| Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies | 1. N ature of Operations, Basis of Presentation and Summary of Significant Accounting Policies 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 one insurance company subsidiary, 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. LNL is licensed and sells its products throughout the U.S. and several U.S. territories. Through our business segments, we sell a wide range of wealth protection, accumulation, group protection and retirement income products and solutions. These products primarily include universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL and VUL, indexed universal life insurance (“IUL”), term life insurance, fixed and indexed annuities, variable annuities, group life, disability and dental and employer-sponsored retirement plans and services. For more information on our segments and the products and solutions we provide, see Note 20. Basis of Presentation The accompanying consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”). Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below. On January 1, 2023, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments (“ASU 2018-12”) with a transition date of January 1, 2021. ASU 2018-12 updated accounting and reporting requirements for long-duration contracts and certain investment contracts issued by insurance entities. We adopted ASU 2018-12 under the modified retrospective approach, except for market risk benefits (“MRBs”), which applied the full retrospective approach. Our consolidated financial statements are presented under the new guidance for reporting periods beginning January 1, 2021. Certain amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the presentation adopted in the current period. We present disaggregated disclosures in the Notes below for long-duration insurance balances, applying the level of aggregation by reportable segment as follows: Reportable Segment Level of Aggregation Life Insurance Traditional Life UL and Other Annuities Variable Annuities Fixed Annuities Payout Annuities Group Protection Group Protection Retirement Plan Services Retirement Plan Services The fixed annuities level of aggregation represents deferred fixed annuities. We have excluded amounts reported in Other Operations from our disaggregated disclosures that are attributable to the indemnity reinsurance agreements with Protective Life Insurance Company (“Protective”) and Swiss Re Life & Health America, Inc (“Swiss Re”) as these contracts are fully reinsured, run-off institutional pension business in the form of group annuity and the results of certain disability income business and not reflected in the results of the reportable segments listed above. Restatement of Previously Issued Consolidated Financial Statements Restatement Background Previously, we had entered into a block reinsurance agreement with Resolution Life to reinsure approximately $ 9.4 billion of in-force executive benefit and universal life reserves. A portion of the transaction was structured as coinsurance, and we paid as consideration investments with a book value of approximately $ 4.6 billion and a fair value of approximately $ 5.2 billion as of October 1, 2021, triggering a realized gain of $ 635 million. This contributed to a total deferred gain of $ 797 million. At the time of the transaction, we concluded that the $ 635 million realized gain would be deferred and amortized into income over the benefit period of the reinsurance treaty. The Company’s management has concluded that a gain or loss amount pertaining to the transfer of investments to the assuming company in a coinsurance transaction should be recorded as a realized gain or loss at the time of the transfer. As a result, it was determined that the $ 635 million deferred gain pertaining to the sale of investments should have been recognized immediately in the fourth quarter of 2021 when the investments were transferred to Resolution Life. This misstatement is described in more detail in “Description