss)	$	(2,031	)	$	(28)

The impacts of our annual assumption review were driven primarily by the following:

2022

For Annuities, favorable unlocking was driven by increases to interest rate assumptions.

For Retirement Plan Services, favorable unlocking was driven by increases to interest rate assumptions and other items.

For Life Insurance, unfavorable unlocking was driven by updates to policyholder behavior assumptions related to universal life insurance (“UL”) products with secondary guarantees in the amount of $1.6 billion, after-tax, as well as updates to mortality, morbidity and reinsurance assumptions and other items.

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For Group Protection, the favorable impact was driven by updates to life waiver assumptions and increases to interest rate assumptions, partially offset by unfavorable updates to long-term disability incidence and severity assumptions.

For excluded realized gain (loss), unfavorable unlocking was driven by updates to policyholder behavior assumptions that impacted ceded reserves, partially offset by favorable updates to capital market assumptions.

2021

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

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

For Group Protection, the favorable impact was driven by updates to long-term disability termination rate assumptions, partially offset by unfavorable updates to interest rate assumptions.

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

Goodwill

Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The fair values of our reporting units are comprised of the value of in-force (i.e., existing) business and the value of new business. Specifically, new business is representative of cash flows and profitability associated with policies or contracts we expect to issue in the future, reflecting our forecasts of future sales volume and product mix over a 10-year period. To determine the values of in-force and new business, we use a discounted cash flows technique that applies a discount rate reflecting the market expected, weighted-average rate of return adjusted for the risk factors associated with operations to the projected future cash flows for each reporting unit.

We apply significant judgment when determining the estimated fair value of our reporting units. Factors that can influence the value of goodwill include the capital markets, competitive landscape, regulatory environment, consumer confidence and any items that can directly or indirectly affect new business future cash flows. Factors that could affect production levels and profitability of new business include mix of new business, pricing changes, customer acceptance of our products and distribution strength. Spread compression and related effects to profitability caused by lower interest rates affect the valuation of in-force business more significantly than the valuation of new business, as new business pricing assumptions reflect the current and anticipated future interest rate environment. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments.

As a result of the current capital market environment, including (i) declining equity markets and (ii) the impact of rising interest rates on our discount rate assumption, we accelerated our quantitative goodwill impairment test for our Life Insurance reporting unit as we concluded that there were indicators of impairment. Based on this quantitative test, which included updating our best estimate assumptions therein, we incurred an impairment during the third quarter of 2022 of the Life Insurance reporting unit goodwill of $634 million, which represents a write-off of the entire balance of goodwill for the reporting unit.

We concluded that, for the third quarter, there were not indicators of impairment for our remaining reporting units (Annuities, Retirement Plan Services and Group Protection). During the fourth quarter, we will perform our annual quantitative goodwill impairment test as of October 1, 2022, on these other reporting units. For more information on goodwill, see Note 7 herein and “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Introduction – Critical Accounting Policies and Estimates – Goodwill and Other Intangible Assets” and Notes 1 and 9 in our 2021 Form 10-K.

Income Taxes

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was passed by the U.S. Congress and signed into law by President Biden. The IRA enacted a new corporate alternative minimum tax (“CAMT”), effective for tax years beginning after December 31, 2022. We are currently evaluating the impact of CAMT on our business, results of operations and financial condition.

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RESULTS OF CONSOLIDATED OPERATIONS

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	347		$	375		$	1,045		$	993
Retirement Plan Services		49			57			152			170
Life Insurance		(1,961	)		153			(1,882	)		448
Group Protection		36			(32	)		54			(12	)
Other Operations		(71	)		(120	)		(201	)		(202	)
Excluded realized gain (loss), after-tax		(35	)		(59	)		153			(108	)
Benefit ratio unlocking, after-tax		(18	)		(2	)		(49	)		9
Impairment of intangibles		(634	)		-			(634	)		-
Net income (loss)	$	(2,287	)	$	372		$	(1,362	)	$	1,298

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

Net income decreased due primarily to the following:

The effect of our annual assumption review.

Goodwill impairment in our Life Insurance segment.

Lower fee income driven by lower average daily variable account values.

Negative performance on alternative investments in the third quarter of 2022 compared to investment income in 2021.

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

Higher realized gains.

