x
|
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
Indiana
|
35-1140070
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania
|
19087
|
(Address of principal executive offices)
|
(Zip Code)
|
Title of each class
|
Name of each exchange on which registered
|
|
Common Stock
|
New York
|
|
$3.00 Cumulative Convertible Preferred Stock, Series A
|
New York
|
|
6.75% Capital Securities
|
New York
|
|
Warrants, each to purchase one share of common stock
|
New York
|
Item
|
Page
|
|||
PART I
|
||||
1.
|
Business
|
1
|
||
Overview
|
1
|
|||
Business Segments and Other Operations
|
2
|
|||
Annuities
|
2
|
|||
Retirement Plan Services
|
4
|
|||
Life Insurance
|
6
|
|||
Group Protection
|
8
|
|||
Other Operations
|
9
|
|||
Reinsurance
|
9
|
|||
Reserves
|
10
|
|||
Investments
|
10
|
|||
Financial Strength Ratings
|
10
|
|||
Regulatory
|
11
|
|||
Employees
|
16
|
|||
Available Information
|
16
|
|||
1A.
|
Risk Factors
|
17
|
||
1B.
|
Unresolved Staff Comments
|
30
|
||
2.
|
Properties
|
31
|
||
3.
|
Legal Proceedings
|
31
|
||
4.
|
Mine Safety Disclosures
|
31
|
||
Executive Officers of the Registrant
|
32
|
|||
PART II
|
||||
5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
33
|
||
6.
|
Selected Financial Data
|
34
|
||
7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
35
|
||
Forward-Looking Statements – Cautionary Language
|
35
|
|||
Introduction
|
36
|
|||
Executive Summary
|
36
|
|||
Critical Accounting Policies and Estimates
|
40
|
|||
Acquisitions and Dispositions
|
54
|
|||
Results of Consolidated Operations
|
55
|
|||
Results of Annuities
|
57
|
|||
Results of Retirement Plan Services
|
63
|
|||
Results of Life Insurance
|
70
|
|||
Results of Group Protection
|
77
|
|||
Results of Other Operations
|
81
|
|||
Business Segments
|
|
|
|
|
|
Annuities |
|
|
Retirement Plan Services (formerly known as the “Defined Contribution Segment”)
|
||
Life Insurance
|
||
Group Protection
|
·
|
A.M. Best – A++ to S
|
·
|
Fitch – AAA to C
|
·
|
Moody’s – Aaa to C
|
·
|
S&P – AAA to D
|
|
A.M. Best
|
|
Fitch
|
|
Moody's
|
|
S&P
|
Insurer Financial Strength Ratings
|
|
|
|
|
|
|
|
LNL
|
A+
|
|
A+
|
|
A2
|
|
AA-
|
|
(2nd of 16)
|
|
(5th of 19)
|
|
(6th of 21)
|
|
(4th of 22)
|
|
|
|
|
|
|
|
|
Lincoln Life & Annuity Co. of New York ("LLANY")
|
A+
|
|
A+
|
|
A2
|
|
AA-
|
|
(2nd of 16)
|
|
(5th of 19)
|
|
(6th of 21)
|
|
(4th of 22)
|
|
|
|
|
|
|
|
|
First Penn-Pacific Life Insurance Co. ("FPP")
|
A+
|
|
A+
|
|
A2
|
|
A-
|
|
(2nd of 16)
|
|
(5th of 19)
|
|
(6th of 21)
|
|
(7th of 22)
|
Category
|
|
Name
|
|
Description
|
|
Asset risk - affiliates
|
|
C-0
|
|
Risk of assets' default for certain affiliated investments
|
|
Asset risk - others
|
|
C-1
|
|
Risk of assets' default of principal and interest or fluctuation in
|
|
|
|
|
|
|
fair value
|
Insurance risk
|
|
C-2
|
|
Risk of underestimating liabilities from business already written
|
|
|
|
|
|
|
or inadequately pricing business to be written in the future
|
Interest rate risk, health credit
|
|
C-3
|
|
Risk of losses due to changes in interest rate levels, risk that
|
|
|
risk and market risk
|
|
|
|
health benefits prepaid to providers become the obligation of
|
|
|
|
|
|
the health insurer once again and risk of loss due to changes in
|
|
|
|
|
|
market levels associated with variable products with guarantees
|
Business risk
|
|
C-4
|
|
Risk of general business
|
·
|
“Company action level” – If the RBC ratio is between 75% and 100%, then the insurer must submit a plan to the regulator detailing corrective action it proposes to undertake;
|
·
|
“Regulatory action level” – If the RBC ratio is between 50% and 75%, then the insurer must submit a plan, but a regulator may also issue a corrective order requiring the insurer to comply within a specified period;
|
·
|
“Authorized control level” – If the RBC ratio is between 35% and 50%, then the regulatory response is the same as at the “Regulatory action level,” but in addition, the regulator may take action to rehabilitate or liquidate the insurer; and
|
·
|
“Mandatory control level” – If the RBC ratio is less than 35%, then the regulator must rehabilitate or liquidate the insurer.
|
·
|
Standards of minimum capital requirements and solvency, including RBC measurements;
|
·
|
Restrictions of certain transactions between our insurance subsidiaries and their affiliates;
|
·
|
Restrictions on the nature, quality and concentration of investments;
|
·
|
Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations;
|
·
|
Limitations on the amount of dividends that insurance subsidiaries can pay;
|
·
|
The licensing status of the company;
|
·
|
Certain required methods of accounting;
|
·
|
Reserves for unearned premiums, losses and other purposes; and
|
·
|
Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies.
|
·
|
Fixed maturity and equity securities are classified as AFS, except for those designated as trading securities, and are reported at their estimated fair value. The difference between the estimated fair value and amortized cost of AFS securities (i.e., unrealized investment gains and losses) is recorded as a separate component of OCI, net of adjustments to DAC, contract holder related amounts and deferred income taxes;
|
·
|
Fixed maturity and equity securities designated as trading securities are recorded at fair value with subsequent changes in fair value recognized in realized gain (loss). However, in certain cases, the trading securities support reinsurance arrangements. In those cases, offsetting the changes to fair value of the trading securities are corresponding changes in the fair value of the embedded derivative liability associated with the underlying reinsurance arrangement. In other words, the investment results for the trading securities, including gains and losses from sales, are passed directly to the reinsurers through the contractual terms of the reinsurance arrangements. These types of securities represent 60% of our trading securities;
|
·
|
Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value;
|
·
|
Also, mortgage loans on real estate are carried at unpaid principal balances, adjusted for any unamortized premiums or discounts and deferred fees or expenses, net of valuation allowances;
|
·
|
Policy loans are carried at unpaid principal balances;
|
·
|
Real estate joint ventures and other limited partnership interests are carried using the equity method of accounting; and
|
·
|
Other invested assets consist principally of derivatives with positive fair values. Derivatives are carried at fair value with changes in fair value reflected in income from non-qualifying derivatives and derivatives in fair value hedging relationships. Derivatives in cash flow hedging relationships are reflected as a separate component of other comprehensive income or loss.
|
Name
|
Age
(1)
|
Position with LNC and Business Experience During the Past Five Years
|
||
Dennis R. Glass
|
62
|
President, Chief Executive Officer and Director (since July 2007). President, Chief Operating Officer and Director (April 2006 - July 2007). President and Chief Executive Officer, Jefferson-Pilot (2004 - April 2006). President and Chief Operating Officer, Jefferson-Pilot (2001 - April 2006).
|
||
Lisa M. Buckingham
|
46
|
Executive Vice President, Chief Human Resources Officer (since March 2011) Senior Vice President, Chief Human Resources Officer (December 2008 - March 2011). Senior Vice President, Global Talent, Thomson Reuters, a provider of information and services for businesses and professionals (April 2008 - November 2008). Senior Vice President, Human Resources, Thomson Corporation (2002 - April 2008).
|
||
Charles C. Cornelio
|
52
|
President, Retirement Plan Services (since December 2009). Executive Vice President, Chief Administrative Officer (November 2008 - December 2009). Senior Vice President, Shared Services and Chief Information Officer (April 2006 - November 2008). Executive Vice President, Technology and Insurance Services, Jefferson-Pilot (2004 - April 2006). Senior Vice President, Jefferson-Pilot (1997 - 2004).
|
||
Robert W. Dineen
|
62
|
President, Lincoln Financial Network, and CEO, Lincoln Financial Advisors
(2)
(since 2002). Senior Vice President, Managed Asset Group, Merrill Lynch & Co., a diversified financial services company (2001 - 2002).
|
||
Randal J. Freitag
|
49
|
Executive Vice President and Chief Financial Officer (since January 2011). Senior Vice President, Chief Risk Officer (2007 - December 2010). Senior Vice President, Chief Risk Officer and Treasurer (2007 - October 2009). Senior Vice President, Product Risk and Profitability and Actuary (2004 - 2007).
|
||
Wilford H. Fuller
|
41
|
President and CEO, Lincoln Financial Distributors
(2)
(since February 2009). Head, Distribution, Global Wealth Management, Merrill Lynch & Co., a diversified financial services company (2007 - 2009). Head, Distribution, Managed Solutions Group, Merrill Lynch & Co. (2005 - 2007). National Sales Manager, Merrill Lynch & Co. (2000 - 2005).
|
||
Mark E. Konen
|
52
|
President, Insurance Solutions and Annuities (since July 2008 and February 2009 respectively). President, Individual Markets (April 2006 - July 2008). Executive Vice President, Life and Annuity Manufacturing, Jefferson-Pilot (2004 - April 2006). Executive Vice President, Product/Financial Management, Jefferson-Pilot (2002 - 2004).
|
(1)
|
Age shown is based on the officer’s age as of February 17, 2012.
|
(2)
|
Denotes an affiliate of LNC.
|
|
PART II
|
|
1st Qtr
|
2nd Qtr
|
3rd Qtr
|
4th Qtr
|
||||||||
2011
|
|
|
|
|
||||||||
High
|
$ | 32.68 | $ | 32.39 | $ | 29.67 | $ | 21.88 | ||||
Low
|
28.00 | 25.97 | 15.00 | 13.75 | ||||||||
Dividend declared
|
0.050 | 0.050 | 0.050 | 0.080 | ||||||||
|
||||||||||||
2010
|
||||||||||||
High
|
$ | 30.74 | $ | 33.55 | $ | 26.83 | $ | 29.12 | ||||
Low
|
22.52 | 23.86 | 20.65 | 23.17 | ||||||||
Dividend declared
|
0.010 | 0.010 | 0.010 | 0.050 |
|
(a) Total
|
|
|
|
|
(c) Total Number
|
|
(d) Approximate Dollar
|
|||||
|
Number
|
|
(b) Average
|
|
of Shares (or Units)
|
|
Value of Shares (or
|
||||||
|
of Shares
|
|
Price Paid
|
|
Purchased as Part of
|
|
Units) that May Yet Be
|
||||||
|
(or Units)
|
|
per Share
|
|
Publicly Announced
|
|
Purchased Under the
|
||||||
Period
|
|
Purchased
(1)
|
|
(or Unit)
|
|
Plans or Programs
(2)
|
|
Plans or Programs
(3)
|
|||||
10/1/11 - 10/31/11
|
|
|
2,378
|
|
$
|
16.27
|
|
|
-
|
|
$
|
740
|
|
|
|
|
|
|
|
|
|
|
|
||||
11/1/11 - 11/30/11
|
|
|
7,572,969
|
|
|
19.01
|
|
|
7,572,600
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
||||
12/1/11 - 12/31/11
|
|
|
2,822,964
|
|
|
19.78
|
|
|
2,812,800
|
|
|
540
|
(1)
|
Of the total number of shares purchased, no shares were received in connection with the exercise of stock options and related taxes and 12,911 shares were withheld for taxes on the vesting of restricted stock. For the quarter ended December 31, 2011, there were 10,385,400 shares purchased as part of publicly announced plans or programs.
|
(2)
|
On February 23, 2007, our Board approved a $2.0 billion increase to our securities repurchase authorization, bringing the total authorization at that time to $2.6 billion. As of December 31, 2011, our security repurchase authorization was $540 million. The security repurchase authorization does not have an expiration date. The amount and timing of share repurchase depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. The shares repurchased in connection with the awards described in Note 19 in the
|
|
accompanying notes to the consolidated financial statements presented in “Item 8. Financial Statements and Supplementary Data” do not reduce our security repurchase authorization.
|
(3)
|
As of the last day of the applicable month.
|
|
For the Years Ended December 31,
|
||||||||||||||||
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|||||||
Total revenues
|
$
|
10,636
|
|
$
|
10,407
|
|
$
|
8,499
|
|
$
|
9,224
|
|
$
|
9,614
|
|||
Income (loss) from continuing operations
|
|
302
|
|
|
951
|
|
|
(415
|
)
|
|
(10
|
)
|
|
1,199
|
|||
Net income (loss)
|
|
294
|
|
|
980
|
|
|
(485
|
)
|
|
57
|
|
|
1,215
|
|||
Per share data:
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Income (loss) from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
operations - basic
|
|
0.99
|
|
|
2.53
|
|
|
(1.60
|
)
|
|
(0.04
|
)
|
|
4.44
|
|
|
Income (loss) from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
operations - diluted
|
|
0.95
|
|
|
2.45
|
|
|
(1.60
|
)
|
|
(0.04
|
)
|
|
4.37
|
|
|
Net income (loss) - basic
|
|
0.96
|
|
|
2.62
|
|
|
(1.85
|
)
|
|
0.22
|
|
|
4.50
|
||
|
Net income (loss) - diluted
|
|
0.92
|
|
|
2.54
|
|
|
(1.85
|
)
|
|
0.22
|
|
|
4.43
|
||
|
Common stock dividends
|
|
0.230
|
|
|
0.080
|
|
|
0.040
|
|
|
1.455
|
|
|
1.600
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
As of December 31,
|
||||||||||||||||
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|||||||
Assets
|
$
|
202,906
|
|
$
|
193,824
|
|
$
|
177,433
|
|
$
|
163,136
|
|
$
|
191,435
|
|||
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Principal
|
|
5,088
|
|
|
5,363
|
|
|
5,019
|
|
|
4,555
|
|
|
4,620
|
||
|
Unamortized premiums (discounts) and fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
hedge on interest rate swap agreements
|
|
303
|
|
|
36
|
|
|
31
|
|
|
176
|
|
|
(2
|
) |
Stockholders' equity
|
|
14,164
|
|
|
12,806
|
|
|
11,700
|
|
|
7,977
|
|
|
11,718
|
|||
Per common share data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Stockholders' equity, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss)
(3)
|
|
48.59
|
|
|
40.54
|
|
|
36.02
|
|
|
31.15
|
|
|
44.32
|
|
|
Stockholders' equity, excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss)
(3)
|
|
40.19
|
|
|
38.17
|
|
|
36.89
|
|
|
42.09
|
|
|
43.46
|
|
|
Market value of common stock
|
|
19.42
|
|
|
27.81
|
|
|
24.88
|
|
|
18.84
|
|
|
58.22
|
(1)
|
Per share amounts were affected by the retirement of 24.7 million, 1.1 million, less than 1 million, 9.3 million and 15.4 million shares of common stock during the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.
|
(2)
|
For discussion of the reduction of net income (loss) available to common stockholders see Note 14 in the accompanying notes to the consolidated financial statements presented in “Item 8. Financial Statements and Supplementary Data.”
|
(3)
|
Per share amounts are calculated under the assumption that our Series A preferred stock has been converted to common stock, but exclude Series B preferred stock balances as it was non-convertible.
|
·
|
Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results;
|
·
|
Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and a valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;
|
·
|
Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations;
|
·
|
Legislative, regulatory or tax changes, both domestic and foreign, that affect the cost of, or demand for, our subsidiaries’ products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserve requirements related to secondary guarantees under universal life, such as a change to reserve calculations under Actuarial Guideline 38 (also known as The Application of the Valuation of Life Insurance Policies Model Regulation, or “AG38”), and variable annuity products under Actuarial Guideline 43 (also known as Commissioners Annuity Reserve Valuation Method for Variable Annuities, or “AG43”); restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. federal tax reform;
|
·
|
Uncertainty about the effect of rules and regulations to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us and the economy and the financial services sector in particular;
|
·
|
The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in
|
|
significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
|
·
|
Changes in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits and demand for our products;
|
·
|
A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products, a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products, an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”) and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products;
|
·
|
Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
|
·
|
A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings;
|
·
|
Changes in GAAP, including the potential incorporation of International Financial Reporting Standards (“IFRS”) into the U.S. financial reporting system, that may result in unanticipated changes to our net income;
|
·
|
Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;
|
·
|
Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;
|
·
|
Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments;
|
·
|
The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items;
|
·
|
The adequacy and collectibility of reinsurance that we have purchased;
|
·
|
Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;
|
·
|
Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;
|
·
|
The unknown effect on our subsidiaries’ businesses resulting from changes in the demographics of their client base, as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life; and
|
·
|
Loss of key management, financial planners or wholesalers.
|
·
|
The effects of low interest rates;
|
·
|
The effects of the European debt crisis;
|
·
|
The effects of volatile equity and capital markets; and
|
·
|
Slow growth in the U.S. economy:
|
§
|
Uncertainty regarding the long-term effect of the Budget Control Act of 2011;
|
§
|
Downgrades and threatened downgrades by credit rating agencies;
|
§
|
The interest rate on overnight loans between banks controlled by the Federal Reserve Board remaining unchanged in January 2012 at 0% to 0.25%, with low rates expected to continue at least through late 2014, in anticipation of weakening economic conditions and a subdued outlook on inflation, an indicator of general interest rate trends;
|
§
|
Persistent high unemployment, shrinking unemployment benefits and weak job creation;
|
§
|
Continued slow and unpredictable U.S. housing market; and
|
§
|
Historically low consumer confidence as the Consumer Confidence Index fell during 2011 to a level not seen since April 2009 when the U.S. was still officially in recession, reflecting the lowest percentile since the inception of the index.
|
·
|
Earnings mix shift to businesses with higher returns;
|
·
|
Sales of products that have higher returns than the products already in force; and
|
·
|
Capital management actions consisting of redeployment of excess capital (including returning capital to common stockholders) and further generation of excess capital.
|
·
|
Continuation of the low interest rate environment in comparison to historical periods;
|
·
|
Planned reductions in sales levels, especially in our UL products with secondary guarantees, due to economic factors; and
|
·
|
Increased actions by government and regulatory authorities to introduce regulations or change existing regulations or guidance in a manner that could have a significant effect on our capital, earnings and/or business models, such as changing long-standing reserving methods for products with guarantee features.
|
·
|
Closely monitoring our capital and liquidity positions taking into account the uncertain economic recovery and changing statutory accounting and reserving practices;
|
·
|
Continuing to explore additional financing strategies addressing the statutory reserve strain related to our secondary guarantee UL products in order to manage our capital position effectively;
|
·
|
Taking actions to manage the risk of a continuation of lower interest rates, including re-pricing our products;
|
·
|
Closely monitoring ongoing activities in the legal and regulatory environment and taking an active role in the legislative and/or regulatory process;
|
·
|
Continuing to make investments in our businesses to grow revenues and further spur productivity;
|
·
|
Shifting focus toward other life insurance products, such as indexed UL and linked-benefit rider products, that have greater market acceptance in the current environment; and
|
·
|
Managing our expenses aggressively through process improvement initiatives combined with continued financial discipline and execution excellence throughout our operations.
|
|
|
|
|
Retirement
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
Plan
|
|
Life
|
|
Group
|
|
|
|
||||
|
|
Annuities
|
|
Services
|
|
Insurance
|
|
Protection
|
|
Total
|
||||||
DAC and VOBA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Gross
|
$
|
2,941
|
|
$
|
526
|
|
$
|
7,227
|
|
$
|
195
|
|
$
|
10,889
|
||
Unrealized (gain) loss
|
|
(623
|
)
|
|
(195
|
)
|
|
(1,880
|
)
|
|
-
|
|
|
(2,698
|
) | |
|
Carrying value
|
$
|
2,318
|
|
$
|
331
|
|
$
|
5,347
|
|
$
|
195
|
|
$
|
8,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Gross
|
$
|
322
|
|
$
|
3
|
|
$
|
-
|
|
$
|
-
|
|
$
|
325
|
||
Unrealized (gain) loss
|
|
(53
|
)
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
|
(54
|
) | |
|
Carrying value
|
$
|
269
|
|
$
|
2
|
|
$
|
-
|
|
$
|
-
|
|
$
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DFEL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Gross
|
$
|
268
|
|
$
|
-
|
|
$
|
1,810
|
|
$
|
-
|
|
$
|
2,078
|
||
Unrealized (gain) loss
|
|
(5
|
)
|
|
-
|
|
|
(704
|
)
|
|
-
|
|
|
(709
|
) | |
|
Carrying value
|
$
|
263
|
|
$
|
-
|
|
$
|
1,106
|
|
$
|
-
|
|
$
|
1,369
|
·
|
Employee, agent or broker commissions for successful contract acquisitions;
|
·
|
Wholesaler production bonuses for successful contract acquisitions;
|
·
|
Renewal commissions and bonuses to agents or brokers;
|
·
|
Medical and inspection fees for successful contract acquisitions;
|
·
|
Premium-related taxes and assessments; and
|
·
|
A portion of the salaries and benefits of certain employees involved in the underwriting, contract issuance and processing, medical and inspection and sales force contract selling functions related to the successful issuance or renewal of an insurance contract.