of Misstatements – Misstatement Associated with the Coinsurance Reinsurance Transaction” below. As part of the restatement, we also recorded adjustments to correct for previously identified other immaterial misstatements in the impacted periods that are described in more detail in “Description of Misstatements – Other Immaterial Misstatements” below. Accordingly, we restated the consolidated financial statements for the years ended December 31, 2022 and December 31, 2021, in accordance with Accounting Standards Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections prior to the adoption of ASU 2018-12. The categories of misstatements and their impact on the previously issued consolidated financial statements are described in more detail below. Description of Misstatements Misstatement Associated with the Coinsurance Reinsurance Transaction We recorded adjustments to recognize the realized gain related to the transaction through net income in 2021 instead of deferring and amortizing this gain into net income. These adjustments, which are discussed below, are reflected in the restatement tables below. For the year ended December 31, 2021, the correction of the misstatement resulted in a $ 635 million increase to realized gain (loss), an $ 8 million decrease to amortization of deferred gain on business sold through reinsurance, a $ 4 million increase to commissions and other expenses related to state income taxes associated with the realized gain and a $ 131 million increase to federal income tax expense on our Consolidated Statements of Comprehensive Income (Loss). Additionally, the correction of the misstatement resulted in a $ 492 million decrease to other liabilities and a $ 492 million increase to retained earnings on our Consolidated Balance Sheets as of December 31, 2021. For the year ended December 31, 2022, the correction of the misstatement resulted in a $ 32 million decrease to amortization of deferred gain on business sold through reinsurance on our Consolidated Statements of Comprehensive Income (Loss). Additionally, the correction of the misstatement resulted in a $ 467 million increase to retained earnings on our Consolidated Balance Sheets as of December 31, 2022. Other Immaterial Misstatements As part of the restatement, we made corrections to previously identified errors that the Company determined to be immaterial, both individually and in the aggregate (the “Other Adjustments”) for the years ended December 31, 2022, and December 31, 2021. The Other Adjustments resulted in an increase of $ 16 million to income (loss) before taxes and a decrease of $ 16 million to income (loss) before taxes for the years ended December 31, 2022, and December 31, 2021, respectively. The Other Adjustments included adjustments and reclassifications on our Consolidated Balance Sheets as of December 31, 2022, and December 31, 2021, that had no impact on stockholder’s equity. We reclassified derivative investments that resulted in a decrease to derivative investments of $ 142 million, a decrease to other assets of $ 70 million and a decrease to other liabilities of $ 212 million as of December 31, 2022. We reclassified derivative investments that resulted in a decrease to other assets of $ 760 million, an increase to derivative investments of $ 260 million and a decrease to other liabilities of $ 500 million as of December 31, 2021. The combined impacts of the correction of the misstatement associated with the coinsurance reinsurance transaction and the Other Adjustments are reflected in the “restatement impacts” column of the restatement tables below. Impacts to our Consolidated Financial Statements Related to the Restatement of Previously Issued Consolidated Financial Statements and the Adoption of ASU 2018-12 The following tables present the amounts previously reported, restatement impacts, amounts as restated prior to the adoption of ASU 2018-12, adoption of new accounting standard impacts and as adjusted amounts reported on the Consolidated Balance Sheets as of