Lower mortality claims in our Life Insurance and Group Protection segments.

Lower expenses driven by lower legal expenses, partially offset by elevated compensation-related expenses.

Growth in business in force.

For a discussion of the goodwill impairment, see “Introduction – Critical Accounting Policies and Estimates – Goodwill” above. For a discussion of the COVID-19 pandemic, see “Introduction” above. We provide information about our segments’ and Other Operations’ operating revenue and expense line items and realized gain (loss), key drivers of changes and historical details underlying the line items below. For factors that could cause actual results to differ materially from those set forth, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2021 Form 10-K.

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RESULTS OF ANNUITIES

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

	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating Revenues
Insurance premiums (1)	$	57	$	30	$	112	$	89
Fee income		541		633		1,693		1,857
Net investment income		362		351		1,022		986
Operating realized gain (loss) (2)		52		49		157		152
Amortization of deferred gain on
business sold through reinsurance		6		7		19		19
Other revenues (3)		69		88		269		286
Total operating revenues		1,087		1,158		3,272		3,389
Operating Expenses
Interest credited		222		210		638		607
Benefits (1)		55		27		188		142
Commissions and other expenses		405		470		1,218		1,455
Total operating expenses		682		707		2,044		2,204
Income (loss) from operations before taxes		405		451		1,228		1,185
Federal income tax expense (benefit)		58		76		183		192
Income (loss) from operations	$	347	$	375	$	1,045	$	993

⁽¹⁾Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include changes in income annuity reserves driven by premiums.

⁽²⁾See “Realized Gain (Loss)” below.

⁽³⁾Consists primarily of revenues attributable to broker-dealer services, which are subject to market volatility and the net settlement related to certain reinsurance transactions, which has a corresponding offset in net investment income and interest credited.

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

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

Lower fee income driven by lower average daily variable account values.

Higher benefits, net of changes in income annuity reserves, driven by an increase in the growth in benefit reserves driven primarily by equity market performance, partially offset by the effect of unlocking.

The decrease in income from operations was partially offset by lower commissions and other expenses driven by lower trail commissions resulting from lower average daily variable account values and lower amortization expense as a result of lower actual gross profits.

Comparison of the Nine Months Ended September 30, 2022 to 2021

Income from operations for this segment increased due primarily to lower amortization expense as a result of lower actual gross profits and lower trail commissions resulting from lower average daily variable account values.

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

Lower fee income driven by lower average daily variable account values.

Higher benefits, net of changes in income annuity reserves, driven by an increase in the growth in benefit reserves driven primarily by equity market performance, partially offset by the effect of unlocking.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

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

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New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations.

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

Our fixed and indexed variable annuities have discretionary fixed and indexed crediting rates that reset on an annual or periodic basis and may be subject to surrender charges. Our ability to retain these annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction” above.

RESULTS OF RETIREMENT PLAN SERVICES

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

	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating Revenues
Fee income	$	62	$	73	$	194	$	214
Net investment income		242		243		716		736
Other revenues (1)		8		9		27		27
Total operating revenues		312		325		937		977
Operating Expenses
Interest credited		161		153		469		462
Benefits		1		1		2		2
Commissions and other expenses		95		102		290		308
Total operating expenses		257		256		761		772
Income (loss) from operations before taxes		55		69		176		205
Federal income tax expense (benefit)		6		12		24		35
Income (loss) from operations	$	49	$	57	$	152	$	170

⁽¹⁾Consists primarily of mutual fund account program revenues from mid to large employers.

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

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

Lower net investment income, net of interest credited, driven by negative performance on alternative investments within our surplus portfolio in the third quarter of 2022 compared to investment income in 2021, and lower prepayment and bond make-whole premiums, partially offset by higher average fixed account values and impacts to portfolio yields from the current interest rate environment.

Lower fee income driven by lower average daily account values.

The decrease in income from operations was partially offset by lower commissions and other expenses driven by the effect of unlocking, lower trail commissions resulting from lower average account values and lower amortization as a result of lower actual gross profits.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

For a discussion of the COVID-19 pandemic, see “Introduction” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of

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operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Net flows in this business fluctuate based on the timing of larger plans being implemented and terminating over the course of the year.