|
·
|
Administrative costs;
|
·
|
Rent;
|
·
|
Depreciation;
|
·
|
Occupancy costs;
|
·
|
Equipment costs (including data processing equipment dedicated to acquiring insurance contracts); and
|
·
|
Other general overhead.
|
|
|
|
|
|
Hypothetical
|
|
|
|
|
|
|
Hypothetical
|
|
Effect to
|
|
|
|
Actual Experience Differs
|
|
Effect to
|
|
Net Income
|
|
|
|
|
|
From Those Our Model
|
|
Net Income
|
|
for DAC
(1)
|
|
|
|
|
Projections Assume
|
|
for EGPs
|
|
Amortization
|
|
Description of Expected Effect
|
|
Higher equity markets
|
|
Favorable
|
|
Favorable
|
|
Increase to fee income and decrease to changes in
|
||
|
|
|
|
|
|
|
reserves.
|
|
|
|
|
|
|
|
|
|
|
Lower equity markets
|
|
Unfavorable
|
|
Unfavorable
|
|
Decrease to fee income and increase to changes in
|
||
|
|
|
|
|
|
|
reserves.
|
|
|
|
|
|
|
|
|
|
|
Higher investment margins
|
|
Favorable
|
|
Favorable
|
|
Increase to interest rate spread on our fixed product
|
||
|
|
|
|
|
|
|
line, including fixed portion of variable.
|
|
|
|
|
|
|
|
|
|
|
Lower investment margins
|
|
Unfavorable
|
|
Unfavorable
|
|
Decrease to interest rate spread on our fixed product
|
||
|
|
|
|
|
|
|
line, including fixed portion of variable.
|
|
|
|
|
|
|
|
|
|
|
Higher credit losses
|
|
Unfavorable
|
|
Unfavorable
|
|
Decrease to realized gains on investments.
|
||
|
|
|
|
|
|
|
|
|
Lower credit losses
|
|
Favorable
|
|
Favorable
|
|
Increase to realized gains on investments.
|
||
|
|
|
|
|
|
|
|
|
Higher lapses
|
|
Unfavorable
|
|
Unfavorable
|
|
Decrease to fee income, partially offset by decrease to
|
||
|
|
|
|
|
|
|
benefits due to shorter contract life.
|
|
|
|
|
|
|
|
|
|
|
Lower lapses
|
|
Favorable
|
|
Favorable
|
|
Increase to fee income, partially offset by increase to
|
||
|
|
|
|
|
|
|
benefits due to longer contract life.
|
|
|
|
|
|
|
|
|
|
|
Higher death claims
|
|
Unfavorable
|
|
Unfavorable
|
|
Decrease to fee income and increase to changes in
|
||
|
|
|
|
|
|
|
reserves due to shorter contract life.
|
|
|
|
|
|
|
|
|
|
|
Lower death claims
|
|
Favorable
|
|
Favorable
|
|
Increase to fee income and decrease to changes in
|
||
|
|
|
|
|
|
|
reserves due to longer contract life.
|
(1)
|
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits.
|
|
|
|
|
Assumption Changes
|
|
Model Refinements
|
|||||||||||||||
|
|
|
|
For the Years Ended December 31,
|
|
For the Years Ended December 31,
|
|||||||||||||||
|
|
|
|
2011
|
|
2010
|
|
2009
|
|
2011
|
|
2010
|
|
2009
|
|||||||
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Annuities
|
$
|
(17
|
)
|
$
|
27
|
|
$
|
(9
|
)
|
$
|
-
|
|
$
|
(6
|
)
|
$
|
-
|
|||
|
Retirement Plan Services
|
|
-
|
|
|
10
|
|
|
5
|
|
|
(2
|
)
|
|
(5
|
)
|
|
-
|
|||
|
Life Insurance
|
|
26
|
|
|
(101
|
)
|
|
(7
|
)
|
|
25
|
|
|
18
|
|
|
-
|
|||
Excluded realized gain (loss)
|
|
(72
|
)
|
|
18
|
|
|
(151
|
)
|
|
-
|
|
|
-
|
|
|
(6
|
) | |||
|
|
Income (loss) from continuing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
operations
|
$
|
(63
|
)
|
$
|
(46
|
)
|
$
|
(162
|
)
|
$
|
23
|
|
$
|
7
|
|
$
|
(6
|
) |
·
|
For Annuities, we lowered our long-term equity market growth rate and interest margin assumptions, partially offset by lowering our lapse assumptions;
|
·
|
For Life Insurance, we updated our crediting rate assumptions to reflect actions implemented to reduce interest crediting rates; and
|
·
|
For excluded realized gain (loss), we increased our lapse assumptions, partially offset by lowering our assumptions for long-term volatility.
|
·
|
For Annuities, we included an estimate in our models for rider fees related to our annuity products with living benefit guarantees and lowered our lapse assumptions, partially offset by completing the planned conversion of our actuarial valuation systems to a uniform platform for certain blocks of business (see more discussion below);
|
·
|
For Retirement Plan Services, we completed the planned conversion of our actuarial valuation systems to a uniform platform for certain blocks of business (see more discussion below);
|
·
|
For Life Insurance, we lowered our new money investment yield assumption to reflect the then current new money rates and to approximate the forward curve for interest rates relevant at such time, as this effect alone represented $114 million unfavorable unlocking; and
|
·
|
For excluded realized gain (loss), we lowered our lapse assumptions, which was significantly offset by shifting the mapping of approximately 5% of variable annuity account values to blended equity and fixed maturity hedging indices, whereas previously we had been mapped almost exclusively to equity.
|
·
|
For Annuities, we increased our assumptions related to maintenance expenses, partially offset by increasing our assumptions for expense assessments and modifying the valuation of variable annuity products that have elements of both benefit reserves and embedded derivative reserves;
|
·
|
For Retirement Plan Services, we modified our assumptions related to compensation in our wholesaling distribution organization that lowered deferrals as a percentage of total expenses incurred and revised our assumptions related to maintenance expenses;
|
·
|
For Life Insurance, we lowered our investment margin assumptions and increased our expense, death claim and lapse assumptions; and
|
·
|
For excluded realized gain (loss), we modified the valuation of variable annuity products that have elements of both benefit reserves and embedded derivative reserves, and we revised our fund assumptions related to hedged indices.
|
|
|
|
|
For the Years Ended December 31,
|
||||||||
|
|
|
|
2011
|
|
2010
|
|
2009
|
||||
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
||||
|
Annuities
|
$
|
104
|
|
$
|
81
|
|
$
|
29
|
|||
|
Retirement Plan Services
|
|
10
|
|
|
(3
|
)
|
|
(1
|
) | ||
|
Life Insurance
|
|
(10
|
)
|
|
(3
|
)
|
|
(18
|
) | ||
Benefit ratio unlocking
|
|
(14
|
)
|
|
10
|
|
|
89
|
||||
|
|
Income (loss) from continuing
|
|
|
|
|
|
|
|
|
||
|
|
|
operations
|
$
|
90
|
|
$
|
85
|
|
$
|
99
|
·
|
For Annuities, we experienced higher average equity markets and prepayment and bond makewhole premiums and lower lapses than our model projections assumed;
|
·
|
For Retirement Plan Services, we experienced lower lapses and higher average equity markets than our model projections assumed;
|
·
|
For Life Insurance, we received lower premiums and experienced higher death claims than our model projections assumed; and
|
·
|
For benefit ratio unlocking, the period to period equity markets were less favorable than our model projections assumed.
|
·
|
For Annuities, we experienced higher average equity markets and expense assessments and lower lapses than our model projections assumed;
|
·
|
For Retirement Plan Services, we experienced higher lapses, partially offset by higher average equity markets, than our model projections assumed;
|
·
|
For Life Insurance, we received lower premiums and experienced higher death claims, partially offset by lower lapses and expenses, than our model projections assumed; and
|
·
|
For benefit ratio unlocking, the period to period equity markets were more favorable than our model projections assumed.
|
·
|
For Annuities, we experienced lower lapses and higher average equity markets than our model projections assumed;
|
·
|
For Retirement Plan Services, we experienced higher lapses and maintenance expenses and lower average equity markets than our model projections assumed;
|
·
|
For Life Insurance, we received lower premiums and experienced lower investment income on alternative investments and prepayment and bond makewhole premiums, partially offset by lower death claims and lapses, than our model projections assumed; and
|
·
|
For benefit ratio unlocking, the period to period equity markets were more favorable than our model projections assumed.
|
·
|
New business for 10 years;
|
·
|
Expense synergies assumption that would be expected to be realized in a market-participant transaction similar to prior market observable transactions and our prior experience; and
|
·
|
Interest rates used to discount new business cash flows; we considered discount rates ranging from 9.0% to 10.5% for our Life Insurance reporting unit and from 9.0% to 10.0% for our Group Protection reporting unit based on the weighted average cost of capital adjusted for the risk factors associated with the operations.
|
·
|
Broadcast cash flows for 10 years and a terminal value in year 11; and
|
·
|
Interest rates used to discount broadcast cash flows; we considered discount rates ranging from 12.0% to 14.0% that were based on the weighted average cost of capital adjusted for the risk factors associated with the operations.
|
·
|
Lower expectations for future sales levels or future sales profitability;
|
·
|
Higher discount rates on new business assumptions;
|
·
|
Weakened expectations for the ability to execute future reinsurance transactions for life insurance business over the long-term or expectations for significant increases in the associated costs.
|
·
|
Legislative, regulatory or tax changes that affect the cost of, or demand for, our subsidiaries’ products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserve requirements or changes to risk-based capital (“RBC”) requirements; and
|
·
|
Valuations of mergers or acquisitions of companies or blocks of business that would provide relevant market-based inputs for our impairment assessment that could support different conclusions regarding the estimated fair value of our reporting units.
|
|
As of December 31, 2011
|
|
|||||||||||
|
Quoted |
|
|
|
|
|
|
|
|
|
|||
|
Prices |
|
|
|
|
|
|
|
|
|
|||
|
in Active |
|
|
|
|
|
|
|
|
|
|||
|
Markets for |
Significant
|
Significant
|
|
|
|
|
||||||
|
Identical |
Observable
|
Unobservable
|
|
Total
|
|
|||||||
|
Assets |
Inputs
|
Inputs
|
|
Fair
|
|
|||||||
|
(Level 1) |
(Level 2)
|
(Level 3)
|
|
Value
|
|
|||||||
Priced by third party pricing services
|
$
|
700
|
|
$
|
67,361
|
|
$
|
-
|
|
$
|
68,061
|
|
|
Priced by independent broker quotations
|
|
-
|
|
|
-
|
|
|
3,058
|
|
|
3,058
|
|
|
Priced by matrices
|
|
-
|
|
|
9,063
|
|
|
-
|
|
|
9,063
|
|
|
Priced by other methods
(1)
|
|
-
|
|
|
-
|
|
|
1,916
|
|
|
1,916
|
|
|
|
Total
|
$
|
700
|
|
$
|
76,424
|
|
$
|
4,974
|
|
$
|
82,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
1
|
%
|
|
93
|
%
|
|
6
|
%
|
|
100
|
%
|
(1)
|
Represents primarily securities for which pricing models were used to compute fair value.
|
·
|
Few recent transactions based on volume and level of activity in the market; therefore, there is not sufficient frequency and volume to provide pricing information on an ongoing basis;
|
·
|
Price quotations are not based on current information;
|
·
|
Price quotations vary substantially either over time or among market makers;
|
·
|
Indexes that previously were highly correlated with the fair values of the asset are demonstrably uncorrelated with recent fair values;
|
·
|
Abnormal, or significant increases in, liquidity risk premiums or implied yields for quoted prices when compared with reasonable estimates using realistic assumptions of credit and other nonperformance risk for the asset class;
|
·
|
Abnormally wide bid-ask spread or significant increases in the bid-ask spread; and
|
·
|
Limited public information available.
|
|
In-Force Sensitivities
|
|
|
||||||||||
Equity Market Return
|
-20%
|
|
-10%
|
|
-5%
|
|
5%
|
|
|
||||
Hypothetical effect to net income
|
$
|
(60
|
)
|
$
|
(16
|
)
|
$
|
(4
|
)
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
-50 bps
|
|
-25 bps
|
|
+25 bps
|
|
+50 bps
|
|
|
||||
Hypothetical effect to net income
|
$
|
(14
|
)
|
$
|
(4
|
)
|
$
|
(1
|
)
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Volatilities
|
-4%
|
|
-2%
|
|
2%
|
|
4%
|
|
|
||||
Hypothetical effect to net income
|
$
|
16
|
|
$
|
8
|
|
$
|
(9
|
)
|
$
|
(18
|
)
|
|
|
Assumptions of Changes In
|
|
Hypothetical
|
|
||||||
|
Equity
|
|
Interest
|
|
Market
|
|
Effect to
|
|
||
|
Market
|
|
Rate
|
|
Implied
|
|
Net
|
|
||
|
Return
|
|
Yields
|
|
Volatilities
|
|
Income
|
|
||
Scenario 1
|
-5
|
%
|
|
-12.5 bps
|
|
+1
|
%
|
$
|
(11
|
)
|
Scenario 2
|
-10
|
%
|
|
-25.0 bps
|
|
+2
|
%
|
|
(36
|
)
|
Scenario 3
|
-20
|
%
|
|
-50.0 bps
|
|
+4
|
%
|
|
(130
|
)
|
·
|
The analysis is only valid as of December 30, 2011, due to changing market conditions, contract holder activity, hedge positions and other factors;
|
·
|
The analysis assumes instantaneous shifts in the capital market factors and no ability to rebalance hedge positions prior to the market changes;
|
·
|
The analysis assumes constant exchange rates and implied dividend yields;
|
·
|
Assumptions regarding shifts in the market factors, such as assuming parallel shifts in interest rate and implied volatility term structures, may be overly simplistic and not indicative of actual market behavior in stress scenarios;
|
·
|
It is very unlikely that one capital market sector (e.g., equity markets) will sustain such a large instantaneous movement without affecting other capital market sectors; and
|
·
|
The analysis assumes that there is no tracking or basis risk between the funds and/or indices affecting the GLB reserves and the instruments utilized to hedge these exposures.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Net Income (Loss) |
|
|
|
|
|
||||||||||||
Income (loss) from operations: |
|
|
|
|
|
||||||||||||
Annuities
|
$ | 592 | $ | 484 | $ | 353 | 22 | % | 37 | % | |||||||
Retirement Plan Services
|
167 | 154 | 133 | 8 | % | 16 | % | ||||||||||
Life Insurance
|
604 | 513 | 569 | 18 | % | -10 | % | ||||||||||
Group Protection
|
101 | 72 | 124 | 40 | % | -42 | % | ||||||||||
Other Operations
|
(146 | ) | (186 | ) | (237 | ) | 22 | % | 22 | % | |||||||
Excluded realized gain (loss), after-tax | (252 | ) | (95 | ) | (780 | ) |
NM
|
88 | % | ||||||||
Gain (loss) on early extinguishment of debt, after-tax | (5 | ) | (3 | ) | 42 | -67 | % |
NM
|
|||||||||
Income (expense) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 2 | 2 | 2 | 0 | % | 0 | % | ||||||||||
Impairment of intangibles, after-tax | (747 | ) | - | (710 | ) |
NM
|
100 | % | |||||||||
Benefit ratio unlocking, after-tax | (14 | ) | 10 | 89 |
NM
|
-89 | % | ||||||||||
Income (loss) from continuing
operations, after-tax
|
302 | 951 | (415 | ) | -68 | % |
NM
|
||||||||||
Income (loss) from discontinued
operations, after-tax
|
(8 | ) | 29 | (70 | ) |
NM
|
141 | % | |||||||||
Net income (loss)
|
$ | 294 | $ | 980 | $ | (485 | ) | -70 | % |
NM
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||
Deposits
|
|
|
|
|
|
|||||||||||
Annuities
|
$ | 10,650 | $ | 10,667 | $ | 10,362 | 0 | % | 3 | % | ||||||
Retirement Plan Services
|
5,566 | 5,301 | 4,952 | 5 | % | 7 | % | |||||||||
Life Insurance
|
5,393 | 4,934 | 4,451 | 9 | % | 11 | % | |||||||||
Total deposits
|
$ | 21,609 | $ | 20,902 | $ | 19,765 | 3 | % | 6 | % | ||||||
|
||||||||||||||||
Net Flows
|
||||||||||||||||
Annuities
|
$ | 2,191 | $ | 3,555 | $ | 3,893 | -38 | % | -9 | % | ||||||
Retirement Plan Services
|
504 | (291 | ) | 995 | 273 | % |
NM
|
|||||||||
Life Insurance
|
3,683 | 3,057 | 2,421 | 20 | % | 26 | % | |||||||||
Total net flows
|
$ | 6,378 | $ | 6,321 | $ | 7,309 | 1 | % | -14 | % |
|
As of December 31,
|
Change Over Prior Year
|
||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||
Account Values
|
|
|
|
|
|
|||||||||||
Annuities
|
$ | 85,534 | $ | 84,848 | $ | 74,281 | 1 | % | 14 | % | ||||||
Retirement Plan Services
|
39,133 | 38,824 | 35,302 | 1 | % | 10 | % | |||||||||
Life Insurance
|
35,278 | 33,585 | 31,744 | 5 | % | 6 | % | |||||||||
Total account values
|
$ | 159,945 | $ | 157,257 | $ | 141,327 | 2 | % | 11 | % |
·
|
Positive net flows and more favorable average equity markets driving higher average daily variable account values;
|
·
|
Growth in business and interest crediting rate actions driving higher net investment income and flat interest credited, partially offset by new money rates averaging below portfolio yields;
|
·
|
Higher legal expenses during 2010; and
|
·
|
Higher EGPs on rider fees related to our products with living benefit guarantees resulting in a lower DAC, VOBA, DSI and DFEL amortization rate.
|
·
|
Market volatility, the corresponding increase in discount rates and lower annuity sales leading to goodwill impairment in our Annuities segment during 2009; and declining results and forecasted advertising revenues for the entire radio market leading to goodwill and Federal Communications Commission licenses impairment related to our radio clusters during 2009;
|
·
|
Volatile capital markets during 2009 leading to realized losses;
|
·
|
Positive net flows and more favorable average equity markets driving higher average daily variable account values;
|
·
|
More favorable investment income on alternative investments and higher prepayment and bond makewhole premiums;
|
·
|
The effect of unlocking during 2010 as compared to 2009;
|
·
|
Income from discontinued operations during 2010 compared to loss from discontinued operations during 2009, both related to our former Lincoln UK and Investment Management segments; and
|
·
|
Unfavorable adjustments during 2009 related to rescinding the reinsurance agreement on certain disability income business sold to Swiss Re Life & Health America, Inc. (“Swiss Re”).
|
The increase in net income was partially offset primarily by the following:
|
·
|
Higher death claims in our Life Insurance segment, and unfavorable claims incidence and termination experience in the long-term disability product line in our Group Protection segment;
|
·
|
Early extinguishing long-term debt resulting in a gain in 2009;
|
·
|
Settlement of the Transamerica litigation matter during 2010; and
|
·
|
Higher account values driving higher trail commissions.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||||
Insurance premiums
(1)
|
$ | 74 | $ | 53 | $ | 89 | 40 | % | -40 | % | |||||||
Insurance fees
|
1,247 | 1,098 | 841 | 14 | % | 31 | % | ||||||||||
Net investment income
|
1,106 | 1,119 | 1,037 | -1 | % | 8 | % | ||||||||||
Operating realized gain (loss)
|
89 | 69 | 54 | 29 | % | 28 | % | ||||||||||
Other revenues and fees
(2)
|
349 | 315 | 280 | 11 | % | 13 | % | ||||||||||
Total operating revenues
|
2,865 | 2,654 | 2,301 | 8 | % | 15 | % | ||||||||||
Operating Expenses
|
|||||||||||||||||
Interest credited
|
698 | 726 | 682 | -4 | % | 6 | % | ||||||||||
Benefits
|
213 | 174 | 242 | 22 | % | -28 | % | ||||||||||
Underwriting, acquisition, insurance
and other expenses
|
1,248 | 1,168 | 983 | 7 | % | 19 | % | ||||||||||
Total operating expenses
|
2,159 | 2,068 | 1,907 | 4 | % | 8 | % | ||||||||||
Income (loss) from operations before taxes
|
706 | 586 | 394 | 20 | % | 49 | % | ||||||||||
Federal income tax expense (benefit)
|
114 | 102 | 41 | 12 | % | 149 | % | ||||||||||
Income (loss) from operations
|
$ | 592 | $ | 484 | $ | 353 | 22 | % | 37 | % |
(1)
|
Includes primarily our single-premium immediate annuities (“SPIA”), which have a corresponding offset in benefits for changes in reserves.