December 31, 2022, and December 31, 2021, and the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Stockholder’s Equity and the Consolidated Statements of Cash Flows for the years ended December 31, 2022, and December 31, 2021. The amounts shown in the “As Previously Reported” column for the years ended December 31, 2022, and December 31, 2021, were derived from our Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 7, 2023. The amounts shown in the “As Restated” column for the years ended December 31, 2022, and December 31, 2021, were derived from our Annual Report on Form 10-K/A for the year ended December 31, 2022, filed on March 30, 2023. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (in millions, except share data) As of December 31, 2022 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted ASSETS Investments: Fixed maturity available-for-sale securities, at fair value (amortized cost: 2022 - $ 110,944 ; allowance for credit losses: 2022 - $ 21 ) $ 99,465 $ - $ 99,465 $ - $ 99,465 Trading securities 3,446 - 3,446 - 3,446 Equity securities 427 - 427 - 427 Mortgage loans on real estate, net of allowance for credit losses (portion at fair value: 2022 - $ 487 ) 18,211 - 18,211 - 18,211 Policy loans 2,345 - 2,345 - 2,345 Derivative investments 3,662 ( 143 ) 3,519 - 3,519 Other investments 3,577 - 3,577 - 3,577 Total investments 131,133 ( 143 ) 130,990 - 130,990 Cash and invested cash 2,499 - 2,499 - 2,499 Deferred acquisition costs, value of business acquired and deferred sales inducements (1) 13,873 - 13,873 ( 1,610 ) 12,263 Reinsurance recoverables, net of allowance for credit losses 23,910 - 23,910 ( 2,646 ) 21,264 Market risk benefit assets - - - 2,807 2,807 Accrued investment income 1,234 - 1,234 - 1,234 Goodwill 1,144 - 1,144 - 1,144 Other assets (1) 21,265 ( 185 ) 21,080 ( 1,154 ) 19,926 Separate account assets 143,536 - 143,536 - 143,536 Total assets $ 338,594 $ ( 328 ) $ 338,266 $ ( 2,603 ) $ 335,663 LIABILITIES AND STOCKHOLDER’S EQUITY Liabilities Policyholder account balances (1) $ 113,972 $ - $ 113,972 $ - $ 113,972 Future contract benefits (1) 41,203 - 41,203 ( 2,901 ) 38,302 Market risk benefit liabilities - - - 2,078 2,078 Deferred front-end loads (1) 5,695 - 5,695 ( 650 ) 5,045 Payables for collateral on investments 6,638 - 6,638 - 6,638 Short-term debt 562 - 562 - 562 Long-term debt 2,269 - 2,269 - 2,269 Other liabilities (1) 16,921 ( 796 ) 16,125 ( 1,468 ) 14,657 Separate account liabilities 143,536 - 143,536 - 143,536 Total liabilities 330,796 ( 796 ) 330,000 ( 2,941 ) 327,059 Contingencies and Commitments (See Note 18) Stockholder’s Equity Common stock – 10,000,000 shares authorized; issued and outstanding 12,903 - 12,903 - 12,903 Retained earnings 1,968 468 2,436 ( 1,022 ) 1,414 Accumulated other comprehensive income (loss) ( 7,073 ) - ( 7,073 ) 1,360 ( 5,713 ) Total stockholder’s equity 7,798 468 8,266 338 8,604 Total liabilities and stockholder’s equity $ 338,594 $ ( 328 ) $ 338,266 $ ( 2,603 ) $ 335,663 (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS (in millions, except share data) As of December 31, 2021 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted ASSETS Investments: Fixed maturity available-for-sale securities, at fair value (amortized cost: 2021 - $ 104,491 ; allowance for credit losses: 2021 - $ 19 ) $ 117,511 $ ( 35 ) $ 117,476 $ - $ 117,476 Trading securities 4,427 ( 22 ) 4,405 - 4,405 Equity securities 314 57 371 - 371 Mortgage loans on real estate, net of allowance for credit losses (portion at fair value: 2021 - $ 739 ) 17,893 - 17,893 - 17,893 Policy loans 2,349 - 2,349 - 2,349 Derivative investments 5,437 260 5,697 - 5,697 Other investments 3,449 ( 4 ) 3,445 - 3,445 Total investments 151,380 256 151,636 - 151,636 Cash and invested cash 2,331 - 2,331 - 2,331 Deferred acquisition costs, value of business acquired and deferred sales inducements (1) 6,230 1 6,231 5,702 11,933 Reinsurance recoverables, net of allowance for credit losses 22,755 - 22,755 1,111 23,866 Market risk benefit assets - - - 