New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. The other component of net flows relates to the retention of the business.  An important measure of retention is the reduction in account values caused by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account values were 9% for the three and nine months ended September 30, 2022, and 10% for the corresponding periods in 2021.

Our net flows are negatively affected by the continued net outflows from our oldest blocks of annuities business, which are among our higher margin product lines in this segment, due to the fact that they are mature blocks with low distribution and servicing costs. The proportion of these products to our total account values was 17 % and 18% as of September 30, 2022 and 2021, respectively. Due to this overall shift in business mix toward products with lower returns, new deposit production continues to be necessary to maintain earnings at current levels.

Our fixed annuity business includes products with discretionary and index-based crediting rates that are reset on either a quarterly or semi-annual basis. Our ability to retain quarterly or semi-annual reset annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction” above.

RESULTS OF LIFE INSURANCE

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

	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022			2021
Operating Revenues
Insurance premiums (1)	$	239		$	203	$	669		$	576
Fee income		834			1,221		2,498			2,980
Net investment income		560			795		1,849			2,381
Operating realized gain (loss) (2)		(1	)		2		1			1
Amortization of deferred gain (loss) on
business sold through reinsurance		10			-		33			2
Other revenues		2			4		5			16
Total operating revenues		1,644			2,225		5,055			5,956
Operating Expenses
Interest credited		324			370		968			1,101
Benefits		3,469			821		5,572			2,872
Commissions and other expenses		342			845		921			1,432
Total operating expenses		4,135			2,036		7,461			5,405
Income (loss) from operations before taxes		(2,491	)		189		(2,406	)		551
Federal income tax expense (benefit)		(530	)		36		(524	)		103
Income (loss) from operations	$	(1,961	)	$	153	$	(1,882	)	$	448

⁽¹⁾Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves.

⁽²⁾See “Realized Gain (Loss)” below.

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

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

Higher benefits due to the effect of unlocking, partially offset by lower mortality claims.

Lower fee income due to the effect of unlocking and the impact of the fourth quarter 2021 reinsurance agreement.

Lower net investment income, net of interest credited, driven by negative performance on alternative investments in the third quarter of 2022 compared to investment income in 2021, and the impact of the fourth quarter 2021 reinsurance agreement.

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

Lower commissions and other expenses due to the effect of unlocking.

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

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

We expect an ongoing reduction in income from operations in future quarters of approximately $40 million per quarter as a result of the significantly unfavorable impact of the third quarter 2022 annual assumption review.

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

We expect COVID-19-related mortality to continue to follow U.S. death trends. For a discussion of the COVID-19 pandemic, see “Introduction – COVID-19 Pandemic” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Generally, we have higher mortality in the first quarter of the year due to the seasonality of claims.

Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest.

For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Interest Rate Environment” above.

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RESULTS OF GROUP PROTECTION

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

	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022		2021			2022		2021
Operating Revenues
Insurance premiums	$	1,200	$	1,107		$	3,556	$	3,333
Net investment income		82		91			253		275
Other revenues (1)		50		45			149		134
Total operating revenues		1,332		1,243			3,958		3,742
Operating Expenses
Interest credited		1		1			4		4
Benefits		939		971			2,892		2,818
Commissions and other expenses		347		311			993		936
Total operating expenses		1,287		1,283			3,889		3,758
Income (loss) from operations before taxes		45		(40	)		69		(16	)
Federal income tax expense (benefit)		10		(8	)		15		(4	)
Income (loss) from operations	$	35	$	(32	)	$	54	$	(12	)

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

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

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

Higher insurance premiums due to growth in business in force and favorable persistency.

Lower benefits driven by lower COVID-19-related incidence in our life business and lower incidence in our disability business, partially offset by less favorable reserve adjustments.

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

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

Lower net investment income, net of interest credited, driven by negative performance on alternative investments within our surplus portfolio in the third quarter of 2022, compared to investment income in 2021.

Comparison of the Nine Months Ended September 30, 2022 to 2021

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

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

Higher benefits driven by growth in the business and less favorable reserve adjustments, partially offset by lower COVID-19-related incidence in our life business.

Higher commissions and other expenses driven by investments in claims management to address higher claims volume and to improve ongoing operations.

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

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information on our reserve adjustments.