|
(2)
|
Consists primarily of fees attributable to broker-dealer services that are subject to market volatility.
|
·
|
Higher insurance fees attributable to more favorable average equity markets driving higher average daily variable account values;
|
·
|
More favorable tax return true-ups recorded in 2011 than in 2010 driven by the separate account dividends-received deduction (“DRD”) and other items; and
|
·
|
Higher net investment income net of interest credited driven primarily by:
|
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Positive net flows and interest credited to contract holders driving higher average fixed account values; and
|
§
|
An increase in surplus investments;
|
§
|
New money rates averaging below our portfolio yields; and
|
§
|
Transfers from fixed to variable reducing average fixed account values; and
|
·
|
Higher insurance premiums due to growth in our SPIA business.
|
·
|
Higher underwriting, acquisition, insurance and other expenses due to:
|
§
|
Higher account values driving higher trail commissions; and
|
§
|
Investments in strategic initiatives related to updating information technology and expanding distribution and support during 2011;
|
§
|
Higher EGPs on rider fees related to our products with living benefit guarantees resulting in a lower amortization rate; and
|
§
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
·
|
Higher benefits attributable to:
|
§
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
§
|
Growth in our SPIA business;
|
§
|
More favorable average equity markets that reduced our expected GDB benefit payments; and
|
§
|
Favorable mortality experience on SPIA.
|
·
|
Higher insurance fees attributable to more favorable average equity markets driving higher average daily variable account values;
|
·
|
Higher net investment income, partially offset by higher interest credited, driven by:
|
§
|
Positive net flows and interest credited to contract holders, partially offset by transfers from fixed to variable, driving higher average fixed account values;
|
§
|
More favorable investment income on alternative investments within our surplus portfolio, and higher prepayment and bond makewhole premiums (see “Consolidated Investments – Alternative Investments” and “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
§
|
Holding less cash during 2010, and actions implemented to reduce interest crediting rates; and
|
·
|
Lower benefits attributable primarily to more favorable average equity markets that reduced our expected GDB benefit payments.
|
·
|
Higher underwriting, acquisition, insurance and other expenses due to:
|
§
|
Negative gross profits in total for certain cohorts during 2009 resulting in a higher DAC and VOBA amortization rate during 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Amortization” for more information); and
|
§
|
Higher account values driving higher trail commissions;
|
§
|
The effect of unlocking in 2010 as compared to 2009 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
·
|
More favorable tax return true-ups recorded in 2009 than in 2010.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Insurance Fees
|
|
|
|
|
|
|||||||||||||
Mortality, expense and other assessments
|
$ | 1,258 | $ | 1,113 | $ | 860 | 13 | % | 29 | % | ||||||||
Surrender charges
|
34 | 37 | 36 | -8 | % | 3 | % | |||||||||||
DFEL:
|
||||||||||||||||||
Deferrals
|
(61 | ) | (75 | ) | (56 | ) | 19 | % | -34 | % | ||||||||
Amortization, net of interest:
|
||||||||||||||||||
Prospective unlocking - assumption changes
|
6 | 1 | 3 |
NM
|
-67 | % | ||||||||||||
Retrospective unlocking
|
(11 | ) | (1 | ) | 2 |
NM
|
NM
|
|||||||||||
Amortization, net of interest, excluding unlocking
|
21 | 23 | (4 | ) | -9 | % |
NM
|
|||||||||||
Total insurance fees
|
$ | 1,247 | $ | 1,098 | $ | 841 | 14 | % | 31 | % |
|
As of or for the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||
Account Value Information
|
|
|
|
|
|
||||||||||
Variable annuity deposits, excluding the fixed portion of
variable
|
$ | 5,871 | $ | 5,099 | $ | 4,007 | 15 | % | 27 | % | |||||
Net flows for variable annuities, excluding the fixed
portion of variable
|
(396 | ) | 7 | (27 | ) |
NM
|
126 | % | |||||||
Change in market value on variable, excluding the fixed
portion of variable
|
(2,296 | ) | 6,087 | 11,995 |
NM
|
-49 | % | ||||||||
Transfers to the variable portion of variable annuity
products from the fixed portion of variable annuity products
|
2,844 | 3,396 | 2,475 | -16 | % | 37 | % | ||||||||
Average daily variable annuity account values, excluding
the fixed portion of variable
|
66,007 | 58,188 | 46,551 | 13 | % | 25 | % | ||||||||
Average daily S&P 500
|
1,268.03 | 1,138.78 | 947.53 | 11 | % | 20 | % | ||||||||
Variable annuity account values, excluding the fixed
portion of variable
|
65,010 | 64,858 | 55,368 | 0 | % | 17 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Net Investment Income
|
|
|
|
|
|
||||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
$ | 975 | $ | 1,002 | $ | 955 | -3 | % | 5 | % | |||||||
Commercial mortgage loan prepayment and
bond makewhole premiums
(1)
|
27 | 23 | 5 | 17 | % |
NM
|
|||||||||||
Alternative investments
(2)
|
1 | 1 | - | 0 | % |
NM
|
|||||||||||
Surplus investments
(3)
|
103 | 93 | 77 | 11 | % | 21 | % | ||||||||||
Total net investment income
|
$ | 1,106 | $ | 1,119 | $ | 1,037 | -1 | % | 8 | % | |||||||
Interest Credited
|
|||||||||||||||||
Amount provided to contract holders
|
$ | 697 | $ | 738 | $ | 730 | -6 | % | 1 | % | |||||||
DSI deferrals
|
(39 | ) | (65 | ) | (75 | ) | 40 | % | 13 | % | |||||||
Interest credited before DSI amortization
|
658 | 673 | 655 | -2 | % | 3 | % | ||||||||||
DSI amortization:
|
|||||||||||||||||
Prospective unlocking - assumption changes
|
2 | 3 | - | -33 | % |
NM
|
|||||||||||
Retrospective unlocking
|
(17 | ) | (7 | ) | (5 | ) |
NM
|
-40 | % | ||||||||
Amortization, excluding unlocking
|
55 | 57 | 32 | -4 | % | 78 | % | ||||||||||
Total interest credited
|
$ | 698 | $ | 726 | $ | 682 | -4 | % | 6 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
|
|
|
Basis Point Change
|
|||||||||||||
|
For the Years Ended December 31,
|
Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Interest Rate Spread
|
|
|
|
|
|
||||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
5.13 | % | 5.50 | % | 5.50 | % | (37 | ) | (0 | ) | |||||||
Commercial mortgage loan prepayment and bond makewhole premiums
|
0.14 | % | 0.13 | % | 0.03 | % | 1 | 10 | |||||||||
Alternative investments
|
0.00 | % | 0.01 | % | 0.00 | % | (1 | ) | 1 | ||||||||
Net investment income yield on reserves
|
5.27 | % | 5.64 | % | 5.53 | % | (37 | ) | 11 | ||||||||
Interest rate credited to contract holders
|
3.33 | % | 3.52 | % | 3.77 | % | (19 | ) | (25 | ) | |||||||
Interest rate spread
|
1.94 | % | 2.12 | % | 1.76 | % | (18 | ) | 36 |
|
As of or for the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||
Other Information
|
|
|
|
|
|
||||||||||
Fixed annuity deposits, including the fixed portion of
variable
|
$ | 4,779 | $ | 5,568 | $ | 6,355 | -14 | % | -12 | % | |||||
Net flows for fixed annuities, including the fixed
portion of variable
|
2,587 | 3,548 | 3,920 | -27 | % | -9 | % | ||||||||
Transfers from the fixed portion of variable annuity
products to the variable portion of variable annuity products
|
(2,844 | ) | (3,396 | ) | (2,475 | ) | 16 | % | -37 | % | |||||
Average invested assets on reserves
|
19,071 | 18,248 | 17,363 | 5 | % | 5 | % | ||||||||
Average fixed account values, including the fixed
portion of variable
|
20,728 | 20,029 | 18,249 | 3 | % | 10 | % | ||||||||
Fixed annuity account values, including the fixed
portion of variable
|
20,524 | 19,990 | 18,913 | 3 | % | 6 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||
Benefits
|
|
|
|
|
|
|||||||||||
Prospective unlocking - assumption changes
|
$ | 43 | $ | (3 | ) | $ | 7 |
NM
|
NM
|
|||||||
Net death and other benefits, excluding unlocking
|
170 | 177 | 235 | -4 | % | -25 | % | |||||||||
Total benefits
|
$ | 213 | $ | 174 | $ | 242 | 22 | % | -28 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||||
Underwriting, Acquisition, Insurance
and Other Expenses
|
|
|
|
|
|
||||||||||||||
Commissions:
|
|
|
|
|
|
||||||||||||||
Deferrable
|
$ | 466 | $ | 474 | $ | 463 | -2 | % | 2 | % | |||||||||
Non-deferrable
|
260 | 223 | 165 | 17 | % | 35 | % | ||||||||||||
General and administrative expenses
|
360 | 337 | 317 | 7 | % | 6 | % | ||||||||||||
Inter-segment reimbursement associated with reserve
financing and LOC expenses
(1)
|
(2 | ) | (1 | ) | 1 | -100 | % |
NM
|
|||||||||||
Taxes, licenses and fees
|
21 | 20 | 20 | 5 | % | 0 | % | ||||||||||||
Total expenses incurred, excluding broker-dealer
|
1,105 | 1,053 | 966 | 5 | % | 9 | % | ||||||||||||
DAC deferrals
|
(618 | ) | (624 | ) | (624 | ) | 1 | % | 0 | % | |||||||||
Total pre-broker-dealer expenses incurred,
excluding amortization, net of interest
|
487 | 429 | 342 | 14 | % | 25 | % | ||||||||||||
DAC and VOBA amortization, net of interest
|
|||||||||||||||||||
Prospective unlocking - assumption changes
|
(13 | ) | (41 | ) | 10 | 68 | % |
NM
|
|||||||||||
Prospective unlocking - model refinements
|
- | 9 | - | -100 | % |
NM
|
|||||||||||||
Retrospective unlocking
|
(114 | ) | (84 | ) | (19 | ) | -36 | % |
NM
|
||||||||||
Amortization, net of interest, excluding unlocking
|
535 | 535 | 360 | 0 | % | 49 | % | ||||||||||||
Broker-dealer expenses incurred
|
353 | 320 | 290 | 10 | % | 10 | % | ||||||||||||
Total underwriting, acquisition,
insurance and other expenses
|
$ | 1,248 | $ | 1,168 | $ | 983 | 7 | % | 19 | % | |||||||||
DAC Deferrals
|
|||||||||||||||||||
As a percentage of sales/deposits
|
5.8 | % | 5.8 | % | 6.0 | % |
(1)
|
Represents reimbursements to the Annuities segment from the Life Insurance segment for reserve financing, net of expenses incurred for this segment’s use of letters of credit (“LOCs”).
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||||
Insurance fees
|
$ | 210 | $ | 201 | $ | 183 | 4 | % | 10 | % | |||||||
Net investment income
|
793 | 769 | 732 | 3 | % | 5 | % | ||||||||||
Other revenues and fees
(1)
|
14 | 18 | 11 | -22 | % | 64 | % | ||||||||||
Total operating revenues
|
1,017 | 988 | 926 | 3 | % | 7 | % | ||||||||||
Operating Expenses
|
|||||||||||||||||
Interest credited
|
437 | 440 | 445 | -1 | % | -1 | % | ||||||||||
Benefits
|
2 | 2 | (3 | ) | 0 | % | 167 | % | |||||||||
Underwriting, acquisition, insurance and
other expenses
|
344 | 332 | 301 | 4 | % | 10 | % | ||||||||||
Total operating expenses
|
783 | 774 | 743 | 1 | % | 4 | % | ||||||||||
Income (loss) from operations before taxes
|
234 | 214 | 183 | 9 | % | 17 | % | ||||||||||
Federal income tax expense (benefit)
|
67 | 60 | 50 | 12 | % | 20 | % | ||||||||||
Income (loss) from operations
|
$ | 167 | $ | 154 | $ | 133 | 8 | % | 16 | % |
(1)
|
Consists primarily of mutual fund account program fees for mid to large employers.
|
·
|
Higher net investment income and relatively flat interest credited driven by:
|
§
|
Transfers from variable to fixed and interest credited to contract holders driving higher average fixed account values;
|
§
|
Higher prepayment and bond makewhole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
Negative net flows reducing average fixed account values; and
|
§
|
New money rates averaging below our portfolio yields; and
|
·
|
Higher insurance fees attributable to more favorable average equity markets driving higher average daily variable account values, partially offset by an overall shift in business mix toward products with lower expense assessment rates and negative variable net flows.
|
·
|
Investments in strategic initiatives related to updating information technology and expanding distribution and support during 2011; and
|
·
|
Higher account values driving higher trail commissions;
|
·
|
A lower amortization rate during 2011 due primarily to no VOBA amortization as our VOBA balance became fully amortized during the fourth quarter of 2010; and
|
·
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information).
|
·
|
Higher net investment income and relatively flat interest credited driven by:
|
§
|
Transfers from variable to fixed and interest credited to contract holders, partially offset by negative net flows, driving higher average fixed account values;
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
More favorable investment income on alternative investments within our surplus portfolio and higher prepayment and bond makewhole premiums (see “Consolidated Investments – Alternative Investments” and “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
§
|
Holding less cash during 2010; and
|
·
|
Higher insurance fees attributable to more favorable average equity markets driving higher average daily variable account values, partially offset by an overall shift in business mix toward products with lower expense assessment rates.
|
·
|
Investments in strategic initiatives related to updating information technology and expanding distribution during 2010; and
|
·
|
Higher account values driving higher trail commissions;
|
·
|
An overall shift in business mix toward products with lower deferrable expense rates resulting in a lower amortization rate during 2010.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Insurance Fees
|
|
|
|
|
|
||||||||||||
Annuity expense assessments
|
$ | 178 | $ | 172 | $ | 157 | 3 | % | 10 | % | |||||||
Mutual fund fees
|
30 | 26 | 22 | 15 | % | 18 | % | ||||||||||
Total expense assessments
|
208 | 198 | 179 | 5 | % | 11 | % | ||||||||||
Surrender charges
|
2 | 3 | 4 | -33 | % | -25 | % | ||||||||||
Total insurance fees
|
$ | 210 | $ | 201 | $ | 183 | 4 | % | 10 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Account Value Roll Forward – By Product
|
|
|
|
|
|
||||||||||||
Total Micro – Small Segment:
|
|
|
|
|
|
||||||||||||
Balance as of beginning-of-year
|
$ | 6,396 | $ | 5,863 | $ | 4,888 | 9 | % | 20 | % | |||||||
Gross deposits
|
1,301 | 1,242 | 1,157 | 5 | % | 7 | % | ||||||||||
Withdrawals and deaths
|
(1,402 | ) | (1,377 | ) | (1,273 | ) | -2 | % | -8 | % | |||||||
Net flows
|
(101 | ) | (135 | ) | (116 | ) | 25 | % | -16 | % | |||||||
Transfers between fixed and variable accounts
|
5 | 4 | (2 | ) | 25 | % | 300 | % | |||||||||
Investment increase and change in market value
|
(139 | ) | 664 | 1,093 |
NM
|
-39 | % | ||||||||||
Balance as of end-of-year
|
$ | 6,161 | $ | 6,396 | $ | 5,863 | -4 | % | 9 | % | |||||||
Total Mid – Large Segment:
|
|||||||||||||||||
Balance as of beginning-of-year
|
$ | 16,207 | $ | 13,653 | $ | 9,540 | 19 | % | 43 | % | |||||||
Gross deposits
|
3,563 | 3,308 | 2,954 | 8 | % | 12 | % | ||||||||||
Withdrawals and deaths
|
(2,095 | ) | (2,558 | ) | (1,110 | ) | 18 | % |
NM
|
||||||||
Net flows
|
1,468 | 750 | 1,844 | 96 | % | -59 | % | ||||||||||
Transfers between fixed and variable accounts
|
(68 | ) | 16 | 12 |
NM
|
33 | % | ||||||||||
Other
(1)
|
- | 186 | - | -100 | % |
NM
|
|||||||||||
Investment increase and change in market value
|
(166 | ) | 1,602 | 2,257 |
NM
|
-29 | % | ||||||||||
Balance as of end-of-year
|
$ | 17,441 | $ | 16,207 | $ | 13,653 | 8 | % | 19 | % | |||||||
Total
Multi-Fund
® and Other Variable Annuities:
|
|||||||||||||||||
Balance as of beginning-of-year
|
$ | 16,221 | $ | 15,786 | $ | 14,450 | 3 | % | 9 | % | |||||||
Gross deposits
|
702 | 751 | 841 | -7 | % | -11 | % | ||||||||||
Withdrawals and deaths
|
(1,565 | ) | (1,657 | ) | (1,574 | ) | 6 | % | -5 | % | |||||||
Net flows
|
(863 | ) | (906 | ) | (733 | ) | 5 | % | -24 | % | |||||||
Transfers between fixed and variable accounts
|
- | - | (1 | ) |
NM
|
100 | % | ||||||||||
Investment increase and change in market value
|
173 | 1,341 | 2,070 | -87 | % | -35 | % | ||||||||||
Balance as of end-of-year
|
$ | 15,531 | $ | 16,221 | $ | 15,786 | -4 | % | 3 | % | |||||||
Total Annuities and Mutual Funds:
|
|||||||||||||||||
Balance as of beginning-of-year
|
$ | 38,824 | $ | 35,302 | $ | 28,878 | 10 | % | 22 | % | |||||||
Gross deposits
|
5,566 | 5,301 | 4,952 | 5 | % | 7 | % | ||||||||||
Withdrawals and deaths
|
(5,062 | ) | (5,592 | ) | (3,957 | ) | 9 | % | -41 | % | |||||||
Net flows
|
504 | (291 | ) | 995 | 273 | % |
NM
|
||||||||||
Transfers between fixed and variable accounts
|
(63 | ) | 20 | 9 |
NM
|
122 | % | ||||||||||
Other
(1)
|
- | 186 | - | -100 | % |
NM
|
|||||||||||
Investment increase and change in market value
|
(132 | ) | 3,607 | 5,420 |
NM
|
-33 | % | ||||||||||
Balance as of end-of-year
(2)
|
$ | 39,133 | $ | 38,824 | $ | 35,302 | 1 | % | 10 | % |
(1)
|
Represents
LINCOLN ALLIANCE
® program assets held by a third-party trustee that were not previously included in the account value roll forward. Effective January 1, 2010, all such
LINCOLN ALLIANCE
® program activity was included in the account value roll forward.
|
(2)
|
Includes mutual fund account values and other third-party trustee-held assets. These items are not included in the separate accounts reported on our Consolidated Balance Sheets as we do not have any ownership interest in them.