1,888 1,888 Accrued investment income 1,157 - 1,157 - 1,157 Goodwill 1,778 - 1,778 - 1,778 Other assets (1) 23,801 ( 754 ) 23,047 2,187 25,234 Separate account assets 182,583 - 182,583 - 182,583 Total assets $ 392,015 $ ( 497 ) $ 391,518 $ 10,888 $ 402,406 LIABILITIES AND STOCKHOLDER’S EQUITY Liabilities Policyholder account balances (1) $ 109,707 $ 9 $ 109,716 $ - $ 109,716 Future contract benefits (1) 40,074 - 40,074 693 40,767 Market risk benefit liabilities - - - 4,399 4,399 Deferred front-end loads (1) 399 - 399 3,821 4,220 Payables for collateral on investments 8,936 - 8,936 - 8,936 Short-term debt 1,084 - 1,084 - 1,084 Long-term debt 2,334 - 2,334 - 2,334 Other liabilities (1) 24,518 ( 986 ) 23,532 ( 1,099 ) 22,433 Separate account liabilities 182,583 - 182,583 - 182,583 Total liabilities 369,635 ( 977 ) 368,658 7,814 376,472 Contingencies and Commitments (See Note 18) Stockholder’s Equity Common stock – 10,000,000 shares authorized; issued and outstanding 11,950 - 11,950 - 11,950 Retained earnings 3,886 480 4,366 ( 632 ) 3,734 Accumulated other comprehensive income (loss) 6,544 - 6,544 3,706 10,250 Total stockholder’s equity 22,380 480 22,860 3,074 25,934 Total liabilities and stockholder’s equity $ 392,015 $ ( 497 ) $ 391,518 $ 10,888 $ 402,406 (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) For the Year Ended December 31, 2022 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Revenues Insurance premiums $ 5,841 $ - $ 5,841 $ - $ 5,841 Fee income 5,783 - 5,783 ( 417 ) 5,366 Net investment income 5,270 4 5,274 - 5,274 Realized gain (loss) 201 13 214 204 418 Amortization of deferred gain on business sold through reinsurance 69 ( 32 ) 37 - 37 Other revenues 621 - 621 - 621 Total revenues 17,785 ( 15 ) 17,770 ( 213 ) 17,557 Expenses Benefits 10,801 - 10,801 ( 2,598 ) 8,203 Interest credited 2,849 - 2,849 11 2,860 Market risk benefit (gain) loss - - - 296 296 Policyholder liability remeasurement (gain) loss - - - 2,445 2,445 Commissions and other expenses 4,799 - 4,799 128 4,927 Interest and debt expense 137 - 137 - 137 Spark program expense 167 - 167 - 167 Impairment of intangibles 634 - 634 - 634 Total expenses 19,387 - 19,387 282 19,669 Income (loss) before taxes ( 1,602 ) ( 15 ) ( 1,617 ) ( 495 ) ( 2,112 ) Federal income tax expense (benefit) ( 329 ) ( 3 ) ( 332 ) ( 105 ) ( 437 ) Net income (loss) ( 1,273 ) ( 12 ) ( 1,285 ) ( 390 ) ( 1,675 ) Other comprehensive income (loss), net of tax: Unrealized investment gains (losses) ( 13,613 ) - ( 13,613 ) ( 4,026 ) ( 17,639 ) Market risk benefit non-performance risk gain (loss) - - - ( 211 ) ( 211 ) Policyholder liability discount rate remeasurement gain (loss) - - - 1,891 1,891 Funded status of employee benefit plans ( 4 ) - ( 4 ) - ( 4 ) Total other comprehensive income (loss), net of tax of tax ( 13,617 ) - ( 13,617 ) ( 2,346 ) ( 15,963 ) Comprehensive income (loss) $ ( 14,890 ) $ ( 12 ) $ ( 14,902 ) $ ( 2,736 ) $ ( 17,638 ) THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) For the Year Ended December 31, 2021 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Revenues Insurance premiums $ 5,359 $ - $ 5,359 $ - $ 5,359 Fee income 6,612 18 6,630 ( 864 ) 5,766 Net investment income 5,844 ( 5 ) 5,839 - 5,839 Realized gain (loss) 89 622 711 148 859 Amortization of deferred gain on business sold through reinsurance 40 ( 8 ) 32 - 32 Other revenues 657 - 657 - 657 Total revenues 18,601 627 19,228 ( 716 ) 18,512 Expenses Benefits 8,039 - 8,039 ( 12 ) 8,027 Interest credited 2,893 18 2,911 1 2,912 Market risk benefit (gain) loss - - - ( 1,554 ) ( 1,554 ) Policyholder liability remeasurement (gain) loss - - - ( 119 ) ( 119 ) Commissions and other expenses 5,546 2 5,548 ( 537 ) 5,011 Interest and debt expense 114 - 114 - 114 Spark program expense 87 - 87 - 87 Total expenses 16,679 20 16,699 ( 2,221 ) 14,478 Income (loss) before taxes 1,922 607 2,529 1,505 4,034 Federal income tax expense (benefit) 293 127 420 317 737 Net income (loss) 1,629 480 2,109 1,188 3,297 Other comprehensive income (loss), net of