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Additional Information

Our total loss ratio for the three and nine months ended September 30, 2022, was 78.3% and 81.4%, respectively, compared to 87.8% and 84.7% for the corresponding periods in 2021, respectively. The total loss ratio for the three and nine months ended September 30, 2022, decreased as compared to the three and nine months ended September 30, 2021, due primarily to lower COVID-19-related incidence and favorable reserve adjustments in our life business, partially offset by unfavorable reserve adjustments in our disability business in 2022 compared to favorable reserve adjustments in 2021. We expect COVID-19-related morbidity headwinds to lessen in our disability business and COVID-19-related mortality to continue to follow U.S. death trends in our life business. For a discussion of the COVID-19 pandemic, see “Introduction” above.

Generally, we experience higher mortality in the first quarter of the year and higher disability claims in the fourth quarter of the year due

to the seasonality of claims.

For information about the effect of the loss ratio sensitivity on our income (loss) from operations, see “Part II – Item 7. Management’s

Narrative Analysis of the Results of Operations – Results of Group Protection – Additional Information” in our 2021 Form 10-K.

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

RESULTS OF OTHER OPERATIONS

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Operating Revenues
Insurance premiums	$	1		$	1		$	2		$	1
Net investment income		26			31			93			90
Other revenues		4			4			(2	)		18
Total operating revenues		31			36			93			109
Operating Expenses
Interest credited		9			10			30			32
Benefits		18			17			54			48
Other expenses		11			110			33			144
Interest and debt expense		36			29			96			86
Spark program expense		44			22			118			57
Total operating expenses		118			188			331			367
Income (loss) from operations before taxes		(87	)		(152	)		(238	)		(258	)
Federal income tax expense (benefit)		(17	)		(32	)		(37	)		(56	)
Income (loss) from operations	$	(70	)	$	(120	)	$	(201	)	$	(202	)

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

Loss from operations for Other Operations decreased due primarily to lower other expenses attributable to a one-time legal expense incurred in the third quarter of 2021, and the effect of changes in LNC’s stock price on our deferred compensation plans, as LNC’s stock price decreased during the third quarter of 2022, compared to an increase during the third quarter of 2021.

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

Higher Spark program expense as part of our Spark Initiative.

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

Lower net investment income, net of interest credited, related to lower allocated investments driven by a decrease in excess capital retained by Other Operations.

Comparison of the Nine Months Ended September 30, 2022 to 2021

Loss from operations for Other Operations decreased modestly due primarily to lower other expenses attributable to a one-time legal expense incurred in the third quarter of 2021, and the effect of changes in LNC’s stock price on our deferred compensation plans, as

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LNC’s stock price decreased during the nine months ended September 30, 2022, compared to an increase during the nine months ended September 30, 2021.

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

Higher Spark program expense as part of our Spark Initiative.

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

Lower other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans, which decreased during the nine months ended September 30, 2022, compared to an increase during the nine months ended September 30, 2021.

REALIZED GAIN (LOSS)

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

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Components of Realized Gain (Loss), Pre-Tax
Total operating realized gain (loss)	$	51		$	51		$	158		$	153
Total excluded realized gain (loss)		(46	)		(75	)		195			(137	)
Total realized gain (loss), pre-tax	$	5		$	(24	)	$	353		$	16
Components of Excluded Realized Gain (Loss),
After-Tax
Credit loss benefit (expense) on mortgage loans on
real estate	$	(7	)	$	28		$	-		$	53
Credit loss benefit (expense) on reinsurance-related assets		(103	)		(2	)		(107	)		(5	)
Credit loss benefit (expense) on other financial assets		(5	)		(7	)		(9	)		(8	)
Realized gain (loss) related to certain financial assets		(41	)		(4	)		(54	)		(9	)
Realized gain (loss) on equity securities		2			3			-			28
Realized gain (loss) on the mark-to-market on
certain instruments (2)		213			18			576			87
Total realized gain (loss) related to financial instruments
and reinsurance-related assets		59			36			406			146
GLB fees ceded to LNBAR and attributed fees,
including benefit ratio unlocking		(106	)		(94	)		(313	)		(266	)
Indexed annuity forward-starting option		2			(3	)		41			21
Excluded realized gain (loss) including benefit
ratio unlocking		(45	)		(61	)		134			(99	)
Less: benefit ratio unlocking on GDB
and GLB riders		(9	)		(2	)		(19	)		9
Total excluded realized gain (loss), after-tax	$	(36	)	$	(59	)	$	153		$	(108	)

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

⁽²⁾Includes activity with LNBAR. The modified coinsurance investment portfolio includes fixed maturity securities classified as available-for-sale (“AFS”) with changes in fair value recorded in other comprehensive income (loss). Since the corresponding and offsetting changes in fair value of the embedded derivatives related to the modified coinsurance investment portfolio are recorded in realized gain (loss), volatility can occur within net income (loss). See Note 8 in our 2021 Form 10-K for more information regarding modified coinsurance.