|
|
As of or for the Years Ended
|
|
|||||||||||||
|
December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||
Account Value Information
|
|
|
|
|
|
||||||||||
Variable annuity deposits, excluding the fixed portion of
variable
|
$ | 1,615 | $ | 1,614 | $ | 1,586 | 0 | % | 2 | % | |||||
Net flows for variable annuities, excluding the fixed
portion of variable
|
(497 | ) | (544 | ) | (302 | ) | 9 | % | -80 | % | |||||
Change in market value on variable, excluding the fixed
portion of variable
|
(280 | ) | 1,687 | 2,843 |
NM
|
-41 | % | ||||||||
Transfers from the variable portion of variable annuity products to the fixed portion of variable annuity products
|
(283 | ) | (169 | ) | (176 | ) | -67 | % | 4 | % | |||||
Average daily variable annuity account values, excluding
the fixed portion of variable
|
13,611 | 12,930 | 11,315 | 5 | % | 14 | % | ||||||||
Average daily S&P 500
|
1,268.03 | 1,138.78 | 947.53 | 11 | % | 20 | % | ||||||||
Variable annuity account values, excluding the fixed
portion of variable
|
12,867 | 13,927 | 12,953 | -8 | % | 8 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Net Investment Income
|
|
|
|
|
|
|||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
$ | 719 | $ | 705 | $ | 681 | 2 | % | 4 | % | ||||||
Commercial mortgage loan prepayment and bond
makewhole premiums
(1)
|
21 | 9 | 5 | 133 | % | 80 | % | |||||||||
Alternative investments
(2)
|
1 | 3 | 1 | -67 | % | 200 | % | |||||||||
Surplus investments
(3)
|
52 | 52 | 45 | 0 | % | 16 | % | |||||||||
Total net investment income
|
$ | 793 | $ | 769 | $ | 732 | 3 | % | 5 | % | ||||||
Interest Credited
|
$ | 437 | $ | 440 | $ | 445 | -1 | % | -1 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
|
|
|
Basis Point Change
|
|||||||||||||
|
For the Years Ended December 31,
|
Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Interest Rate Spread
|
|
|
|
|
|
||||||||||||
Fixed maturity securities, mortgage loans on real
|
|
|
|
|
|
||||||||||||
estate and other, net of investment expenses
|
5.53 | % | 5.70 | % | 5.76 | % | (17 | ) | (6 | ) | |||||||
Commercial mortgage loan prepayment and bond
|
|||||||||||||||||
makewhole premiums
|
0.16 | % | 0.08 | % | 0.04 | % | 8 | 4 | |||||||||
Alternative investments
|
0.01 | % | 0.02 | % | 0.01 | % | (1 | ) | 1 | ||||||||
Net investment income yield on reserves
|
5.70 | % | 5.80 | % | 5.81 | % | (10 | ) | (1 | ) | |||||||
Interest rate credited to contract holders
|
3.32 | % | 3.49 | % | 3.70 | % | (17 | ) | (21 | ) | |||||||
Interest rate spread
|
2.38 | % | 2.31 | % | 2.11 | % | 7 | 20 |
|
As of or for the Years Ended
|
|
|||||||||||||
|
December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||
Other Information
|
|
|
|
|
|
||||||||||
Fixed annuity deposits, including the fixed portion of
variable
|
$ | 1,436 | $ | 1,332 | $ | 1,342 | 8 | % | -1 | % | |||||
Net flows for fixed annuities, including the fixed portion
of variable
|
(106 | ) | (347 | ) | (62 | ) | 69 | % |
NM
|
||||||
Transfers to the fixed portion of variable annuity
products from the variable portion of variable annuity products
|
283 | 169 | 176 | 67 | % | -4 | % | ||||||||
Average invested assets on reserves
|
12,988 | 12,360 | 11,815 | 5 | % | 5 | % | ||||||||
Average fixed account values, including the fixed portion
of variable
|
13,168 | 12,580 | 12,024 | 5 | % | 5 | % | ||||||||
Fixed annuity account values, including the fixed portion
of variable
|
13,630 | 12,779 | 12,246 | 7 | % | 4 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||||
Underwriting, Acquisition, Insurance and Other Expenses
|
|
|
|
|
|
||||||||||||||
Commissions:
|
|
|
|
|
|
||||||||||||||
Deferrable
|
$ | 22 | $ | 27 | $ | 28 | -19 | % | -4 | % | |||||||||
Non-deferrable
|
45 | 38 | 36 | 18 | % | 6 | % | ||||||||||||
General and administrative expenses
|
273 | 242 | 221 | 13 | % | 10 | % | ||||||||||||
Taxes, licenses and fees
|
13 | 13 | 12 | 0 | % | 8 | % | ||||||||||||
Total expenses incurred
|
353 | 320 | 297 | 10 | % | 8 | % | ||||||||||||
DAC deferrals
|
(69 | ) | (67 | ) | (69 | ) | -3 | % | 3 | % | |||||||||
Total expenses recognized before amortization
|
284 | 253 | 228 | 12 | % | 11 | % | ||||||||||||
DAC and VOBA amortization, net of interest:
|
|||||||||||||||||||
Prospective unlocking - assumption changes
|
- | (16 | ) | (8 | ) | 100 | % | -100 | % | ||||||||||
Prospective unlocking - model refinements
|
3 | 8 | - | -63 | % |
NM
|
|||||||||||||
Retrospective unlocking
|
(15 | ) | 4 | 2 |
NM
|
100 | % | ||||||||||||
Amortization, net of interest, excluding unlocking
|
72 | 83 | 79 | -13 | % | 5 | % | ||||||||||||
Total underwriting, acquisition, insurance
and other expenses
|
$ | 344 | $ | 332 | $ | 301 | 4 | % | 10 | % | |||||||||
|
|||||||||||||||||||
DAC Deferrals
|
|||||||||||||||||||
As a percentage of annuity sales/deposits
|
2.3 | % | 2.3 | % | 2.4 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||||
Insurance premiums
|
$ | 441 | $ | 439 | $ | 392 | 0 | % | 12 | % | |||||||
Insurance fees
|
1,979 | 1,934 | 1,901 | 2 | % | 2 | % | ||||||||||
Net investment income
|
2,294 | 2,186 | 1,975 | 5 | % | 11 | % | ||||||||||
Other revenues and fees
|
25 | 31 | 27 | -19 | % | 15 | % | ||||||||||
Total operating revenues
|
4,739 | 4,590 | 4,295 | 3 | % | 7 | % | ||||||||||
Operating Expenses
|
|||||||||||||||||
Interest credited
|
1,235 | 1,199 | 1,185 | 3 | % | 1 | % | ||||||||||
Benefits
|
1,669 | 1,734 | 1,373 | -4 | % | 26 | % | ||||||||||
Underwriting, acquisition, insurance and
other expenses
|
948 | 908 | 923 | 4 | % | -2 | % | ||||||||||
Total operating expenses
|
3,852 | 3,841 | 3,481 | 0 | % | 10 | % | ||||||||||
Income (loss) from operations before taxes
|
887 | 749 | 814 | 18 | % | -8 | % | ||||||||||
Federal income tax expense (benefit)
|
283 | 236 | 245 | 20 | % | -4 | % | ||||||||||
Income (loss) from operations
|
$ | 604 | $ | 513 | $ | 569 | 18 | % | -10 | % |
·
|
Higher net investment income, only partially offset by higher interest credited attributable to:
|
§
|
Growth in business in force; and
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
New money rates averaging below our portfolio yields;
|
·
|
Lower benefits attributable primarily to:
|
§
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Higher death claims; and
|
§
|
Model refinements and continued growth in our secondary guarantee life insurance business; and
|
·
|
Higher insurance fees due to growth in insurance in force, partially offset by the effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information).
|
·
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
·
|
Higher pricing of reserve financing transactions supporting our secondary guarantee UL and term business in reaction to the unfavorable market conditions experienced during the recession and our continued efforts to reduce the strain of these statutory reserves (see “Strategies to Address Statutory Reserve Strain” below for more information); and
|
·
|
The effect of the inter-company reinsurance agreement effective December 31, 2010.
|
·
|
Higher benefits attributable to:
|
§
|
The effect of unlocking in 2010 as compared to 2009 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Higher death claims;
|
§
|
Harmonizing certain processes resulting in an increase in traditional product reserves; and
|
§
|
Continued growth in our secondary guarantee life insurance business; and
|
·
|
More favorable tax return true-ups recorded in 2009 than in 2010.
|
·
|
Higher net investment income and relatively flat interest credited attributable to:
|
§
|
More favorable investment income on alternative investments and higher prepayment and bond makewhole premiums (see “Consolidated Investments – Alternative Investments” and “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below);
|
§
|
Growth in business in force; and
|
§
|
Actions implemented to reduce interest crediting rates; and
|
·
|
Lower underwriting, acquisition, insurance and other expenses attributable to:
|
§
|
The effect of unlocking in 2010 as compared to 2009 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Reducing projected EGPs for this segment (discussed in “Additional Information” below) resulting in a higher amortization rate; and
|
§
|
Higher pricing of reserve financing transactions supporting our secondary guarantee UL and term business in reaction to the unfavorable market conditions experienced during the recession and our continued efforts to reduce the strain of these statutory reserves (see “Strategies to Address Statutory Reserve Strain” below for more information).
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Insurance Fees
|
|
|
|
|
|
|||||||||||||
Mortality assessments
|
$ | 1,312 | $ | 1,287 | $ | 1,299 | 2 | % | -1 | % | ||||||||
Expense assessments
|
935 | 844 | 759 | 11 | % | 11 | % | |||||||||||
Surrender charges
|
96 | 100 | 112 | -4 | % | -11 | % | |||||||||||
DFEL:
|
||||||||||||||||||
Deferrals
|
(483 | ) | (472 | ) | (439 | ) | -2 | % | -8 | % | ||||||||
Amortization, net of interest:
|
||||||||||||||||||
Prospective unlocking - assumption changes
|
(11 | ) | 56 | 20 |
NM
|
180 | % | |||||||||||
Prospective unlocking - model refinements
|
(26 | ) | (56 | ) | - | 54 | % |
NM
|
||||||||||
Retrospective unlocking
|
(4 | ) | 24 | 15 |
NM
|
60 | % | |||||||||||
Amortization, net of interest, excluding
unlocking
|
160 | 151 | 135 | 6 | % | 12 | % | |||||||||||
Total insurance fees
|
$ | 1,979 | $ | 1,934 | $ | 1,901 | 2 | % | 2 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Sales by Product
|
|
|
|
|
|
|||||||||||||
UL:
|
|
|
|
|
|
|||||||||||||
Excluding
MoneyGuard
®
|
$ | 317 | $ | 353 | $ | 397 | -10 | % | -11 | % | ||||||||
MoneyGuard®
|
186 | 108 | 67 | 72 | % | 61 | % | |||||||||||
Total UL
|
503 | 461 | 464 | 9 | % | -1 | % | |||||||||||
VUL
|
50 | 43 | 36 | 16 | % | 19 | % | |||||||||||
COLI and BOLI
|
92 | 63 | 51 | 46 | % | 24 | % | |||||||||||
Term
|
55 | 70 | 59 | -21 | % | 19 | % | |||||||||||
Total sales
|
$ | 700 | $ | 637 | $ | 610 | 10 | % | 4 | % | ||||||||
|
||||||||||||||||||
Net Flows
|
||||||||||||||||||
Deposits
|
$ | 5,393 | $ | 4,934 | $ | 4,451 | 9 | % | 11 | % | ||||||||
Withdrawals and deaths
|
(1,710 | ) | (1,877 | ) | (2,030 | ) | 9 | % | 8 | % | ||||||||
Net flows
|
$ | 3,683 | $ | 3,057 | $ | 2,421 | 20 | % | 26 | % | ||||||||
|
||||||||||||||||||
Contract holder assessments
|
$ | 3,286 | $ | 3,119 | $ | 2,996 | 5 | % | 4 | % |
As of December 31,
|
Change Over Prior Year
|
|||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Account Values
|
|
|
|
|
|
|||||||||||
UL
(1)
|
$ | 28,052 | $ | 26,199 | $ | 24,994 | 7 | % | 5 | % | ||||||
VUL
(1)
|
4,929 | 5,108 | 4,468 | -4 | % | 14 | % | |||||||||
Interest-sensitive whole life
|
2,297 | 2,278 | 2,282 | 1 | % | 0 | % | |||||||||
Total account values
|
$ | 35,278 | $ | 33,585 | $ | 31,744 | 5 | % | 6 | % | ||||||
In-Force Face Amount
|
||||||||||||||||
UL and other
(1)
|
$ | 307,900 | $ | 297,837 | $ | 291,879 | 3 | % | 2 | % | ||||||
Term insurance
(2)
|
271,931 | 265,154 | 248,726 | 3 | % | 7 | % | |||||||||
Total in-force face amount
|
$ | 579,831 | $ | 562,991 | $ | 540,605 | 3 | % | 4 | % |
(1)
|
Effective with the March 31, 2009, transfer of certain life insurance policies to a third party, UL and VUL account values were reduced by $938 million and $640 million, respectively, and UL and other face amount in force was reduced by $20.9 billion.
|
(2)
|
Excludes $19.8 billion of face amount in force associated with our assumption of the mortality risk effective October 1, 2009, on the block of business mentioned in footnote one above.
|
·
|
UL (excluding linked-benefit products) and VUL (including COLI and BOLI) – first year commissionable premiums plus 5% of excess premiums received, including an adjustment for internal replacements of approximately 50% of commissionable premiums;
|
·
|
MoneyGuard
® (our linked-benefit product) – 15% of premium deposits; and
|
·
|
Term – 100% of first year paid premiums.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Net Investment Income
|
|
|
|
|
|
|||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
$ | 2,092 | $ | 2,000 | $ | 1,942 | 5 | % | 3 | % | ||||||
Commercial mortgage loan prepayment and
bond makewhole premiums
(1)
|
23 | 30 | 12 | -23 | % | 150 | % | |||||||||
Alternative investments
(2)
|
62 | 49 | (69 | ) | 27 | % | 171 | % | ||||||||
Surplus investments
(3)
|
117 | 107 | 90 | 9 | % | 19 | % | |||||||||
Total net investment income
|
$ | 2,294 | $ | 2,186 | $ | 1,975 | 5 | % | 11 | % | ||||||
Interest Credited
|
$ | 1,235 | $ | 1,199 | $ | 1,185 | 3 | % | 1 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
|
|
|
Basis Point Change
|
|||||||||||||
|
For the Years Ended December 31,
|
Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Interest Rate Yields and Spread
|
|
|
|
|
|
||||||||||||
Attributable to interest-sensitive products:
|
|
|
|
|
|
||||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
5.79 | % | 5.87 | % | 5.93 | % | (8 | ) | (6 | ) | |||||||
Commercial mortgage loan prepayment
and bond makewhole premiums
|
0.07 | % | 0.09 | % | 0.04 | % | (2 | ) | 5 | ||||||||
Alternative investments
|
0.19 | % | 0.17 | % | -0.25 | % | 2 | 42 | |||||||||
Net investment income yield on reserves
|
6.05 | % | 6.13 | % | 5.72 | % | (8 | ) | 41 | ||||||||
Interest rate credited to contract holders
|
4.08 | % | 4.16 | % | 4.23 | % | (8 | ) | (7 | ) | |||||||
Interest rate spread
|
1.97 | % | 1.97 | % | 1.49 | % | (0 | ) | 48 | ||||||||
|
|||||||||||||||||
Attributable to traditional products:
|
|||||||||||||||||
Fixed maturity securities, mortgage loans on real
estate and other, net of investment expenses
|
5.90 | % | 6.12 | % | 5.99 | % | (22 | ) | 13 | ||||||||
Commercial mortgage loan prepayment
and bond makewhole premiums
|
0.03 | % | 0.07 | % | 0.01 | % | (4 | ) | 6 | ||||||||
Alternative investments
|
0.01 | % | 0.02 | % | 0.00 | % | (1 | ) | 2 | ||||||||
Net investment income yield on reserves
|
5.94 | % | 6.21 | % | 6.00 | % | (27 | ) | 21 |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||
Averages
|
|
|
|
|
|
||||||||||
Attributable to interest-sensitive products:
|
|
|
|
|
|
||||||||||
Invested assets on reserves
(1)
|
$ | 31,752 | $ | 29,391 | $ | 27,824 | 8 | % | 6 | % | |||||
Account values - universal and whole life
(1)
|
30,066 | 28,465 | 27,674 | 6 | % | 3 | % | ||||||||
Attributable to traditional products:
|
|||||||||||||||
Invested assets on reserves
|
4,297 | 4,465 | 4,896 | -4 | % | -9 | % |
(1)
|
We experienced declines in our average invested assets on reserves and account values attributable to interest-sensitive products subsequent to the transfer of certain life insurance policies to a third party, which reduced these balances by $927 million and $938 million, respectively, on March 31, 2009.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Benefits
|
|
|
|
|
|
||||||||||||
Death claims direct and assumed
|
$ | 2,847 | $ | 2,538 | $ | 2,260 | 12 | % | 12 | % | |||||||
Death claims ceded
|
(1,368 | ) | (1,154 | ) | (993 | ) | -19 | % | -16 | % | |||||||
Reserves released on death
|
(452 | ) | (433 | ) | (394 | ) | -4 | % | -10 | % | |||||||
Net death benefits
|
1,027 | 951 | 873 | 8 | % | 9 | % | ||||||||||
Change in secondary guarantee life insurance
product reserves:
|
|||||||||||||||||
Prospective unlocking - assumption changes
|
(297 | ) | 84 | (3 | ) |
NM
|
NM
|
||||||||||
Prospective unlocking - model refinements
|
155 | 71 | - | 118 | % |
NM
|
|||||||||||
Change in reserves, excluding unlocking
|
467 | 306 | 249 | 53 | % | 23 | % | ||||||||||
Other benefits:
|
|||||||||||||||||
Prospective unlocking - assumption changes
|
33 | - | - |
NM
|
NM
|
||||||||||||
Other benefits, excluding unlocking
(1)
|
284 | 322 | 254 | -12 | % | 27 | % | ||||||||||
Total benefits
|
$ | 1,669 | $ | 1,734 | $ | 1,373 | -4 | % | 26 | % | |||||||
Death claims per $1,000 of in-force
|
1.80 | 1.72 | 1.63 | 5 | % | 6 | % |
(1)
|
Includes primarily traditional product changes in reserves and dividends.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Underwriting, Acquisition, Insurance
and Other Expenses
|
|
|
|
|
|
|||||||||||||
Commissions
|
$ | 678 | $ | 664 | $ | 676 | 2 | % | -2 | % | ||||||||
General and administrative expenses
|
473 | 451 | 451 | 5 | % | 0 | % | |||||||||||
Expenses associated with reserve financing
|
57 | 37 | 6 | 54 | % |
NM
|
||||||||||||
Taxes, licenses and fees
|
145 | 129 | 115 | 12 | % | 12 | % | |||||||||||
Total expenses incurred
|
1,353 | 1,281 | 1,248 | 6 | % | 3 | % | |||||||||||
DAC and VOBA deferrals
|
(948 | ) | (915 | ) | (900 | ) | -4 | % | -2 | % | ||||||||
Total expenses recognized before amortization
|
405 | 366 | 348 | 11 | % | 5 | % | |||||||||||
DAC and VOBA amortization, net of interest
|
||||||||||||||||||
Prospective unlocking - assumption changes | 215 | 129 | 33 | 67 | % | 291 | % | |||||||||||
Prospective unlocking - model refinements | (219 | ) | (155 | ) | - | -41 | % |
NM
|
||||||||||
Retrospective unlocking | 12 | 28 | 42 | -57 | % | -33 | % | |||||||||||
Amortization, net of interest, excluding unlocking | 531 | 536 | 496 | -1 | % | 8 | % | |||||||||||
Other intangible amortization
|
4 | 4 | 4 | 0 | % | 0 | % | |||||||||||
Total underwriting, acquisition, insurance
and other expenses
|
$ | 948 | $ | 908 | $ | 923 | 4 | % | -2 | % | ||||||||
|
||||||||||||||||||
DAC and VOBA Deferrals
|
||||||||||||||||||
As a percentage of sales
|
135.4 | % | 143.6 | % | 147.5 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||||
Insurance premiums
|
$ | 1,778 | $ | 1,682 | $ | 1,579 | 6 | % | 7 | % | |||||||
Net investment income
|
152 | 141 | 127 | 8 | % | 11 | % | ||||||||||
Other revenues and fees
|
9 | 8 | 7 | 13 | % | 14 | % | ||||||||||
Total operating revenues
|
1,939 | 1,831 | 1,713 | 6 | % | 7 | % | ||||||||||
Operating Expenses
|
|||||||||||||||||
Interest credited
|
3 | 3 | 3 | 0 | % | 0 | % | ||||||||||
Benefits
|
1,314 | 1,296 | 1,116 | 1 | % | 16 | % | ||||||||||
Underwriting, acquisition, insurance and
other expenses
|
467 | 422 | 403 | 11 | % | 5 | % | ||||||||||
Total operating expenses
|
1,784 | 1,721 | 1,522 | 4 | % | 13 | % | ||||||||||
Income (loss) from operations before taxes
|
155 | 110 | 191 | 41 | % | -42 | % | ||||||||||
Federal income tax expense (benefit)
|
54 | 38 | 67 | 42 | % | -43 | % | ||||||||||
Income (loss) from operations
|
$ | 101 | $ | 72 | $ | 124 | 40 | % | -42 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Income (Loss) from Operations by
Product Line
|
|
|
|
|
|
||||||||||||
Life
|
$ | 34 | $ | 37 | $ | 42 | -8 | % | -12 | % | |||||||
Disability
|
64 | 34 | 79 | 88 | % | -57 | % | ||||||||||
Dental
|
(2 | ) | (4 | ) | (2 | ) | 50 | % | -100 | % | |||||||
Total non-medical
|
96 | 67 | 119 | 43 | % | -44 | % | ||||||||||
Medical
|
5 | 5 | 5 | 0 | % | 0 | % | ||||||||||
Income (loss) from operations
|
$ | 101 | $ | 72 | $ | 124 | 40 | % | -42 | % |
·
|
More favorable non-medical loss ratio experience;
|
·
|
Growth in insurance premiums driven by normal, organic business growth in our non-medical products; and
|
·
|
Higher net investment income driven by an increase in business.
|
·
|
Growth in insurance premiums driven by normal, organic business growth in our non-medical products and strong case persistency; and
|
·
|
Higher net investment income driven by an increase in business and more favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information).