tax: Unrealized investment gains (losses) ( 2,480 ) - ( 2,480 ) ( 753 ) ( 3,233 ) Market risk benefit non-performance risk gain (loss) - - - ( 923 ) ( 923 ) Policyholder liability discount rate remeasurement gain (loss) - - - 560 560 Funded status of employee benefit plans 3 - 3 - 3 Total other comprehensive income (loss), net of tax ( 2,477 ) - ( 2,477 ) ( 1,116 ) ( 3,593 ) Comprehensive income (loss) $ ( 848 ) $ 480 $ ( 368 ) $ 72 $ ( 296 ) THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY (in millions) For the Year Ended December 31, 2022 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Common Stock Balance as of beginning-of-year 11,950 - 11,950 - 11,950 Capital contribution from Lincoln National Corporation 925 - 925 - 925 Stock compensation/issued for benefit plans 28 - 28 - 28 Balance as of end-of-year 12,903 - 12,903 - 12,903 Retained Earnings Balance as of beginning-of-year 3,886 480 4,366 ( 632 ) 3,734 Net income (loss) ( 1,273 ) ( 12 ) ( 1,285 ) ( 390 ) ( 1,675 ) Dividends paid to Lincoln National Corporation ( 645 ) - ( 645 ) - ( 645 ) Balance as of end-of-year 1,968 468 2,436 ( 1,022 ) 1,414 Accumulated Other Comprehensive Income (Loss) Balance as of beginning-of-year 6,544 - 6,544 3,706 10,250 Other comprehensive income (loss), net of tax ( 13,617 ) - ( 13,617 ) ( 2,346 ) ( 15,963 ) Balance as of end-of-year ( 7,073 ) - ( 7,073 ) 1,360 ( 5,713 ) Total stockholder’s equity as of end-of-year $ 7,798 $ 468 $ 8,266 $ 338 $ 8,604 For the Year Ended December 31, 2021 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Common Stock Balance as of beginning-of-year $ 11,853 $ - $ 11,853 $ - $ 11,853 Capital contribution from Lincoln National Corporation 65 - 65 - 65 Stock compensation/issued for benefit plans 32 - 32 - 32 Balance as of end-of-year 11,950 - 11,950 - 11,950 Retained Earnings Balance as of beginning-of-year 4,167 - 4,167 - 4,167 Cumulative effect from adoption of new accounting standards - - - ( 1,820 ) ( 1,820 ) Net income (loss) 1,629 480 2,109 1,188 3,297 Dividends paid to Lincoln National Corporation ( 1,910 ) - ( 1,910 ) - ( 1,910 ) Balance as of end-of-year 3,886 480 4,366 ( 632 ) 3,734 Accumulated Other Comprehensive Income (Loss) Balance as of beginning-of-year 9,021 - 9,021 - 9,021 Cumulative effect from adoption of new accounting standards - - - 4,822 4,822 Other comprehensive income (loss), net of tax ( 2,477 ) - ( 2,477 ) ( 1,116 ) ( 3,593 ) Balance as of end-of-year 6,544 - 6,544 3,706 10,250 Total stockholder’s equity as of end-of-year $ 22,380 $ 480 $ 22,860 $ 3,074 $ 25,934 THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) For the Year Ended December 31, 2022 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Cash Flows from Operating Activities Net income (loss) $ ( 1,273 ) $ ( 12 ) $ ( 1,285 ) $ ( 390 ) $ ( 1,675 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Realized (gain) loss ( 201 ) ( 13 ) ( 214 ) ( 204 ) ( 418 ) Market risk benefit (gain) loss - - - 296 296 Sales and maturities (purchases) of trading securities, net 301 - 301 - 301 Amortization of deferred gain on business sold through reinsurance ( 69 ) 32 ( 37 ) - ( 37 ) Impairment of intangibles 634 - 634 - 634 Change in: Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front-end loads 42 3 45 450 495 Accrued investment income ( 41 ) - ( 41 ) - ( 41 ) Insurance liabilities and reinsurance-related balances (1) 727 - 727 ( 75 ) 652 Accrued expenses ( 98 ) - ( 98 ) ( 3 ) ( 101 ) Federal income tax accruals ( 268 ) ( 3 ) ( 271 ) ( 105 ) ( 376 ) Cash management agreement 3,730 - 3,730 - 3,730 Other (1) 379 ( 4 ) 375 31 406 Net cash provided by (used in) operating activities (1) 3,863 3 3,866 - 3,866 Cash Flows from Investing Activities Purchases of available-for-sale securities and equity securities ( 14,768 ) - ( 14,768 ) - ( 14,768 ) Sales of available-for-sale securities and equity securities 2,347 - 2,347 - 2,347 Maturities of available-for-sale securities 5,487 - 5,487 - 5,487 Purchases of alternative investments ( 631 ) - ( 631 ) - ( 631 ) Sales and repayments of alternative investments 441 - 441 - 441 Issuance of mortgage loans on real estate ( 2,503 ) ( 4 ) ( 2,507 ) - ( 2,507 ) Repayment and maturities of mortgage loans on real estate 2,247 - 2,247 - 2,247 Repayment (issuance) of policy loans, net 4 - 4 - 4 Net change in collateral on investments, derivatives and related settlements ( 4,654 ) 1 ( 4,653 ) - ( 4,653 ) Other ( 40 ) - ( 40 ) - ( 40 ) Net cash provided by (used in) investing activities ( 12,070 ) ( 3 ) ( 12,073 ) - ( 12,073 ) (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in millions) For the Year Ended December 31, 2022 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Cash Flows from Financing Activities Capital contribution from Lincoln National Corporation 925 - 925 - 925 Payment of long-term debt, including current maturities ( 40 ) - ( 40 ) - ( 40 ) Issuance (payment) of short-term debt ( 522 ) - ( 522 ) - ( 522 ) Payment related to sale-leaseback transactions ( 70 ) - ( 70 ) ( 70 ) Proceeds from certain financing arrangements 186 - 186 - 186 Deposits of fixed account balances (1) 16,186 - 16,186 - 16,186 Withdrawals of fixed account balances (1) ( 7,641 ) - ( 7,641 ) - ( 7,641 ) Transfers from (to) separate accounts, net (1) 19 - 19 - 19 Common stock issued for benefit plans ( 21 ) - ( 21 ) - ( 21 ) Dividends paid to Lincoln National Corporation ( 645 ) - ( 645 ) - ( 645 ) Other ( 2 ) - ( 2 ) - ( 2 ) Net cash provided by (used in) financing activities (1) 8,375 - 8,375 - 8,375 Net increase (decrease) in cash, invested cash and restricted cash 168 - 168 - 168 Cash, invested cash and restricted cash as of beginning-of- year 2,331 - 2,331 - 2,331 Cash, invested cash and restricted cash as of end-of-year $ 2,499 $ - $ 2,499 $ - $ 2,499 (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) For the Year Ended December 31, 2021 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Cash Flows from Operating Activities Net income (loss) $ 1,629 $ 480 $ 2,109 $ 1,188 $ 3,297 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Realized (gain) loss ( 89 ) ( 622 ) ( 711 ) ( 148 ) ( 859 ) Market risk benefit (gain) loss - - - ( 1,554 ) ( 1,554 ) Sales and maturities (purchases) of trading securities, net ( 108 ) 21 ( 87 ) - ( 87 ) Amortization of deferred gain on business sold through reinsurance ( 40 ) 8 ( 32 ) - ( 32 ) Change in: Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front-end loads 292 ( 3 ) 289 207 496 Accrued investment income 8 - 8 - 8 Insurance liabilities and reinsurance-related balances (1) ( 863 ) 1 ( 862 ) ( 31 ) ( 893 ) Accrued expenses 367 3 370 7 377 Federal income tax accruals 264 127 391 317 708 Cash management agreement ( 1,286 ) - ( 1,286 ) - ( 1,286 ) Other (1) ( 367 ) 2 ( 365 ) 14 ( 351 ) Net cash provided by (used in) operating activities (1) ( 193 ) 17 ( 176 ) - ( 176 ) Cash Flows from Investing Activities Purchases of available-for-sale securities and equity securities ( 16,834 ) ( 22 ) ( 16,856 ) - ( 16,856 ) Sales of available-for-sale securities and equity securities 2,341 - 2,341 - 2,341 Maturities of available-for-sale securities 9,417 - 9,417 - 9,417 Purchases of alternative investments ( 754 ) - ( 754 ) - ( 754 ) Sales and repayments of alternative investments 377 - 377 - 377 Issuance of mortgage loans on real estate ( 3,062 ) 5 ( 3,057 ) - ( 3,057 ) Repayment and maturities of mortgage loans on real estate 1,873 - 1,873 - 1,873 Repayment (issuance) of policy loans, net 61 - 61 - 61 Net change in collateral on investments, derivatives and related settlements 3,095 - 3,095 - 3,095 Other ( 253 ) - ( 253 ) - ( 253 ) Net cash provided by (used in) investing activities ( 3,739 ) ( 17 ) ( 3,756 ) - ( 3,756 ) (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. THE LINCOLN NATIONAL LIFE INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (in millions) For the Year Ended December 31, 2021 Adoption As of New Previously Restatement As Accounting As Reported Impacts Restated Standard Adjusted Cash Flows from Financing Activities Capital