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

We had lower realized losses due primarily to gains on the mark-to-market on certain instruments driven by favorable changes in the fair value of embedded derivatives related to certain modified coinsurance arrangements and gains on derivatives.

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The lower realized losses were partially offset by:

Higher losses related to an increase in the credit loss allowance for reinsurance-related assets in 2022 due to updates to policyholder behavior assumptions that impacted ceded reserves.

Losses related to an increase in the credit loss allowance for mortgage loans on real estate in 2022 compared to a decrease in 2021 due to changes in economic projections.

Comparison of the Nine Months Ended September 30, 2022 to 2021

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

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

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

The realized gains were partially offset by:

Higher losses related to an increase in the credit loss allowance for reinsurance-related assets in 2022 due to updates to policyholder behavior assumptions that impacted ceded reserves.

Gains related to a decrease in the credit loss allowance on mortgage loans on real estate in 2021 due to changes in economic projections.

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

Unfavorable equity market performance in 2022 compared to favorable equity market performance in 2021.

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

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Operating Realized Gain (Loss)

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Operating Realized Gain (Loss)” in our 2021 Form 10-K for a discussion of our operating realized gain (loss).

Realized Gain (Loss) Related to Financial Instruments

For information on realized gain (loss) related to financial instruments, see Note 12.

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Realized Gain (Loss) on the Mark-to-Market on Certain Instruments” in our 2021 Form 10-K for a discussion of the mark-to-market on certain instruments. We also recognize the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 13 for additional information.

Guaranteed Living Benefit Fees Ceded to LNBAR and Attributed Fees

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – GLB Fees Ceded to LNBAR and Attributed Fees” in our 2021 Form 10-K for a discussion of our guaranteed living benefit (“GLB”) fees ceded to LNBAR and attributed fees.

Indexed Annuity Forward-Starting Option

See “Part II – Item 7. Management’s Narrative Analysis of the Results of Operations – Realized Gain (Loss) – Indexed Annuity Forward-Starting Option” in our 2021 Form 10-K for a discussion of our indexed annuity forward-starting option.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

Liquidity refers to our ability to generate adequate amounts of cash from our normal operations to meet cash requirements with a prudent margin of safety. Capital refers to our long-term financial resources to support the operations of our businesses, to fund long-term growth strategies and to support our operations during adverse conditions. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of our businesses, general economic conditions and access to the capital markets and other sources of liquidity and capital as described below. When considering our liquidity, it is important to distinguish between our needs, the needs of Lincoln Life & Annuity Company of New York (“LLANY”) and the needs of the holding company, LNC. As a holding company with no operations of its own, LNC derives its cash primarily from its operating subsidiaries. Disruptions, uncertainty or volatility in the capital and credit markets may materially affect our business operations and results of operations. These poor market conditions may reduce our or LLANY’s statutory surplus and risk-based capital (“RBC”).

Reductions to our or LLANY’s statutory surplus and RBC may cause us to retain more capital, which may pressure our ability to receive dividends from LLANY or pay dividends to LNC, which may lead us to take steps to preserve or raise additional capital. As a result of this quarter’s annual assumption review, we expect an estimated $525 million statutory capital impact in the fourth quarter of 2022. We believe we and LLANY have adequate capital to operate our business as we replenish statutory capital back to our targeted levels.

Sources and Uses of Liquidity and Capital

Our primary sources of liquidity and capital are insurance premiums and fees, investment income, maturities and sales of investments, issuance of debt and contract holder deposits. We also have access to alternative sources of liquidity as discussed below. Our primary uses are to pay policy claims and benefits, to fund commissions and other general operating expenses, to purchase investments, to fund policy surrenders and withdrawals, to pay dividends to LNC and to repay debt. Our operating activities provided (used) cash of $3.9 billion and $202 million for the nine months ended September 30, 2022 and 2021, respectively.