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Insurance Premiums by Product Line
|
|
|
|
|
|
||||||||||||
Life
|
$ | 693 | $ | 639 | $ | 584 | 8 | % | 9 | % | |||||||
Disability
|
757 | 727 | 692 | 4 | % | 5 | % | ||||||||||
Dental
|
183 | 167 | 149 | 10 | % | 12 | % | ||||||||||
Total non-medical
|
1,633 | 1,533 | 1,425 | 7 | % | 8 | % | ||||||||||
Medical
|
145 | 149 | 154 | -3 | % | -3 | % | ||||||||||
Total insurance premiums
|
$ | 1,778 | $ | 1,682 | $ | 1,579 | 6 | % | 7 | % | |||||||
|
|||||||||||||||||
Sales
|
$ | 395 | $ | 353 | $ | 361 | 12 | % | -2 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Benefits and Interest Credited by
Product Line
|
|
|
|
|
|
||||||||||||
Life
|
$ | 518 | $ | 484 | $ | 420 | 7 | % | 15 | % | |||||||
Disability
|
529 | 548 | 443 | -3 | % | 24 | % | ||||||||||
Dental
|
143 | 136 | 121 | 5 | % | 12 | % | ||||||||||
Total non-medical
|
1,190 | 1,168 | 984 | 2 | % | 19 | % | ||||||||||
Medical
|
127 | 131 | 135 | -3 | % | -3 | % | ||||||||||
Total benefits and interest credited
|
$ | 1,317 | $ | 1,299 | $ | 1,119 | 1 | % | 16 | % | |||||||
|
|||||||||||||||||
Loss Ratios by Product Line
|
|||||||||||||||||
Life
|
74.8 | % | 75.8 | % | 72.0 | % | |||||||||||
Disability
|
69.9 | % | 75.4 | % | 64.0 | % | |||||||||||
Dental
|
77.9 | % | 81.5 | % | 81.7 | % | |||||||||||
Total non-medical
|
72.9 | % | 76.2 | % | 69.1 | % | |||||||||||
Medical
|
87.9 | % | 87.6 | % | 87.9 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Underwriting, Acquisition, Insurance
and Other Expenses
|
|
|
|
|
|
|||||||||||||
Commissions
|
$ | 201 | $ | 190 | $ | 176 | 6 | % | 8 | % | ||||||||
General and administrative expenses
|
244 | 208 | 204 | 17 | % | 2 | % | |||||||||||
Taxes, licenses and fees
|
41 | 39 | 36 | 5 | % | 8 | % | |||||||||||
Total expenses incurred
|
486 | 437 | 416 | 11 | % | 5 | % | |||||||||||
DAC deferrals
|
(65 | ) | (61 | ) | (59 | ) | -7 | % | -3 | % | ||||||||
Total expenses recognized before
amortization
|
421 | 376 | 357 | 12 | % | 5 | % | |||||||||||
DAC and VOBA amortization, net of
interest
|
46 | 46 | 46 | 0 | % | 0 | % | |||||||||||
Total underwriting, acquisition,
insurance and other expenses
|
$ | 467 | $ | 422 | $ | 403 | 11 | % | 5 | % | ||||||||
|
||||||||||||||||||
DAC Deferrals
|
||||||||||||||||||
As a percentage of insurance premiums
|
3.7 | % | 3.6 | % | 3.7 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Operating Revenues
|
|
|
|
|
|
|||||||||||||
Insurance premiums
|
$ | 1 | $ | 2 | $ | 4 | -50 | % | -50 | % | ||||||||
Net investment income
|
307 | 326 | 307 | -6 | % | 6 | % | |||||||||||
Amortization of deferred gain on
business sold through reinsurance
|
72 | 72 | 73 | 0 | % | -1 | % | |||||||||||
Media revenues (net)
|
77 | 75 | 68 | 3 | % | 10 | % | |||||||||||
Other revenues and fees
|
4 | 12 | 13 | -67 | % | -8 | % | |||||||||||
Total operating revenues
|
461 | 487 | 465 | -5 | % | 5 | % | |||||||||||
Operating Expenses
|
||||||||||||||||||
Interest credited
|
113 | 120 | 148 | -6 | % | -19 | % | |||||||||||
Benefits
|
126 | 139 | 258 | -9 | % | -46 | % | |||||||||||
Media expenses
|
69 | 59 | 53 | 17 | % | 11 | % | |||||||||||
Other expenses
|
90 | 176 | 125 | -49 | % | 41 | % | |||||||||||
Interest and debt expense
|
285 | 286 | 261 | 0 | % | 10 | % | |||||||||||
Total operating expenses
|
683 | 780 | 845 | -12 | % | -8 | % | |||||||||||
Income (loss) from operations before taxes
|
(222 | ) | (293 | ) | (380 | ) | 24 | % | 23 | % | ||||||||
Federal income tax expense (benefit)
|
(76 | ) | (107 | ) | (143 | ) | 29 | % | 25 | % | ||||||||
Income (loss) from operations
|
$ | (146 | ) | $ | (186 | ) | $ | (237 | ) | 22 | % | 22 | % |
·
|
Repurchases of common stock, net cash used in operating activities due primarily to interest payments and transfers to other segments for OTTI, partially offset by distributable earnings received from our insurance segments, resulting in lower average invested assets; and
|
·
|
New money rates averaging below our portfolio yields.
|
·
|
The unfavorable effect during 2009 related to rescinding the reinsurance agreement on certain disability income business sold to Swiss Re (discussed in “Reinsurance” below), which resulted in pre-tax increases in benefits of $78 million, interest credited of $15 million and other expenses of $5 million, partially offset by a $34 million tax benefit;
|
·
|
Higher benefits during 2009 associated with our run-off disability income business due to increasing reserves supporting this business and writing off certain receivables upon rescinding the reinsurance agreement; and
|
·
|
Higher net investment income due to distributable earnings received from our insurance segments, issuances of common stock and preferred stock and proceeds from the sale of Lincoln UK and Delaware, partially offset by redemption of our Series B preferred stock and repurchase and cancellation of associated common stock warrants, resulting in higher average invested assets.
|
·
|
Higher other expenses due to:
|
§
|
Settlement of the Transamerica litigation matter during 2010 (see Note 13 for more information);
|
§
|
More favorable state income tax true-ups in 2009; and
|
§
|
Higher branding expenses in 2010;
|
§
|
Restructuring charges for expense initiatives in 2009; and
|
§
|
Higher merger-related expenses in 2009; and
|
·
|
Higher interest and debt expense attributable to higher average balances of outstanding debt during 2010.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||||
Other Expenses
|
|
|
|
|
|
|||||||||||||
General and administrative expenses:
|
|
|
|
|
|
|||||||||||||
Legal
|
$ | 1 | $ | 77 | $ | 14 | -99 | % |
NM
|
|||||||||
Branding
|
29 | 27 | 18 | 7 | % | 50 | % | |||||||||||
Non-brand marketing
|
4 | 11 | 9 | -64 | % | 22 | % | |||||||||||
Other
(1)
|
38 | 59 | 52 | -36 | % | 13 | % | |||||||||||
Total general and administrative
expenses
|
72 | 174 | 93 | -59 | % | 87 | % | |||||||||||
Merger-related expenses
(2)
|
- | 9 | 17 | -100 | % | -47 | % | |||||||||||
Restructuring charges (recoveries) for
expense initiatives
(3)
|
- | (1 | ) | 34 | 100 | % |
NM
|
|||||||||||
Taxes, licenses and fees
|
27 | (4 | ) | (19 | ) |
NM
|
79 | % | ||||||||||
Inter-segment reimbursement associated
with reserve financing and LOC expenses
(4)
|
(9 | ) | (2 | ) | - |
NM
|
NM
|
|||||||||||
Total other expenses
|
$ | 90 | $ | 176 | $ | 125 | -49 | % | 41 | % |
(1)
|
Includes expenses that are corporate in nature including charitable contributions, amortization of media intangible assets with a definite life, other expenses not allocated to our business segments and inter-segment expense eliminations.
|
(2)
|
Includes the result of actions undertaken by us to eliminate duplicate operations and functions as a result of the Jefferson-Pilot merger along with costs related to the implementation of our unified product portfolio and other initiatives. These actions were completed during 2010. Our cumulative integration expense was approximately $225 million, pre-tax, which excluded amounts capitalized or recorded as goodwill.
|
(3)
|
Includes expenses associated with a restructuring plan implemented starting in December 2008 in response to the economic downturn and sustained market volatility, which focused on reducing expenses. These actions were completed during 2009. Our cumulative pre-tax charges amounted to $41 million for severance, benefits and related costs associated with the plan for workforce reduction and other restructuring actions.
|
(4)
|
Consists of reimbursements to Other Operations from the Life Insurance segment for the use of proceeds from certain issuances of senior notes that were used as long-term structured solutions, net of expenses incurred by Other Operations for its use of LOCs.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||||
|
|
|
|
|
|||||||||||||||
Components of Realized Gain (Loss),
Pre-Tax
|
|
|
|
|
|
||||||||||||||
Total operating realized gain (loss)
|
$ | 89 | $ | 69 | $ | 54 | 29 | % | 28 | % | |||||||||
Total excluded realized gain (loss)
|
(388 | ) | (146 | ) | (1,200 | ) |
NM
|
88 | % | ||||||||||
Total realized gain (loss), pre-tax
|
$ | (299 | ) | $ | (77 | ) | $ | (1,146 | ) |
NM
|
93 | % | |||||||
|
|||||||||||||||||||
Reconciliation of Excluded Realized
Gain (Loss) Net of Benefit Ratio
Unlocking, After-Tax
|
|||||||||||||||||||
Total excluded realized gain (loss)
|
$ | (252 | ) | $ | (95 | ) | $ | (780 | ) |
NM
|
88 | % | |||||||
Benefit ratio unlocking
|
(14 | ) | 10 | 89 |
NM
|
-89 | % | ||||||||||||
Excluded realized gain (loss) net of
benefit ratio unlocking, after-tax
|
$ | (266 | ) | $ | (85 | ) | $ | (691 | ) |
NM
|
88 | % | |||||||
|
|||||||||||||||||||
Components of Excluded Realized
Gain (Loss) Net of Benefit Ratio
Unlocking, After-Tax
|
|||||||||||||||||||
Realized gain (loss) related to certain i
nvestments
|
$ | (99 | ) | $ | (118 | ) | $ | (350 | ) | 16 | % | 66 | % | ||||||
Gain (loss) on the mark-to-market on
certain instruments
|
(54 | ) | 49 | 23 |
NM
|
113 | % | ||||||||||||
Variable annuity net derivatives results:
|
|||||||||||||||||||
Hedge program performance
|
(106 | ) | (27 | ) | 103 |
NM
|
NM
|
||||||||||||
Unlocking for GLB reserves hedged
|
(72 | ) | 18 | (157 | ) |
NM
|
111 | % | |||||||||||
GLB NPR component
|
65 | (19 | ) | (313 | ) |
NM
|
94 | % | |||||||||||
Total variable annuity net derivatives
results
|
(113 | ) | (28 | ) | (367 | ) |
NM
|
92 | % | ||||||||||
Indexed annuity forward-starting option | - | 12 | 2 | -100 | % |
NM
|
|||||||||||||
Realized gain (loss) on sale of
subsidiaries/businesses
|
- | - | 1 |
NM
|
-100 | % | |||||||||||||
Excluded realized gain (loss) net of
benefit ratio unlocking, after-tax
|
$ | (266 | ) | $ | (85 | ) | $ | (691 | ) |
NM
|
88 | % |
(1)
|
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities.
|
·
|
Losses on the mark-to-market on certain instruments during 2011 as compared to gains in 2010 attributable to spreads widening on corporate credit default swaps, partially offset by declines in interest rates leading to an increase in the value of our trading securities; and
|
·
|
Higher losses on variable annuity net derivatives results attributable to:
|
§
|
Volatile capital markets during 2011 resulting in higher losses in our hedge program; and
|
§
|
The effect of unlocking in 2011 as compared to 2010 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Widening of our credit spreads during 2011 resulting in a favorable GLB NPR component (see “Variable Annuity Net Derivatives Results” below for a discussion of how our NPR adjustment is determined).
|
·
|
More favorable variable annuity net derivatives results attributable to:
|
§
|
Narrowing of our credit spreads during 2009 resulting in an unfavorable GLB NPR component (see “Variable Annuity Net Derivatives Results” below for a discussion of how our NPR adjustment is determined); and
|
§
|
The effect of unlocking in 2010 as compared to 2009 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Less favorable hedge program performance;
|
·
|
General improvement in the credit markets leading to a decline in OTTI (see “Consolidated Investments – Realized Gain (Loss) Related to Certain Investments” below for more information); and
|
·
|
Higher gains on the mark-to-market on certain instruments attributable to spreads narrowing on corporate credit default swaps and declines in interest rates leading to an increase in the value of our trading securities.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||
Retrospective unlocking
|
$ | 39 | $ | 34 | $ | 20 | 15 | % | 70 | % |
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
|||||
|
December 31,
|
September 30,
|
June 30,
|
March 31,
|
December 31,
|
||||||||||
|
2011
|
|
2011
|
|
2011
|
|
2011
|
|
2010
|
|
|||||
10-year CDS spread
|
|
3.65
|
%
|
|
4.42
|
%
|
|
2.02
|
%
|
|
1.78
|
%
|
|
1.98
|
%
|
NPR factor related to 10-year CDS spread
|
|
0.43
|
%
|
|
0.51
|
%
|
|
0.24
|
%
|
|
0.17
|
%
|
|
0.17
|
%
|
Unadjusted embedded derivative liability
|
$
|
2,418
|
|
$
|
2,642
|
|
$
|
306
|
|
$
|
112
|
|
$
|
389
|
|
|
|
|
Percentage of
|
||||||||||||
|
|
|
Total Investments
|
||||||||||||
|
As of December 31,
|
As of December 31,
|
|||||||||||||
|
2011
|
2010
|
2011
|
2010
|
|||||||||||
Investments
|
|
|
|
|
|||||||||||
AFS securities:
|
|
|
|
|
|||||||||||
Fixed maturity
|
$ | 75,433 | $ | 68,030 | 81.0 | % | 81.6 | % | |||||||
VIEs' fixed maturity
|
700 | 584 | 0.8 | % | 0.7 | % | |||||||||
Total fixed maturity
|
76,133 | 68,614 | 81.8 | % | 82.3 | % | |||||||||
Equity
|
139 | 197 | 0.1 | % | 0.2 | % | |||||||||
Trading securities
|
2,675 | 2,596 | 2.9 | % | 3.1 | % | |||||||||
Mortgage loans on real estate
|
6,942 | 6,752 | 7.4 | % | 8.1 | % | |||||||||
Real estate
|
137 | 202 | 0.1 | % | 0.3 | % | |||||||||
Policy loans
|
2,884 | 2,865 | 3.1 | % | 3.5 | % | |||||||||
Derivative investments
|
3,151 | 1,076 | 3.4 | % | 1.3 | % | |||||||||
Alternative investments
|
807 | 750 | 0.9 | % | 0.9 | % | |||||||||
Other investments
|
262 | 288 | 0.3 | % | 0.3 | % | |||||||||
Total investments
|
$ | 93,130 | $ | 83,340 | 100.0 | % | 100.0 | % |
As of December 31, 2011
|
|||||||||||||||||||
|
|
Unrealized
|
|
%
|
|||||||||||||||
Amortized
|
Unrealized
|
Losses
|
Fair
|
Fair
|
|||||||||||||||
Cost
|
Gains
|
and OTTI
|
Value
|
Value
|
|||||||||||||||
Fixed Maturity AFS Securities |
|
|
|
|
|
||||||||||||||
Industry corporate bonds: |
|
|
|
|
|
||||||||||||||
Financial services
|
$ | 8,926 | $ | 607 | $ | 158 | $ | 9,375 | 12.3 | % | |||||||||
Basic industry
|
3,394 | 323 | 27 | 3,690 | 4.8 | % | |||||||||||||
Capital goods
|
3,933 | 455 | 9 | 4,379 | 5.8 | % | |||||||||||||
Communications
|
3,247 | 364 | 37 | 3,574 | 4.7 | % | |||||||||||||
Consumer cyclical
|
3,226 | 345 | 36 | 3,535 | 4.6 | % | |||||||||||||
Consumer non-cyclical
|
7,956 | 1,190 | 1 | 9,145 | 12.0 | % | |||||||||||||
Energy
|
5,026 | 690 | 6 | 5,710 | 7.5 | % | |||||||||||||
Technology
|
1,682 | 192 | 3 | 1,871 | 2.5 | % | |||||||||||||
Transportation
|
1,360 | 166 | 1 | 1,525 | 2.0 | % | |||||||||||||
Industrial other
|
755 | 74 | 3 | 826 | 1.1 | % | |||||||||||||
Utilities
|
10,644 | 1,457 | 27 | 12,074 | 15.8 | % | |||||||||||||
Collateralized mortgage and other obligations ("CMOs"): | |||||||||||||||||||
Agency backed
|
3,226 | 357 | - | 3,583 | 4.7 | % | |||||||||||||
Non-agency backed
|
1,481 | 12 | 199 | 1,294 | 1.7 | % | |||||||||||||
Mortgage pass through securities ("MPTS"): | |||||||||||||||||||
Agency backed
|
2,982 | 179 | - | 3,161 | 4.2 | % | |||||||||||||
Non-agency backed
|
1 | - | - | 1 | 0.0 | % | |||||||||||||
Commercial mortgage-backed securities ("CMBS"): | |||||||||||||||||||
Non-agency backed
|
1,642 | 73 | 115 | 1,600 | 2.1 | % | |||||||||||||
Corporate asset-backed securities ("ABS"): | |||||||||||||||||||
CDOs
|
88 | - | 6 | 82 | 0.1 | % | |||||||||||||
Commercial real estate ("CRE") CDOs
|
33 | - | 13 | 20 | 0.0 | % | |||||||||||||
Credit card
|
790 | 47 | - | 837 | 1.1 | % | |||||||||||||
Home equity
|
905 | 3 | 271 | 637 | 0.8 | % | |||||||||||||
Manufactured housing
|
85 | 5 | 1 | 89 | 0.1 | % | |||||||||||||
Auto loan
|
52 | 1 | - | 53 | 0.1 | % | |||||||||||||
Other
|
246 | 29 | 1 | 274 | 0.4 | % | |||||||||||||
Municipals: | |||||||||||||||||||
Taxable
|
3,452 | 565 | 9 | 4,008 | 5.3 | % | |||||||||||||
Tax-exempt
|
38 | 1 | - | 39 | 0.1 | % | |||||||||||||
Government and government agencies: | |||||||||||||||||||
United States
|
1,468 | 232 | - | 1,700 | 2.2 | % | |||||||||||||
Foreign
|
1,746 | 152 | 4 | 1,894 | 2.5 | % | |||||||||||||
Hybrid and redeemable preferred securities | 1,277 | 50 | 170 | 1,157 | 1.5 | % | |||||||||||||
Total fixed maturity AFS securities
|
69,661 | 7,569 | 1,097 | 76,133 | 100.0 | % | |||||||||||||
Equity AFS Securities | 135 | 16 | 12 | 139 | |||||||||||||||
Total AFS securities
|
69,796 | 7,585 | 1,109 | 76,272 | |||||||||||||||
Trading Securities (1) | 2,301 | 408 | 34 | 2,675 | |||||||||||||||
Total AFS and trading securities
|
$ | 72,097 | $ | 7,993 | $ | 1,143 | $ | 78,947 |
As of December 31, 2010
|
|||||||||||||||||||
|
|
Unrealized
|
|
%
|
|||||||||||||||
Amortized
|
Unrealized
|
Losses
|
Fair
|
Fair
|
|||||||||||||||
Cost
|
Gains
|
and OTTI
|
Value
|
Value
|
|||||||||||||||
Fixed Maturity AFS Securities |
|
|
|
|
|
||||||||||||||
Industry corporate bonds: |
|
|
|
|
|
||||||||||||||
Financial services
|
$ | 8,377 | $ | 438 | $ | 148 | $ | 8,667 | 12.7 | % | |||||||||
Basic industry
|
2,478 | 203 | 20 | 2,661 | 3.9 | % | |||||||||||||
Capital goods
|
3,425 | 243 | 45 | 3,623 | 5.3 | % | |||||||||||||
Communications
|
3,050 | 251 | 32 | 3,269 | 4.8 | % | |||||||||||||
Consumer cyclical
|
2,772 | 185 | 47 | 2,910 | 4.2 | % | |||||||||||||
Consumer non-cyclical
|
7,259 | 628 | 20 | 7,867 | 11.5 | % | |||||||||||||
Energy
|
4,533 | 428 | 17 | 4,944 | 7.2 | % | |||||||||||||
Technology
|
1,414 | 108 | 9 | 1,513 | 2.2 | % | |||||||||||||
Transportation
|
1,379 | 116 | 3 | 1,492 | 2.2 | % | |||||||||||||
Industrial other
|
884 | 53 | 10 | 927 | 1.4 | % | |||||||||||||
Utilities
|
9,800 | 708 | 62 | 10,446 | 15.2 | % | |||||||||||||
CMOs: | |||||||||||||||||||
Agency backed
|
3,975 | 308 | 1 | 4,282 | 6.2 | % | |||||||||||||
Non-agency backed
|
1,718 | 16 | 259 | 1,475 | 2.1 | % | |||||||||||||
MPTS: | |||||||||||||||||||
Agency backed
|
2,978 | 106 | 5 | 3,079 | 4.5 | % | |||||||||||||
Non-agency backed
|
2 | - | - | 2 | 0.0 | % | |||||||||||||
CMBS: | |||||||||||||||||||
Non-agency backed
|
2,144 | 95 | 186 | 2,053 | 3.0 | % | |||||||||||||
ABS: | |||||||||||||||||||
CDOs
|
128 | 22 | 8 | 142 | 0.2 | % | |||||||||||||
CRE CDOs
|
46 | - | 14 | 32 | 0.0 | % | |||||||||||||
Credit card
|
831 | 33 | 4 | 860 | 1.3 | % | |||||||||||||
Home equity
|
1,002 | 6 | 268 | 740 | 1.1 | % | |||||||||||||
Manufactured housing
|
110 | 3 | 4 | 109 | 0.2 | % | |||||||||||||
Auto loan
|
162 | 2 | - | 164 | 0.2 | % | |||||||||||||
Other
|
211 | 21 | 1 | 231 | 0.3 | % | |||||||||||||
Municipals: | |||||||||||||||||||
Taxable
|
3,219 | 27 | 94 | 3,152 | 4.6 | % | |||||||||||||
Tax-exempt
|
3 | - | - | 3 | 0.0 | % | |||||||||||||
Government and government agencies: | |||||||||||||||||||
United States
|
931 | 120 | 2 | 1,049 | 1.5 | % | |||||||||||||
Foreign
|
1,438 | 94 | 7 | 1,525 | 2.2 | % | |||||||||||||
Hybrid and redeemable preferred securities | 1,476 | 56 | 135 | 1,397 | 2.0 | % | |||||||||||||
Total fixed maturity AFS securities
|
65,745 | 4,270 | 1,401 | 68,614 | 100.0 | % | |||||||||||||
Equity AFS Securities | 179 | 25 | 7 | 197 | |||||||||||||||
Total AFS securities
|
65,924 | 4,295 | 1,408 | 68,811 | |||||||||||||||
Trading Securities (1) | 2,340 | 297 | 41 | 2,596 | |||||||||||||||
Total AFS and trading securities
|
$ | 68,264 | $ | 4,592 | $ | 1,449 | $ | 71,407 |
(1)
|
Certain of our trading securities support our modified coinsurance arrangements (“Modco”) and the investment results are passed directly to the reinsurers. Refer to the “Trading Securities” section for further details.