contribution from Lincoln National Corporation 65 - 65 - 65 Payment of long-term debt, including current maturities ( 60 ) - ( 60 ) - ( 60 ) Issuance (payment) of short-term debt 587 - 587 - 587 Payment related to sale-leaseback transactions ( 59 ) - ( 59 ) - ( 59 ) Proceeds from certain financing arrangements 159 - 159 - 159 Deposits of fixed account balances (1) 13,405 4 13,409 - 13,409 Withdrawals of fixed account balances (1) ( 7,195 ) 53 ( 7,142 ) - ( 7,142 ) Transfers from (to) separate accounts, net (1) ( 118 ) ( 57 ) ( 175 ) - ( 175 ) Common stock issued for benefit plans ( 13 ) - ( 13 ) - ( 13 ) Dividends paid to Lincoln National Corporation ( 1,910 ) - ( 1,910 ) - ( 1,910 ) Other ( 60 ) - ( 60 ) - ( 60 ) Net cash provided by (used in) financing activities (1) 4,801 - 4,801 - 4,801 Net increase (decrease) in cash, invested cash and restricted cash 869 - 869 - 869 Cash, invested cash and restricted cash as of beginning-of- year 1,462 - 1,462 - 1,462 Cash, invested cash and restricted cash as of end-of-year $ 2,331 $ - $ 2,331 $ - $ 2,331 (1) Certain amounts have been reclassified to conform to the presentation adopted in the current period. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of LNL and all other entities in which we have a controlling financial interest and any variable interest entities (“VIEs”) in which we are the primary beneficiary. We use the equity method of accounting to recognize all of our investments in limited liability partnerships. All material inter-company accounts and transactions have been eliminated in consolidation. Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in the consolidated financial statements. Accounting Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. In applying these estimates and assumptions, management makes subjective and complex judgments that frequently require assumptions about matters that are uncertain and inherently subject to change, including matters related to or impacted by the COVID-19 pandemic. Actual results could differ from these estimates and assumptions. Included among the material (or potentially material) reported amounts and disclosures that require use of estimates are: fair value of certain financial assets, derivatives, allowances for credit losses, deferred acquisition costs (“DAC”) , value of business acquired (“VOBA”) , DSI, goodwill and other intangibles, market risk benefits (“MRBs”), future contract benefits, DFEL , pension plans, stock-based incentive compensation, income taxes including the recoverability of our deferred tax assets, and the potential effects of resolving litigated matters. Business Combinations We use the acquisition method of accounting for all business combination transactions, and accordingly, recognize the fair values of assets acquired, liabilities assumed and any noncontrolling interests in the consolidated financial statements. The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period as more information becomes available relative to the fair values as of the acquisition date. The consolidated financial statements include the results of operations of any acquired company since the acquisition date. Fair Value Measurement Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset or non-performance risk, which would include our own credit risk. Our estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability, as opposed to the price that would be paid to acquire the asset or receive a liability (“entry price”). Pursuant to the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification TM (“ASC”), we categorize our financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is defined as follows: Level 1 – inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date, except for large holdings subject to “blockage discounts” that are excluded; Level 2 – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and Level 3 – inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and we make estimates and assumptions related to the pricing of the asse |