Statutory Capital and Surplus

We must maintain certain regulatory capital levels. We utilize the RBC ratio as a primary measure of our capital adequacy. The RBC ratio is an important factor in the determination of our financial strength ratings. For a discussion of RBC ratios, see “Part I – Item 1. Business – Regulatory – Insurance Regulation – Risk-Based Capital” in our 2021 Form 10-K.

Our regulatory capital levels are also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. Our term products and UL products containing secondary guarantees require reserves calculated pursuant to XXX and AG38, respectively. We employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the business to reinsurance captives.  Our captive reinsurance subsidiaries and LNBAR provide a mechanism for financing a portion of the excess reserve amounts in a more efficient manner and free up capital we can use for any number of purposes, including paying dividends to LNC.  We use long-dated letters of credit (“LOCs”) and debt financing as well as other financing strategies to finance those reserves.  LOCs and related capital market solutions lower the capital effect of term products and UL products containing secondary guarantees. For information on the LOCs, see the credit facilities table in Note 12 in our 2021 Form 10-K. Our captive reinsurance subsidiaries and LNBAR have also issued long-term notes to finance a portion of the excess reserves. For information on long-term notes issued by our captive reinsurance subsidiaries, see Note 3 in our 2021 Form 10-K.  We have also used the proceeds from certain senior notes issued by LNC to execute long-term structured solutions primarily supporting reinsurance of UL products containing secondary guarantees. 

Statutory reserves established for variable annuity contracts and riders are sensitive to changes in the equity markets and interest rates and are affected by the level of account values relative to the level of any guarantees, product design and reinsurance arrangements. As a result, the relationship between reserve changes and equity market performance is non-linear during any given reporting period. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and derivative assets hedging these reserves. We also utilize inter-company reinsurance arrangements to manage our hedge program for variable annuity guarantees.

Changes in equity markets may also affect our capital position. We may decide to reallocate available capital among us and our insurance and captive reinsurance subsidiaries, which would result in different RBC ratios for us. In addition, changes in the equity markets can affect the value of our variable annuity and variable universal life insurance separate accounts. When the market value of our separate account assets increases, the statutory surplus within us and LLANY also increases. Contrarily, when the market value of our separate account assets decreases, the statutory surplus within us and LLANY may also decrease, which will affect RBC ratios, and in the case of our separate account assets becoming less than the related product liabilities, we must allocate additional capital to fund the difference.

We continue to analyze the use of our existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and our current hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of LNL and LLANY.

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Debt

For information about our short-term and long-term debt and our credit facilities, see Note 12 in our 2021 Form 10-K.

Alternative Sources of Liquidity

Inter-Company Cash Management Program

In order to manage our capital more efficiently, we participate in an inter-company cash management program where LNL, certain of our subsidiaries and certain affiliates, can lend to or borrow from the holding company to meet short-term borrowing needs. The cash management program is essentially a series of demand loans between LNC and participating subsidiaries that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs. As of September 30, 2022, we had a net outstanding receivable (payable) of $282 million from (to) certain subsidiaries and affiliates in the inter-company cash management program. Loans under the cash management program are permitted under applicable insurance laws subject to certain restrictions. LNL, domiciled in Indiana, is subject to a borrowing and lending limit of, currently, 3% of the insurance company’s admitted assets as of its most recent year end. For our New York-domiciled insurance subsidiary, it may borrow from LNC less than 2% of its admitted assets as of its most recent year end but may not lend any amounts to LNC.

Federal Home Loan Bank

LNL is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis (“FHLBI”). Membership allows LNL access to the FHLBI’s financial services, including the ability to obtain loans and to issue funding agreements as an alternative source of liquidity that are collateralized by qualifying mortgage-related assets, agency securities or U.S. Treasury securities. Borrowings under this facility are subject to the FHLBI’s discretion and require the availability of qualifying assets at LNL. As of September 30, 2022, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of $6.1 billion. As of September 30, 2022, LNL had outstanding borrowings of $3.1 billion under this facility reported within payables for collateral on investments on the Consolidated Balance Sheets. LLANY is a member of the Federal Home Loan Bank of New York (“FHLBNY”) with an estimated maximum borrowing capacity of $750 million. Borrowings under this facility are subject to the FHLBNY’s discretion and require the availability of qualifying assets at LLANY. As of September 30, 2022, LLANY had no outstanding borrowings under this facility. For additional information, see “Payables for Collateral on Investments” in Note 4.