|
(1)
|
Based upon the rating designations determined and provided by the National Association of Insurance Commissioners (“NAIC”) or the major credit rating agencies (Fitch Ratings (“Fitch”), Moody's Investors Service (“Moody’s”) and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
|
Amortized
|
Fair
|
||||||
|
Cost
|
Value
|
||||||
Spain
|
$ | 367 | $ | 386 | ||||
Ireland
|
215 | 227 | ||||||
Italy
|
148 | 154 | ||||||
Portugal
|
40 | 31 | ||||||
Total
|
$ | 770 | $ | 798 |
|
As of December 31, 2011
|
|||||||||||||||||
|
|
Gross
|
Estimated
|
Estimated
|
|
|
||||||||||||
|
|
Unrealized
|
Years
|
Average
|
|
|
||||||||||||
|
|
Losses
|
until Call
|
Years
|
|
|
||||||||||||
|
Fair
|
and
|
or
|
until
|
Subordination Level
|
|||||||||||||
|
Value
|
OTTI
|
Maturity
|
Recovery
|
Current
|
Origination |
|
|||||||||||
CMBS
|
$ | 324 | $ | 115 |
1 to 41
|
27 | 22.1 | % | 15.3 | % | ||||||||
Hybrid and redeemable
preferred securities
|
677 | 170 |
1 to 55
|
31 | N/A | N/A |
·
|
The current economic environment and market conditions;
|
·
|
Our business strategy and current business plans;
|
·
|
The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;
|
·
|
Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies;
|
·
|
The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts;
|
·
|
The capital risk limits approved by management; and
|
·
|
Our current financial condition and liquidity demands.
|
·
|
Historic and implied volatility of the security;
|
·
|
Length of time and extent to which the fair value has been less than amortized cost;
|
·
|
Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;
|
·
|
Failure, if any, of the issuer of the security to make scheduled payments; and
|
·
|
Recoveries or additional declines in fair value subsequent to the balance sheet date.
|
|
As of December 31, 2011
|
|
|||||||||||||||||||||||||||||
|
Prime Agency
|
|
Prime/ Non-Agency
|
|
Alt-A
|
|
Subprime
|
|
Total
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
|||||||||||||||||||||
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
|||||||||||
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
$
|
6,743
|
|
$
|
6,207
|
|
$
|
835
|
|
$
|
911
|
|
$
|
461
|
|
$
|
567
|
|
$
|
-
|
|
$
|
4
|
|
$
|
8,039
|
|
$
|
7,689
|
|
|
ABS home equity
|
|
4
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
205
|
|
|
280
|
|
|
428
|
|
|
621
|
|
|
637
|
|
|
905
|
|
|
|
Total by type
(1)(2)
|
$
|
6,747
|
|
$
|
6,211
|
|
$
|
835
|
|
$
|
911
|
|
$
|
666
|
|
$
|
847
|
|
$
|
428
|
|
$
|
625
|
|
$
|
8,676
|
|
$
|
8,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
$
|
6,672
|
|
$
|
6,142
|
|
$
|
62
|
|
$
|
60
|
|
$
|
32
|
|
$
|
31
|
|
$
|
79
|
|
$
|
82
|
|
$
|
6,845
|
|
$
|
6,315
|
|
|
AA
|
|
60
|
|
|
56
|
|
|
52
|
|
|
51
|
|
|
6
|
|
|
6
|
|
|
44
|
|
|
50
|
|
|
162
|
|
|
163
|
|
|
A
|
|
15
|
|
|
13
|
|
|
54
|
|
|
56
|
|
|
33
|
|
|
36
|
|
|
64
|
|
|
68
|
|
|
166
|
|
|
173
|
|
|
BBB
|
|
-
|
|
|
-
|
|
|
52
|
|
|
55
|
|
|
63
|
|
|
64
|
|
|
23
|
|
|
24
|
|
|
138
|
|
|
143
|
|
|
BB and below
|
|
-
|
|
|
-
|
|
|
615
|
|
|
689
|
|
|
532
|
|
|
710
|
|
|
218
|
|
|
401
|
|
|
1,365
|
|
|
1,800
|
|
|
|
Total by rating
(1)(2)(3)
|
$
|
6,747
|
|
$
|
6,211
|
|
$
|
835
|
|
$
|
911
|
|
$
|
666
|
|
$
|
847
|
|
$
|
428
|
|
$
|
625
|
|
$
|
8,676
|
|
$
|
8,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Origination Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 and prior
|
$
|
1,562
|
|
$
|
1,445
|
|
$
|
215
|
|
$
|
221
|
|
$
|
228
|
|
$
|
255
|
|
$
|
209
|
|
$
|
265
|
|
$
|
2,214
|
|
$
|
2,186
|
|
|
2005
|
|
842
|
|
|
754
|
|
|
119
|
|
|
141
|
|
|
245
|
|
|
300
|
|
|
158
|
|
|
230
|
|
|
1,364
|
|
|
1,425
|
|
|
2006
|
|
246
|
|
|
217
|
|
|
162
|
|
|
175
|
|
|
158
|
|
|
237
|
|
|
60
|
|
|
128
|
|
|
626
|
|
|
757
|
|
|
2007
|
|
1,097
|
|
|
963
|
|
|
339
|
|
|
374
|
|
|
35
|
|
|
55
|
|
|
-
|
|
|
-
|
|
|
1,471
|
|
|
1,392
|
|
|
2008
|
|
240
|
|
|
217
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
240
|
|
|
217
|
|
|
2009
|
|
1,197
|
|
|
1,121
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1
|
|
|
2
|
|
|
1,198
|
|
|
1,123
|
|
|
2010
|
|
1,074
|
|
|
1,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,074
|
|
|
1,020
|
|
|
2011
|
|
489
|
|
|
474
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
489
|
|
|
474
|
|
|
|
Total by origination
year
(1)(2)
|
$
|
6,747
|
|
$
|
6,211
|
|
$
|
835
|
|
$
|
911
|
|
$
|
666
|
|
$
|
847
|
|
$
|
428
|
|
$
|
625
|
|
$
|
8,676
|
|
$
|
8,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFS RMBS as a
percentage of total
AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
%
|
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total prime/non-agency,
Alt-A and subprime
as a percentage of
total AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5
|
%
|
|
3.4
|
%
|
(1)
|
Does not include the fair value of trading securities totaling $265 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $265 million in trading securities consisted of $241 million prime, $10 million Alt-A and $14 million subprime.
|
(2)
|
Does not include the amortized cost of trading securities totaling $255 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $255 million in trading securities consisted of $225 million prime, $13 million Alt-A and $17 million subprime.
|
(3)
|
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
|
As of December 31, 2011
|
||||||||||||||||||||||||
|
Multiple Property
|
|
Single Property
|
|
CRE CDOs
|
|
Total
|
||||||||||||||||||
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
Amortized
|
||||||||||
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Cost
|
||||||||||
Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
CMBS
|
$
|
1,553
|
|
$
|
1,551
|
|
$
|
47
|
|
$
|
91
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,600
|
|
$
|
1,642
|
||
CRE CDOs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20
|
|
|
33
|
|
|
20
|
|
|
33
|
||
|
Total by type
(1)(2)
|
$
|
1,553
|
|
$
|
1,551
|
|
$
|
47
|
|
$
|
91
|
|
$
|
20
|
|
$
|
33
|
|
$
|
1,620
|
|
$
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
AAA
|
$
|
1,028
|
|
$
|
967
|
|
$
|
14
|
|
$
|
13
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,042
|
|
$
|
980
|
||
AA
|
|
215
|
|
|
213
|
|
|
10
|
|
|
10
|
|
|
-
|
|
|
-
|
|
|
225
|
|
|
223
|
||
A
|
|
134
|
|
|
138
|
|
|
5
|
|
|
6
|
|
|
1
|
|
|
1
|
|
|
140
|
|
|
145
|
||
BBB
|
|
108
|
|
|
114
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8
|
|
|
120
|
|
|
128
|
||
BB and below
|
|
68
|
|
|
119
|
|
|
13
|
|
|
56
|
|
|
12
|
|
|
24
|
|
|
93
|
|
|
199
|
||
|
Total by rating
(1)(2)(3)
|
$
|
1,553
|
|
$
|
1,551
|
|
$
|
47
|
|
$
|
91
|
|
$
|
20
|
|
$
|
33
|
|
$
|
1,620
|
|
$
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Origination Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
2004 and prior
|
$
|
901
|
|
$
|
893
|
|
$
|
23
|
|
$
|
23
|
|
$
|
4
|
|
$
|
5
|
|
$
|
928
|
|
$
|
921
|
||
2005
|
|
325
|
|
|
309
|
|
|
23
|
|
|
60
|
|
|
7
|
|
|
8
|
|
|
355
|
|
|
377
|
||
2006
|
|
136
|
|
|
149
|
|
|
1
|
|
|
8
|
|
|
9
|
|
|
20
|
|
|
146
|
|
|
177
|
||
2007
|
|
136
|
|
|
146
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
136
|
|
|
146
|
||
2010
|
|
55
|
|
|
54
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
55
|
|
|
54
|
||
|
Total by origination year
(1)(2)
|
$
|
1,553
|
|
$
|
1,551
|
|
$
|
47
|
|
$
|
91
|
|
$
|
20
|
|
$
|
33
|
|
$
|
1,620
|
|
$
|
1,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total AFS securities backed by pools of commercial
mortgages as a percentage
of total AFS securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
%
|
|
2.4
|
% |
(1)
|
Does not include the fair value of trading securities totaling $34 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $34 million in trading securities consisted of $31 million CMBS and $3 million CRE CDOs.
|
(2)
|
Does not include the amortized cost of trading securities totaling $39 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $39 million in trading securities consisted of $35 million CMBS and $4 million CRE CDOs.
|
(3)
|
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
|
As of December 31, 2011
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|||
|
|
|
|
%
|
|
|
|
|
%
|
|
Unrealized
|
|
Unrealized
|
||||
|
Fair
|
|
Fair
|
|
Amortized
|
|
Amortized
|
|
Loss
|
|
Loss
|
||||||
|
Value
|
|
Value
|
|
Cost
|
|
Cost
|
|
and OTTI
|
|
and OTTI
|
||||||
ABS
|
$
|
680
|
|
10.5
|
%
|
$
|
972
|
|
12.7
|
%
|
$
|
292
|
|
26.3
|
% | ||
Banking
|
|
1,507
|
|
23.2
|
%
|
|
1,769
|
|
23.2
|
%
|
|
262
|
|
23.6
|
% | ||
CMOs
|
|
946
|
|
14.5
|
%
|
|
1,142
|
|
15.0
|
%
|
|
196
|
|
17.7
|
% | ||
CMBS
|
|
324
|
|
5.0
|
%
|
|
439
|
|
5.8
|
%
|
|
115
|
|
10.4
|
% | ||
Property and casualty insurers
|
|
108
|
|
1.7
|
%
|
|
136
|
|
1.8
|
%
|
|
28
|
|
2.5
|
% | ||
Media - non-cable
|
|
155
|
|
2.4
|
%
|
|
182
|
|
2.4
|
%
|
|
27
|
|
2.4
|
% | ||
Electric
|
|
217
|
|
3.3
|
%
|
|
240
|
|
3.2
|
%
|
|
23
|
|
2.1
|
% | ||
Retailers
|
|
67
|
|
1.0
|
%
|
|
88
|
|
1.2
|
%
|
|
21
|
|
1.9
|
% | ||
Paper
|
|
102
|
|
1.6
|
%
|
|
122
|
|
1.6
|
%
|
|
20
|
|
1.8
|
% | ||
Life
|
|
117
|
|
1.8
|
%
|
|
129
|
|
1.7
|
%
|
|
12
|
|
1.1
|
% | ||
Local authorities
|
|
40
|
|
0.6
|
%
|
|
51
|
|
0.7
|
%
|
|
11
|
|
1.0
|
% | ||
Wirelines
|
|
159
|
|
2.4
|
%
|
|
170
|
|
2.2
|
%
|
|
11
|
|
1.0
|
% | ||
Brokerage
|
|
87
|
|
1.3
|
%
|
|
97
|
|
1.3
|
%
|
|
10
|
|
0.9
|
% | ||
Industries with unrealized losses
less than $10 million
|
|
1,994
|
|
30.7
|
%
|
|
2,075
|
|
27.2
|
%
|
|
81
|
|
7.3
|
% | ||
Total by industry
|
$
|
6,503
|
|
100.0
|
%
|
$
|
7,612
|
|
100.0
|
%
|
$
|
1,109
|
|
100.0
|
% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total by industry as a percentage
of total AFS securities
|
|
8.5
|
%
|
|
|
|
10.9
|
%
|
|
|
|
100.0
|
%
|
|
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||
Carrying
|
|
Carrying
|
|
|||||||||||
Value
|
%
|
Value
|
%
|
|||||||||||
Credit Quality Indicator
|
|
|
|
|
||||||||||
Current
|
$ | 6,854 | 98.7 | % | $ | 6,699 | 99.2 | % | ||||||
Delinquent and in foreclosure
(1)
|
88 | 1.3 | % | 53 | 0. 8 | % | ||||||||
Total mortgage loans on real estate
|
$ | 6,942 | 100.0 | % | $ | 6,752 | 100.0 | % |
(1)
|
As of December 31, 2011 and 2010, there were 16 and 10 mortgage loans on real estate that were delinquent and in foreclosure, respectively.
|
|
|
As of December 31,
|
|
|
||||
|
|
2011
|
|
2010
|
|
|
||
By Segment
|
|
|
|
|
|
|
|
|
Annuities
|
$
|
1,341
|
|
$
|
1,172
|
|
|
|
Retirement Plan Services
|
|
1,080
|
|
|
920
|
|
|
|
Life Insurance
|
|
3,731
|
|
|
3,856
|
|
|
|
Group Protection
|
|
278
|
|
|
285
|
|
|
|
Other Operations
|
|
512
|
|
|
519
|
|
|
|
|
Total mortgage loans on real estate
|
$
|
6,942
|
|
$
|
6,752
|
|
|
|
|
|
As of
|
|
|
|
|
|
||
|
|
|
December 31, |
|
|
|
|
|||
|
|
|
2011
|
|
|
|
|
|
||
Allowance for Losses
|
|
|
|
|
|
|
|
|||
Balance as of beginning-of-year
|
$
|
13
|
|
|
|
|
|
|||
|
Additions
|
|
24
|
|
|
|
|
|
||
|
Charge-offs, net of recoveries
|
|
(6
|
)
|
|
|
|
|
||
|
|
Balance as of end-of-year
|
$
|
31
|
|
|
|
|
|
|
As of December 31, 2011
|
|
As of December 31, 2011
|
|||||||||||||||
|
Carrying
|
|
|
Carrying
|
|
|||||||||||||
|
Value
|
%
|
|
Value
|
%
|
|||||||||||||
Property Type
|
|
|
State Exposure
|
|
|
|||||||||||||
Office building
|
$ | 2,207 | 31.8 | % |
CA
|
$ | 1,579 | 22.7 | % | |||||||||
Industrial
|
1,775 | 25.6 | % |
TX
|
636 | 9.2 | % | |||||||||||
Retail
|
1,557 | 22.4 | % |
MD
|
420 | 6.1 | % | |||||||||||
Apartment
|
1,022 | 14.7 | % |
VA
|
350 | 5.0 | % | |||||||||||
Mixed use
|
152 | 2.2 | % |
NC
|
285 | 4.1 | % | |||||||||||
Hotel/Motel
|
132 | 1.9 | % |
TN
|
279 | 4.0 | % | |||||||||||
Other commercial
|
97 | 1.4 | % |
FL
|
272 | 3.9 | % | |||||||||||
Total
|
$ | 6,942 | 100.0 | % |
WA
|
264 | 3.8 | % | ||||||||||
|
GA
|
233 | 3.4 | % | ||||||||||||||
Geographic Region
|
AZ
|
216 | 3.1 | % | ||||||||||||||
Pacific
|
$ | 1,965 | 28.3 | % |
IN
|
208 | 3.0 | % | ||||||||||
South Atlantic
|
1,689 | 24.3 | % |
IL
|
189 | 2.7 | % | |||||||||||
East North Central
|
671 | 9.7 | % |
NV
|
184 | 2.7 | % | |||||||||||
West South Central
|
656 | 9.5 | % |
OH
|
177 | 2.5 | % | |||||||||||
Mountain
|
553 | 8.0 | % |
PA
|
174 | 2.5 | % | |||||||||||
East South Central
|
475 | 6.8 | % |
NY
|
150 | 2.2 | % | |||||||||||
Middle Atlantic
|
442 | 6.4 | % |
MN
|
149 | 2.1 | % | |||||||||||
West North Central
|
349 | 5.0 | % |
Other states under 2%
|
1,177 | 17.0 | % | |||||||||||
New England
|
142 | 2.0 | % |
Total
|
$ | 6,942 | 100.0 | % | ||||||||||
Total
|
$ | 6,942 | 100.0 | % |
|
|
As of December 31, 2011
|
|
As of December 31, 2011
|
|||||||||||||||
|
Principal
|
|
|
Principal
|
|
|||||||||||||
|
Amount
|
%
|
|
Amount
|
%
|
|||||||||||||
Origination Year
|
|
|
Future Principal Payments
|
|||||||||||||||
2004 and prior
|
$ | 2,486 | 35.7 | % | 2012 | $ | 309 | 4.4 | % | |||||||||
2005
|
783 | 11.3 | % | 2013 | 379 | 5.4 | % | |||||||||||
2006
|
647 | 9.3 | % | 2014 | 402 | 5.8 | % | |||||||||||
2007
|
911 | 13.1 | % | 2015 | 622 | 8.9 | % | |||||||||||
2008
|
796 | 11.4 | % | 2016 | 518 | 7.5 | % | |||||||||||
2009
|
148 | 2.1 | % | 2017 and thereafter | 4,730 | 68.0 | % | |||||||||||
2010
|
280 | 4.0 | % |
Total
|
$ | 6,960 | 100.0 | % | ||||||||||
2011
|
909 | 13.1 | % | |||||||||||||||
Total
|
$ | 6,960 | 100.0 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Annuities
|
$ | 10 | $ | 14 | $ | 3 | -29 | % |
NM
|
||||||||
Retirement Plan Services
|
6 | 10 | 2 | -40 | % |
NM
|
|||||||||||
Life Insurance
|
71 | 63 | (66 | ) | 13 | % | 195 | % | |||||||||
Group Protection
|
3 | 5 | 1 | -40 | % |
NM
|
|||||||||||
Other Operations
|
- | 1 | 5 | -100 | % | -80 | % | ||||||||||
Total
(1)
|
$ | 90 | $ | 93 | $ | (55 | ) | -3 | % | 269 | % |
(1)
|
Represents net investment income on the alternative investments supporting the required statutory surplus of our insurance businesses.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Annuities
|
$ | 4 | $ | 2 | $ | (3 | ) | 100 | % | 167 | % | ||||||
Retirement Plan Services
|
2 | 1 | (3 | ) | 100 | % | 133 | % | |||||||||
Life Insurance
|
30 | 14 | (65 | ) | 114 | % | 122 | % | |||||||||
Group Protection
|
2 | 1 | (1 | ) | 100 | % | 200 | % | |||||||||
Total
|
$ | 38 | $ | 18 | $ | (72 | ) | 111 | % | 125 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||||
Net Investment Income
|
|
|
|
|
|
|||||||||||||
Fixed maturity AFS securities
|
$ | 3,842 | $ | 3,694 | $ | 3,474 | 4 | % | 6 | % | ||||||||
VIEs' fixed maturity AFS securities
|
14 | 14 | - | 0 | % |
NM
|
||||||||||||
Equity AFS securities
|
5 | 6 | 8 | -17 | % | -25 | % | |||||||||||
Trading securities
|
154 | 157 | 159 | -2 | % | -1 | % | |||||||||||
Mortgage loans on real estate
|
408 | 424 | 462 | -4 | % | -8 | % | |||||||||||
Real estate
|
22 | 24 | 18 | -8 | % | 33 | % | |||||||||||
Standby real estate equity commitments
|
1 | 1 | 1 | 0 | % | 0 | % | |||||||||||
Policy loans
|
165 | 169 | 172 | -2 | % | -2 | % | |||||||||||
Invested cash
|
4 | 7 | 15 | -43 | % | -53 | % | |||||||||||
Commercial mortgage loan prepayment
and bond makewhole premiums
(1)
|
82 | 67 | 24 | 22 | % | 179 | % | |||||||||||
Alternative investments
(2)
|
90 | 93 | (55 | ) | -3 | % | 269 | % | ||||||||||
Consent fees
|
3 | 8 | 5 | -63 | % | 60 | % | |||||||||||
Other investments
|
(27 | ) | (3 | ) | 9 |
NM
|
NM
|
|||||||||||
Investment income
|
4,763 | 4,661 | 4,292 | 2 | % | 9 | % | |||||||||||
Investment expense
|
(111 | ) | (120 | ) | (114 | ) | 8 | % | -5 | % | ||||||||
Net investment income
|
$ | 4,652 | $ | 4,541 | $ | 4,178 | 2 | % | 9 | % |
(1)
|
See “Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Alternative Investments” above for additional information.