Securities Lending Programs and Repurchase Agreements

LNL and LLANY, by virtue of their general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. As of September 30, 2022, we had securities pledged under securities lending agreements with a carrying value of $300 million. In addition, LNL, LLANY and LNBAR had access to $2.25 billion through committed repurchase agreements, of which $25 million was utilized as of September 30, 2022. The cash received in our securities lending programs and repurchase agreements is typically invested in cash and invested cash or fixed maturity AFS securities. For additional information, see “Payables for Collateral on Investments” in Note 4.

Collateral on Derivative Contracts

Our cash flows associated with collateral received from counterparties (when we are in a net collateral payable position) and posted with counterparties (when we are in a net collateral receivable position) change as the market value of the underlying derivative contract changes. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. As of September 30, 2022, we were in a net collateral payable position of $3.3 billion compared to $5.5 billion as of December 31, 2021. In the event of adverse changes in fair value of our derivative instruments, we may need to post collateral with a counterparty. If we do not have sufficient high-quality securities or cash and invested cash to provide as collateral, we have committed liquidity sources through facilities that can provide up to $1.25 billion of additional liquidity to help meet collateral needs. Access to such facilities is contingent upon interest rates having achieved certain threshold levels. In addition to these facilities, we have the FHLB facilities and the repurchase agreements discussed above as well as the five-year revolving credit facility discussed in Note 12 in our 2021 Form 10-K to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 5.

Ratings

Financial Strength Ratings

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

If our current financial strength ratings were downgraded in the future, terms in our derivative agreements may be triggered, which could negatively affect overall liquidity. For the majority of our derivative counterparties, there is a termination event if our financial strength ratings drop below BBB-/Baa3 (S&P/Moody’s Investors Service). In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products.

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See “Part I – Item 1A. Risk Factors – Covenants and Ratings – A downgrade in our financial strength ratings could limit our ability to market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors” in our 2021 Form 10-K for more information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, in an integrated asset-liability management process that considers diversification. We have exposures to several market risks including interest rate risk, equity market risk, credit risk and, to a lesser extent, foreign currency exchange risk. For information on these market risks, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K. See also “Item 2. Management’s Narrative Analysis of the Results of Operations – Introduction” above.

Item 4. Controls and Procedures

Conclusions Regarding Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our President (the principal executive officer) and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period required by this report, we, under the supervision and with the participation of our President and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our President and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.

Changes in Internal Control Over Financial Reporting

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

A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to In re: Lincoln National COI Litigation, previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion.

Reference is made to In re: Lincoln National 2017 COI Rate Litigation, previously disclosed in our 2021 Form 10-K. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion.

Reference is made to Angus v. The Lincoln National Life Insurance Company, previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (“Second Quarter 2022 Form 10-Q”). On August, 26, 2022, LNL filed a motion to dismiss this case.

Reference is made to Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York, previously disclosed in our 2021 Form 10-K and Second Quarter 2022 Form 10-Q. On September 26, 2022, the U.S. Court of Appeals for the Second Circuit reserved its decision with respect to plaintiff’s appeal of the July 2021 decision granting LLANY’s motion to dismiss, and certified a question to the New York Court of Appeals. On October 20, 2022, the New York Court of Appeals accepted the question, and has set a briefing schedule.

See Note 10 in “Part I – Item 1. Financial Statements” for further discussion regarding these matters and other contingencies.

Item 1A. Risk Factors

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

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

None.

Item 6. Exhibits

The Exhibits included in this report are listed in the Exhibit Index beginning on page 72, which is incorporated herein by reference.

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THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

Exhibit Index for the Report on Form 10-Q

For the Quarter Ended September 30, 2022

31.1	Certification of the President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated: November 7, 2022	By:	/s/ Adam Cohen
		Adam Cohen Senior Vice President and Chief Accounting Officer (Authorized Signatory and Principal Accounting Officer)

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