|
|
|
|
|
Basis Point Change
|
|||||||||||||
|
For the Years Ended December 31,
|
Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Interest Rate Yield
|
|
|
|
|
|
||||||||||||
Fixed maturity securities, mortgage
loans on real estate and other,
net of investment expenses
|
5.49 | % | 5.63 | % | 5.81 | % | (14 | ) | (18 | ) | |||||||
Commercial mortgage loan
|
|||||||||||||||||
prepayment and bond
|
|||||||||||||||||
makewhole premiums
|
0.10 | % | 0.09 | % | 0.03 | % | 1 | 6 | |||||||||
Alternative investments
|
0.11 | % | 0.12 | % | -0.08 | % | (1 | ) | 20 | ||||||||
Consent fees
|
0.00 | % | 0.01 | % | 0.01 | % | (1 | ) | - | ||||||||
Net investment income yield
on invested assets
|
5.70 | % | 5.85 | % | 5.77 | % | (15 | ) | 8 |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||
Average invested assets at amortized cost
|
$ | 81,640 | $ | 77,558 | $ | 72,359 | 5 | % | 7 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|
|||||||||||||
Gross gains
|
$ | 86 | $ | 107 | $ | 161 | -20 | % | -34 | % | ||||||||
Gross losses
|
(227 | ) | (248 | ) | (709 | ) | 8 | % | 65 | % | ||||||||
Equity AFS securities:
|
||||||||||||||||||
Gross gains
|
12 | 9 | 6 | 33 | % | 50 | % | |||||||||||
Gross losses
|
- | (3 | ) | (27 | ) | 100 | % | 89 | % | |||||||||
Gain (loss) on other investments
|
(9 | ) | (53 | ) | (130 | ) | 83 | % | 59 | % | ||||||||
Associated amortization of DAC, VOBA, DSI, and
DFEL and changes in other contract holder funds
|
(13 | ) | 8 | 161 |
NM
|
-95 | % | |||||||||||
Total realized gain (loss) related to certain
investments, pre-tax
|
$ | (151 | ) | $ | (180 | ) | $ | (538 | ) | 16 | % | 67 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||||
Fixed maturity securities:
|
|
|
|
|
|
|||||||||||||||
Corporate bonds
|
$ | (14 | ) | $ | (90 | ) | $ | (214 | ) | 84 | % | 58 | % | |||||||
RMBS
|
(79 | ) | (65 | ) | (250 | ) | -22 | % | 74 | % | ||||||||||
CMBS
|
(57 | ) | (41 | ) | - | -39 | % |
NM
|
||||||||||||
CDOs
|
(1 | ) | (1 | ) | (39 | ) | 0 | % | 97 | % | ||||||||||
Hybrid and redeemable preferred securities
|
(2 | ) | (5 | ) | (67 | ) | 60 | % | 93 | % | ||||||||||
Total fixed maturity securities
|
(153 | ) | (202 | ) | (570 | ) | 24 | % | 65 | % | ||||||||||
Equity securities
|
- | (3 | ) | (27 | ) | 100 | % | 89 | % | |||||||||||
Gross OTTI recognized in net income (loss)
|
(153 | ) | (205 | ) | (597 | ) | 25 | % | 66 | % | ||||||||||
Associated amortization of DAC, VOBA, DSI
and DFEL
|
35 | 53 | 205 | -34 | % | -74 | % | |||||||||||||
Net OTTI recognized in net income (loss),
pre-tax
|
$ | (118 | ) | $ | (152 | ) | $ | (392 | ) | 22 | % | 61 | % | |||||||
|
||||||||||||||||||||
Portion of OTTI Recognized in OCI
|
||||||||||||||||||||
Gross OTTI recognized in OCI
|
$ | 58 | $ | 98 | $ | 357 | -41 | % | -73 | % | ||||||||||
Change in DAC, VOBA, DSI and DFEL
|
(11 | ) | (10 | ) | (82 | ) | -10 | % | 88 | % | ||||||||||
Net portion of OTTI recognized in OCI, pre-tax | $ | 47 | $ | 88 | $ | 275 | -47 | % | -68 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
|
|
|
|
|
|
|||||||||||
The Lincoln National Life Insurance Company ("LNL")
|
$ | 836 | $ | 712 | $ | 405 | 17 | % | 76 | % | ||||||
Lincoln Financial Media
(1)
|
- | - | 2 |
NM
|
-100 | % | ||||||||||
First Penn-Pacific
|
18 | - | 50 |
NM
|
-100 | % | ||||||||||
Delaware Investments
(2)
|
- | 390 | 10 | -100 | % |
NM
|
||||||||||
Lincoln Barbados
|
- | - | 300 |
NM
|
-100 | % | ||||||||||
Newton County Loan & Savings, FSB (“NCLS”)
|
21 | - | - |
NM
|
NM
|
|||||||||||
Loan Repayments and Interest from
Subsidiaries
|
||||||||||||||||
Interest on inter-company notes
|
105 | 93 | 94 | 13 | % | -1 | % | |||||||||
$ | 980 | $ | 1,195 | $ | 861 | -18 | % | 39 | % | |||||||
Other Cash Flow and Liquidity Items
|
||||||||||||||||
Net proceeds on common stock issuance
|
$ | - | $ | 368 | $ | 652 | -100 | % | -44 | % | ||||||
Lincoln UK sale proceeds
|
- | 18 | 307 | -100 | % | -94 | % | |||||||||
Increase (decrease) in commercial paper,
net
|
(100 | ) | 1 | (216 | ) |
NM
|
100 | % | ||||||||
Net capital received from (paid for taxes
on) stock option exercises and restricted
stock
|
(1 | ) | - | (1 | ) |
NM
|
100 | % | ||||||||
$ | (101 | ) | $ | 387 | $ | 742 |
NM
|
-48 | % |
(1)
|
During May of 2009, Lincoln Financial Media became a subsidiary of LNL.
|
(2)
|
For 2010, amount includes proceeds on the sale of Delaware. For more information, see Note 3.
|
For the Year Ended December 31, 2011
|
||||||||||||||||||||
|
|
|
Change
|
|
|
|||||||||||||||
|
|
Maturities
|
in Fair
|
|
|
|||||||||||||||
Beginning
|
|
and
|
Value
|
Other
|
Ending
|
|||||||||||||||
Balance
|
Issuance
|
Repayments
|
Hedges
|
Changes
(1)
|
Balance
|
|||||||||||||||
Short-Term Debt
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
(2)
|
$ | 100 | $ | - | $ | - | $ | - | $ | (100 | ) | $ | - | |||||||
Current maturities of long-term debt
(3)
|
250 | - | (250 | ) | - | 300 | 300 | |||||||||||||
Other short-term debt
(4)
|
1 | - | (1 | ) | - | - | - | |||||||||||||
Total short-term debt
|
$ | 351 | $ | - | $ | (251 | ) | $ | - | $ | 200 | $ | 300 | |||||||
Long-Term Debt
|
||||||||||||||||||||
Senior notes
|
$ | 3,464 | $ | 300 | $ | - | $ | 264 | $ | (298 | ) | $ | 3,730 | |||||||
Bank borrowing
|
200 | - | - | - | - | 200 | ||||||||||||||
Federal Home Loan Bank of
Indianapolis ("FHLBI") advance
|
250 | - | - | - | - | 250 | ||||||||||||||
Capital securities
|
1,485 | - | (275 | ) | - | 1 | 1,211 | |||||||||||||
Total long-term debt
|
$ | 5,399 | $ | 300 | $ | (275 | ) | $ | 264 | $ | (297 | ) | $ | 5,391 |
(1)
|
Includes the net increase (decrease) in commercial paper, non-cash reclassification of long-term debt to current maturities of long-term debt, accretion of discounts and (amortization) of premiums, as applicable.
|
(2)
|
During 2011, we had an average of $35 million outstanding, a maximum amount outstanding of $103 million at any time and a weighted average interest rate of 0.20%.
|
(3)
|
Consisted of a $300 million 5.65% fixed rate senior note that matures in less than one year. As of December 31, 2010, we reported $250 million in short-term debt that consisted of a fixed rate senior note that matured on December 15, 2011.
|
(4)
|
Consisted of advances from the FHLBI with a maturity of less than one year when made.
|
·
|
A.M. Best – aaa to d
|
·
|
Fitch – AAA to D
|
·
|
Moody’s – Aaa to C
|
·
|
S&P – AAA to D
|
A.M. Best
|
|
Fitch
|
|
Moody's
|
|
S&P
|
|
a-
|
|
BBB+
|
|
Baa2
|
|
A-
|
|
(7th of 22)
|
|
(8th of 21)
|
|
(9th of 21)
|
|
(7th of 22)
|
|
·
|
A.M. Best – AMB-1+ to d
|
·
|
Fitch – F1+ to D
|
·
|
Moody’s – P-1 to NP
|
·
|
S&P – A-1 to D
|
A.M. Best
|
|
Fitch
|
|
Moody's
|
|
S&P
|
|
AMB-1
|
|
F2
|
|
P-2
|
|
A-2
|
|
(2nd of 6)
|
|
(3rd of 8)
|
|
(2nd of 4)
|
|
(2nd of 9)
|
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
|||||||||||||
Common dividends to stockholders
|
$ | 62 | $ | 12 | $ | 62 |
NM
|
-81 | % | |||||||||
Repurchase and cancellation of common stock
warrants
|
- | 48 | - | -100 | % |
NM
|
||||||||||||
Repurchase of common stock
|
576 | 25 | - |
NM
|
NM
|
|||||||||||||
Total cash returned to stockholders
|
$ | 638 | $ | 85 | $ | 62 |
NM
|
37 | % | |||||||||
|
||||||||||||||||||
Number of shares issued
|
- | 14.138 | 46.000 | -100 | % | -70 | % | |||||||||||
Average price per share
|
$ | - | $ | 26.09 | $ | 14.34 | -100 | % | 86 | % | ||||||||
|
||||||||||||||||||
Number of shares repurchased
|
24.661 | 1.048 | - |
NM
|
NM
|
|||||||||||||
Average price per share
|
$ | 23.33 | $ | 23.87 | $ | - | -4 | % |
NM
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||||
|
2011
|
2010
|
2009
|
2011
|
2010
|
||||||||||||
Debt service (interest paid)
|
$ | 303 | $ | 280 | $ | 238 | 8 | % | 18 | % | |||||||
Capital contribution to subsidiaries
|
17 | 125 | 1,260 | -86 | % | -90 | % | ||||||||||
Total
|
$ | 320 | $ | 405 | $ | 1,498 | -21 | % | -73 | % |
Less
|
|
|
More
|
|
|||||||||||||
Than
|
1 - 3 | 3 - 5 |
Than
|
|
|||||||||||||
1 Year
|
Years
|
Years
|
5 Years
|
Total
|
|||||||||||||
Future contract benefits and other
contract holder obligations
(1)
|
$ | 14,598 | $ | 26,257 | $ | 22,501 | $ | 68,543 | $ | 131,899 | |||||||
Short-term debt
(2)
|
300 | - | - | - | 300 | ||||||||||||
Long-term debt
(2)
|
- | 700 | 250 | 4,138 | 5,088 | ||||||||||||
Payables for collateral on investments
(3)
|
517 | 37 | - | - | 554 | ||||||||||||
Operating leases
|
40 | 67 | 48 | 56 | 211 | ||||||||||||
Football stadium naming rights
(4)
|
7 | 14 | 14 | 46 | 81 | ||||||||||||
Outsourcing arrangements
(5)
|
13 | 21 | 17 | - | 51 | ||||||||||||
Retirement and other plans
(6)
|
94 | 184 | 185 | 466 | 929 | ||||||||||||
Totals
|
$ | 15,569 | $ | 27,280 | $ | 23,015 | $ | 73,249 | $ | 139,113 |
(1)
|
We have made significant assumptions to determine the estimated undiscounted cash flows of these policies and contracts, which include mortality, morbidity, future lapse rates and interest crediting rates and assumed an 8% rate to arrive at discounted cash flows. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. See Note 1 for details of what these liabilities include and represent.
|
(2)
|
Represents principal amounts of debt only. See Note 12 for additional information.
|
(3)
|
Excludes collateral payable held for derivative investments. See Note 5 for additional information.
|
(4)
|
Includes a maximum annual increase related to the Consumer Price Index. See Note 13 for additional information.
|
(5)
|
Includes an information technology agreement and certain other outsourcing arrangements. See Note 13 for additional information.
|
(6)
|
Includes anticipated funding for benefit payments for our retirement and postretirement plans through 2021 and known payments under deferred compensation arrangements. See Note 17 for additional information.
|
|
|
Amount of Commitment Expiring per Period
|
|
Total
|
|
||||||||||||||
|
|
Less Than
|
|
1 - 3
|
|
3 - 5
|
|
After
|
|
Amount
|
|
||||||||
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
|
Committed | |||||||||
Bank lines of credit
|
$
|
-
|
|
$
|
-
|
|
$
|
2,000
|
|
$
|
1,821
|
|
$
|
3,821
|
|
||||
Investment commitments
|
|
345
|
|
|
124
|
|
|
72
|
|
|
-
|
|
|
541
|
|
||||
Media commitments
(1)
|
|
20
|
|
|
12
|
|
|
1
|
|
|
-
|
|
|
33
|
|
||||
|
Total
|
$
|
365
|
|
$
|
136
|
|
$
|
2,073
|
|
$
|
1,821
|
|
$
|
4,395
|
|
(1)
|
Consists primarily of employment contracts, sports rights fees and rating service contracts.
|
|
Estimated
|
|||||||||||||||||||||||||
2012
|
2013
|
2014
|
2015
|
2016
|
Thereafter
|
Total
|
Fair Value
|
|||||||||||||||||||
Rate Sensitive Assets
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Fixed interest rate securities
|
$ | 2,501 | $ | 3,206 | $ | 3,319 | $ | 2,820 | $ | 3,296 | $ | 52,903 | $ | 68,045 | $ | 75,027 | ||||||||||
Average interest rate
|
5.9 | % | 5.8 | % | 6.2 | % | 5.4 | % | 5.4 | % | 5.6 | % | 5.6 | % | ||||||||||||
Variable interest rate securities
|
$ | 45 | $ | 44 | $ | 267 | $ | 89 | $ | 241 | $ | 3,973 | $ | 4,659 | $ | 3,778 | ||||||||||
Average interest rate
|
7.8 | % | 5.6 | % | 2.7 | % | 7.3 | % | 10.2 | % | 4.6 | % | 4.8 | % | ||||||||||||
Mortgage loans on real estate
|
$ | 309 | $ | 379 | $ | 402 | $ | 622 | $ | 518 | $ | 4,730 | $ | 6,960 | $ | 7,608 | ||||||||||
Average interest rate
|
7.2 | % | 6.2 | % | 6.1 | % | 6.0 | % | 6.1 | % | 6.0 | % | 6.1 | % | ||||||||||||
Rate Sensitive Liabilities
|
||||||||||||||||||||||||||
Investment type
insurance contracts
(1)
|
$ | 1,410 | $ | 1,863 | $ | 2,276 | $ | 1,863 | $ | 2,141 | $ | 22,624 | $ | 32,177 | $ | 34,542 | ||||||||||
Average interest rate
(1)
|
5.9 | % | 5.9 | % | 5.9 | % | 5.4 | % | 5.1 | % | 5.4 | % | 5.5 | % | ||||||||||||
Debt
|
$ | 300 | $ | 200 | $ | 500 | $ | 250 | $ | - | $ | 4,138 | $ | 5,388 | $ | 5,334 | ||||||||||
Average interest rate
|
5.7 | % | 2.0 | % | 4.8 | % | 4.3 | % | 0.0 | % | 6.3 | % | 5.9 | % | ||||||||||||
Rate Sensitive Derivative
Financial Instruments
|
||||||||||||||||||||||||||
Interest rate and foreign
currency swaps:
|
||||||||||||||||||||||||||
Pay variable/receive fixed
|
$ | 300 | $ | 20 | $ | 500 | $ | 85 | $ | - | $ | 9,824 | $ | 10,729 | $ | 1,362 | ||||||||||
Average pay rate
|
4.4 | % | 0.7 | % | 2.7 | % | 1.2 | % | 0.0 | % | 0.7 | % | 0.9 | % | ||||||||||||
Average receive rate
|
5.7 | % | 4.3 | % | 4.8 | % | 2.9 | % | 0.0 | % | 3.4 | % | 3.6 | % | ||||||||||||
Pay fixed/receive variable
|
$ | 583 | $ | 473 | $ | 503 | $ | 214 | $ | 418 | $ | 2,253 | $ | 4,444 | $ | (713 | ) | |||||||||
Average pay rate
|
3.4 | % | 2.8 | % | 3.4 | % | 4.4 | % | 2.9 | % | 4.8 | % | 4.1 | % | ||||||||||||
Average receive rate
|
0.4 | % | 0.5 | % | 0.4 | % | 0.5 | % | 0.4 | % | 0.8 | % | 0.6 | % | ||||||||||||
Interest rate cap agreements:
|
||||||||||||||||||||||||||
Contractual notional
|
$ | - | $ | - | $ | - | $ | - | $ | 8,050 | $ | 8,625 | $ | 16,675 | $ | 31 | ||||||||||
Average strike rate
(2)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 7.8 | % | 7.0 | % | 7.4 | % | ||||||||||||
Forward CMT curve
(3)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 3.0 | % | 3.1 | % | 3.1 | % | ||||||||||||
Interest rate futures:
|
||||||||||||||||||||||||||
2-year treasury notes
contractual notional
|
$ | 310 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 310 | $ | - | ||||||||||
5-year treasury notes
contractual notional
|
369 | - | - | - | - | - | 369 | - | ||||||||||||||||||
10-year treasury notes
contractual notional
|
216 | - | - | - | - | - | 216 | - | ||||||||||||||||||
Treasury bonds
contractual notional
|
76 | - | - | - | - | - | 76 | - |
(1)
|
The information shown is for our fixed maturity securities and mortgage loans on real estate that support these insurance contracts.
|
(2)
|
The indexes are the 7-year and 10-year constant maturity swap.
|
(3)
|
The constant maturity treasury (“CMT”) curve is the 7-year and 10-year CMT forward curve.
|
|
Principal
|
|
Estimated
|
|
|||
Amount
|
|
Fair Value
|
|
||||
Fixed interest rate securities
|
$
|
63,991
|
|
$
|
67,021
|
|
|
Variable interest rate securities
|
|
5,114
|
|
|
4,187
|
|
|
Mortgage loans on real estate
|
|
6,745
|
|
|
7,183
|
|
|
Investment type insurance contracts
(1)
|
|
28,087
|
|
|
29,166
|
|
|
Debt
|
|
5,715
|
|
|
5,876
|
|
|
Interest rate and foreign currency swaps
|
|
10,706
|
|
|
(468
|
) |
|
Interest rate cap agreements
|
|
8,200
|
|
|
51
|
|
|
Interest rate futures
|
|
2,252
|
|
|
-
|
|
(1)
|
The information shown is for our fixed maturity securities and mortgage loans on real estate that support these insurance contracts.
|
·
|
Life Insurance
–
The stress on earnings has been mitigated by proactive strategies to lock in long-dated and high-yielding assets to manage this risk. We executed on strategies which allowed us to effectively pre-buy assets in anticipation of future flows and maturing securities. We have also taken actions on crediting rates. We estimate that this scenario would have an approximate unfavorable earnings effect in a range of $15 million to $20 million during 2012, $40 million to $45 million during 2013 and $65 million to $70 million during 2014. Our deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), and deferred front-end loads (“DFEL”) methodology assumes that new money rates grade from current levels to a long-term yield assumption over time.
|
·
|
Retirement Plan Services and Annuities
– The earnings drag from spread compression is modest and largely concentrated in our Retirement Plan Services segment, which is a function of this segment having higher guaranteed crediting rates and recurring premiums. We estimate that this scenario would have an approximate unfavorable earnings effect in a range of $10 million to $15 million during 2012, $20 million to $25 million during 2013 and $30 million to $35 million during 2014. Since we currently have the ability to manage spread compression through crediting rate actions, our Annuities segment is not currently sensitive to spread compression so there is very little effect estimated. The risk for our Annuities segment is sensitivity to sharp rising rates, and we manage this risk by selling market value adjusted products and purchasing derivative protection. The costs of our derivative instruments that we use to hedge our variable annuity products may increase as a result of the low interest rate environment.
|
·
|
Group Protection –
We reviewed the discount rate assumptions associated with our long-term disability claim reserves and life waiver claim incurrals during the fourth quarter of 2011, which resulted in no change to the discount rate. Spread compression would unfavorably affect annualized earnings by up to $5 million during 2012, $7 million during 2013 and $10 million during 2014.
|
·
|
Other Operations
– We may also be affected by sensitivity to our exposures in our institutional pension and disability run-off blocks of business that are sensitive to interest rates and could contribute to an effect.
|
|
|
|
Account Values
|
|||||||||||||||
|
|
|
|
|
Retirement
|
|
|
|
|
|
%
|
|||||||
|
|
|
|
|
|
Plan
|
|
Life
|
|
|
|
|
Account
|
|||||
|
|
Annuities
|
|
Services
|
|
Insurance
(1)
|
|
Total
|
|
Values
|
||||||||
Excess of Crediting Rates over Contract Minimums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Discretionary rate setting products
(2)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
No difference
|
$
|
6,465
|
|
$
|
9,223
|
|
$
|
24,047
|
|
$
|
39,735
|
|
65.0
|
% | |||
|
Up to 0.10%
|
|
64
|
|
|
207
|
|
|
12
|
|
|
283
|
|
0.5
|
% | |||
|
0.11% to 0.20%
|
|
75
|
|
|
-
|
|
|
-
|
|
|
75
|
|
0.1
|
% | |||
|
0.21% to 0.30%
|
|
113
|
|
|
75
|
|
|
455
|
|
|
643
|
|
1.1
|
% | |||
|
0.31% to 0.40%
|
|
80
|
|
|
1
|
|
|
-
|
|
|
81
|
|
0.1
|
% | |||
|
0.41% to 0.50%
|
|
95
|
|
|
52
|
|
|
629
|
|
|
776
|
|
1.3
|
% | |||
|
0.51% to 0.60%
|
|
109
|
|
|
-
|
|
|
25
|
|
|
134
|
|
0.2
|
% | |||
|
0.61% to 0.70%
|
|
115
|
|
|
10
|
|
|
258
|
|
|
383
|
|
0.6
|
% | |||
|
0.71% to 0.80%
|
|
101
|
|
|
-
|
|
|
140
|
|
|
241
|
|
0.4
|
% | |||
|
0.81% to 0.90%
|
|
78
|
|
|
-
|
|
|
127
|
|
|
205
|
|
0.3
|
% | |||
|
0.91% to 1.00%
|
|
46
|
|
|
156
|
|
|
245
|
|
|
447
|
|
0.7
|
% | |||
|
1.01% to 1.50%
|
|
223
|
|
|
25
|
|
|
52
|
|
|
300
|
|
0.5
|
% | |||
|
1.51% to 2.00%
|
|
23
|
|
|
158
|
|
|
-
|
|
|
181
|
|
0.3
|
% | |||
|
2.01% to 2.50%
|
|
1
|
|
|
61
|
|
|
-
|
|
|
62
|
|
0.1
|
% | |||
|
2.51% to 3.00%
|
|
10
|
|
|
-
|
|
|
113
|
|
|
123
|
|
0.2
|
% | |||
|
3.01% and above
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
|
0.0
|
% | |||
|
|
Total discretionary rate setting products
|
|
7,598
|
|
|
9,969
|
|
|
26,103
|
|
|
43,670
|
|
71.4
|
% | ||
Other contracts
(4)
|
|
13,828
|
|
|
3,661
|
|
|
-
|
|
|
17,489
|
|
28.6
|
% | ||||
|
|
|
Total account values
|
$
|
21,426
|
|
$
|
13,630
|
|
$
|
26,103
|
|
$
|
61,159
|
|
100.0
|
% | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Percentage of discretionary rate setting product account
values at minimum guaranteed rates
|
|
85.1
|
%
|
|
92.5
|
%
|
|
92.1
|
%
|
|
91.0
|
%
|
|
(1)
|
Excludes policy loans.
|
(2)
|
Contracts currently within new money rate bands are grouped according to the corresponding portfolio rate band in which they will fall upon their first anniversary.
|
(3)
|
The average crediting rates for discretionary rate setting products were 10 basis points, 7 basis points and 6 basis points in
|
|
excess of average minimum guaranteed rates for our Annuities, Retirement Plan Services and Life Insurance segments, respectively.
|
(4)
|
For Annuities, this amount relates primarily to multi-year guarantee and indexed renewal business. The average crediting rates were 193 basis points in excess of average minimum guaranteed rates for multi-year guarantee products; 23%, 8% and 69% of our total multi-year guarantee account values are scheduled to reset in 2012, 2013 and 2014 and beyond, respectively. Our indexed renewal business resets either annually or bi-annually. Upon reset, we are able to adjust product features to reflect changes in option prices. For Retirement Plan Services, this amount relates to indexed-based rate setting products in which the average crediting rates were 7 basis points in excess of average minimum guaranteed rates and 78% of account values were already at their minimum guaranteed rates.
|
|
|
Estimated
|
||||||||||||||||||||||||
|
2012
|
2013
|
2014
|
2015
|
2016
|
Thereafter
|
Total
|
Fair Value
|
||||||||||||||||||
Currencies
|
|
|
|
|
|
|
|
|
||||||||||||||||||
British pound
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 66 | $ | 66 | $ | 81 | ||||||||||
Interest rate
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 4.2 | % | 4.2 | % | ||||||||||||
Canadian dollar
|
$ | - | $ | - | $ | 32 | $ | - | $ | 10 | $ | - | $ | 42 | $ | 43 | ||||||||||
Interest rate
|
0.0 | % | 0.0 | % | 6.1 | % | 0.0 | % | 5.6 | % | 0.0 | % | 6.0 | % | ||||||||||||
New Zealand dollar
|
$ | - | $ | - | $ | - | $ | 34 | $ | - | $ | - | $ | 34 | $ | 37 | ||||||||||
Interest rate
|
0.0 | % | 0.0 | % | 0.0 | % | 3.5 | % | 0.0 | % | 0.0 | % | 3.5 | % | ||||||||||||
Euro
|
$ | - | $ | - | $ | 67 | $ | - | $ | 22 | $ | 67 | $ | 156 | $ | 162 | ||||||||||
Interest rate
|
0.0 | % | 0.0 | % | 4.8 | % | 0.0 | % | 4.8 | % | 5.1 | % | 4.9 | % | ||||||||||||
Australian dollar
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 38 | $ | 38 | $ | 36 | ||||||||||
Interest rate
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 7.4 | % | 7.4 | % | ||||||||||||
Derivatives
|
||||||||||||||||||||||||||
Foreign currency swaps
|
$ | - | $ | - | $ | 94 | $ | 30 | $ | 30 | $ | 186 | $ | 340 | $ | 38 |
|
Principal/
|
|
||||||
|
Notional
|
Estimated
|
||||||
|
Amount
|
Fair Value
|
||||||
Currencies
|
|
|
||||||
British pound
|
$ | 66 | $ | 70 | ||||
Canadian dollar
|
43 | 45 | ||||||
New Zealand dollar
|
34 | 35 | ||||||
Euro
|
162 | 163 | ||||||
Australian dollar
|
38 | 34 | ||||||
Total currencies
|
$ | 343 | $ | 347 | ||||
Derivatives
|
||||||||
Foreign currency swaps
|
$ | 340 | $ | 30 |
|
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||||||||
|
|
|
10% Fair
|
10% Fair
|
|
|
|||||||||||||||
|
Carrying
|
Estimated
|
Value
|
Value
|
Carrying
|
Estimated
|
|||||||||||||||
|
Value
|
Fair Value
|
Increase
|
Decrease
|
Value
|
Fair Value
|
|||||||||||||||
Equity Assets
|
|
|
|
|
|
|
|||||||||||||||
Domestic equities
|
$ | 94 | $ | 94 | $ | 9 | $ | (9 | ) | $ | 154 | $ | 154 | ||||||||
Foreign equities
|
47 | 47 | 5 | (5 | ) | 45 | 45 | ||||||||||||||
Subtotal
|
141 | 141 | 14 | (14 | ) | 199 | 199 | ||||||||||||||
Real estate
|
137 | 155 | 16 | (16 | ) | 202 | 215 | ||||||||||||||
Other equity interests
|
978 | 988 | 99 | (99 | ) | 935 | 945 | ||||||||||||||
Total
|
$ | 1,256 | $ | 1,284 | $ | 129 | $ | (129 | ) | $ | 1,336 | $ | 1,359 |
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||||||||
|
|
10% Fair
|
10% Fair
|
|
|
|||||||||||||||
Notional
|
Estimated
|
Value
|
Value
|
Notional
|
Estimated
|
|||||||||||||||
Value
|
Fair Value
|
Increase
|
Decrease
|
Value
|
Fair Value
|
|||||||||||||||
Equity Derivatives
(1)
|
|
|
|
|
|
|
||||||||||||||
Equity futures
|
$ | 1,713 | $ | - | $ | (170 | ) | $ | 170 | $ | 907 | $ | - | |||||||
Total return swaps
|
100 | - | 11 | (11 | ) | 100 | - | |||||||||||||
Put options
|
6,502 | 1,770 | 1,594 | 2,007 | 5,602 | 1,151 | ||||||||||||||
Call options (based on S&P 500)
|
4,881 | 183 | 266 | 83 | 4,083 | 301 | ||||||||||||||
Total
|
$ | 13,196 | $ | 1,953 | $ | 1,701 | $ | 2,249 | $ | 10,692 | $ | 1,452 |
(1)
|
Assumes a plus or minus 10% change in underlying indexes. Estimated fair value does not reflect daily settlement of futures or monthly settlement of total return swaps.
|
|
S&P 500
|
S&P 500
|
||||
|
at 1005
(1)
|
at 1510
(1)
|
||||
Segment
|
||||||
Annuities
|
$ | (80 | ) | $ | 29 | |
Retirement Plan Services
|
(14 | ) | 15 |
(1)
|
The baseline for these effects assumes a 4% annual equity market growth rate, depending on the block of business, beginning on January 1, 2012. The baseline is then compared to scenarios of S&P 500 at the 1005 and 1510 levels, which assume the index moves to those levels over six months, remains at those levels through the next six months and grows at 4% annually, depending on the block of business, thereafter. The difference between the baseline and S&P 500 at the 1005 and 1510 level scenarios is presented in the table.
|
|
|
As of December 31,
|
|
||||
|
|
2011
|
|
2010
|
|
||
Rating
|
|
|
|
|
|
|
|
AAA
|
$
|
-
|
|
$
|
7
|
|
|
AA
|
|
23
|
|
|
26
|
|
|
A
|
|
56
|
|
|
146
|
|
|
BBB
|
|
2
|
|
|
5
|
|
|
|
Total
|
$
|
81
|
|
$
|
184
|
|
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
|
|
|
|
|
|
As of December 31,
|
|||||
|
|
|
|
|
2011
|
|
2010
|
||||
ASSETS
|
|
|
|
|
|
||||||
Investments:
|
|
|
|
|
|
||||||
|
Available-for-sale securities, at fair value:
|
|
|
|
|
|
|||||
|
|
Fixed maturity securities (amortized cost: 2011 - $68,988; 2010 - $65,175)
|
$
|
75,433
|
|
$
|
68,030
|
||||
|
|
Variable interest entities' fixed maturity securities (amortized cost: 2011 - $673; 2010 - $570)
|
|
700
|
|
|
584
|
||||
|
|
Equity securities (cost: 2011 - $135; 2010 - $179)
|
|
139
|
|
|
197
|
||||
|
Trading securities
|
|
2,675
|
|
|
2,596
|
|||||
|
Mortgage loans on real estate
|
|
6,942
|
|
|
6,752
|
|||||
|
Real estate
|
|
137
|
|
|
202
|
|||||
|
Policy loans
|
|
2,884
|
|
|
2,865
|
|||||
|
Derivative investments
|
|
3,151
|
|
|
1,076
|
|||||
|
Other investments
|
|
1,069
|
|
|
1,038
|
|||||
|
|
|
Total investments
|
|
93,130
|
|
|
83,340
|
|||
Cash and invested cash
|
|
4,510
|
|
|
2,741
|
||||||
Deferred acquisition costs and value of business acquired
|
|
8,191
|
|
|
8,930
|
||||||
Premiums and fees receivable
|
|
408
|
|
|
335
|
||||||
Accrued investment income
|
|
981
|
|
|
933
|
||||||
Reinsurance recoverables
|
|
6,526
|
|
|
6,527
|
||||||
Funds withheld reinsurance assets
|
|
874
|
|
|
911
|
||||||
Goodwill
|
|
2,273
|
|
|
3,019
|
||||||
Other assets
|
|
2,536
|
|
|
2,458
|
||||||
Separate account assets
|
|
83,477
|
|
|
84,630
|
||||||
|
|
|
|
|
Total assets
|
$
|
202,906
|
|
$
|
193,824
|
|
|
|
|
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Future contract benefits
|
$
|
19,813
|
|
$
|
17,527
|
||||||
Other contract holder funds
|
|
69,466
|
|
|
66,407
|
||||||
Short-term debt
|
|
300
|
|
|
351
|
||||||
Long-term debt
|
|
5,391
|
|
|
5,399
|
||||||
Reinsurance related embedded derivatives
|
|
168
|
|
|
102
|
||||||
Funds withheld reinsurance liabilities
|
|
1,045
|
|
|
1,149
|
||||||
Deferred gain on business sold through reinsurance
|
|
394
|
|
|
468
|
||||||
Payables for collateral on investments
|
|
3,733
|
|
|
1,659
|
||||||
Variable interest entities' liabilities
|
|
193
|
|
|
132
|
||||||
Other liabilities
|
|
4,762
|
|
|
3,194
|
||||||
Separate account liabilities
|
|
83,477
|
|
|
84,630
|
||||||
|
|
|
|
Total liabilities
|
|
188,742
|
|
|
181,018
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Contingencies and Commitments (See Note 13)
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
||||||
Preferred stock - 10,000,000 shares authorized; Series A - 10,072 and 10,914 shares issued and outstanding as of December 31, 2011, and December 31, 2010, respectively
|
|
-
|
|
|
-
|
||||||
Common stock - 800,000,000 shares authorized; 291,319,222 and 315,718,554 shares issued and outstanding as of December 31, 2011, and December 31, 2010, respectively
|
|
7,590
|
|
|
8,124
|
||||||
Retained earnings
|
|
4,126
|
|
|
3,934
|
||||||
Accumulated other comprehensive income (loss)
|
|
2,448
|
|
|
748
|
||||||
|
|
|
|
Total stockholders' equity
|
|
14,164
|
|
|
12,806
|
||
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
202,906
|
|
$
|
193,824
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||
|
|
|
|
|
|
|
2011
|
|
2010
|
|
2009
|
||||
Revenues
|
|
|
|
|
|
|
|
|
|||||||
Insurance premiums
|
$
|
2,294
|
|
$
|
2,176
|
|
$
|
2,064
|
|||||||
Insurance fees
|
|
3,437
|
|
|
3,234
|
|
|
2,922
|
|||||||
Net investment income
|
|
4,652
|
|
|
4,541
|
|
|
4,178
|
|||||||
Realized gain (loss):
|
|
|
|
|
|
|
|
|
|||||||
|
Total other-than-temporary impairment losses on securities
|
|
(165
|
)
|
|
(240
|
)
|
|
(667
|
) | |||||
|
Portion of loss recognized in other comprehensive income
|
|
47
|
|
|
88
|
|
|
275
|
||||||
|
|
Net other-than-temporary impairment losses on securities
|
|
|
|
|
|
|
|
|
|||||
|
|
|
recognized in earnings
|
|
(118
|
)
|
|
(152
|
)
|
|
(392
|
) | |||
|
|
Realized gain (loss), excluding other-than-temporary
|
|
|
|
|
|
|
|
|
|||||
|
|
|
impairment losses on securities
|
|
(181
|
)
|
|
75
|
|
|
(754
|
) | |||
|
|
|
|
Total realized gain (loss)
|
|
(299
|
)
|
|
(77
|
)
|
|
(1,146
|
) | ||
Amortization of deferred gain on business sold through reinsurance
|
|
75
|
|
|
75
|
|
|
76
|
|||||||
Other revenues and fees
|
|
477
|
|
|
458
|
|
|
405
|
|||||||
|
|
Total revenues
|
|
10,636
|
|
|
10,407
|
|
|
8,499
|
|||||
Benefits and Expenses
|
|
|
|
|
|
|
|
|
|||||||
Interest credited
|
|
2,488
|
|
|
2,488
|
|
|
2,465
|
|||||||
Benefits
|
|
3,345
|
|
|
3,327
|
|
|
2,834
|
|||||||
Underwriting, acquisition, insurance and other expenses
|
|
3,163
|
|
|
3,067
|
|
|
2,794
|
|||||||
Interest and debt expense
|
|
294
|
|
|
291
|
|
|
197
|
|||||||
Impairment of intangibles
|
|
747
|
|
|
-
|
|
|
730
|
|||||||
|
Total benefits and expenses
|
|
10,037
|
|
|
9,173
|
|
|
9,020
|
||||||
|
|
Income (loss) from continuing operations before taxes
|
|
599
|
|
|
1,234
|
|
|
(521
|
) | ||||
|
|
Federal income tax expense (benefit)
|
|
297
|
|
|
283
|
|
|
(106
|
) | ||||
|
|
|
Income (loss) from continuing operations
|
|
302
|
|
|
951
|
|
|
(415
|
) | |||
|
|
|
Income (loss) from discontinued operations, net of federal
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
income taxes
|
|
(8
|
)
|
|
29
|
|
|
(70
|
) | ||
|
|
|
|
|
Net income (loss)
|
|
294
|
|
|
980
|
|
|
(485
|
) | |
|
|
|
|
|
Preferred stock dividends and accretion of discount
|
|
-
|
|
|
(167
|
)
|
|
(35
|
) | |
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
$
|
294
|
|
$
|
813
|
|
$
|
(520
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Basic
|
|
|
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations
|
$
|
0.99
|
|
$
|
2.53
|
|
$
|
(1.60
|
) | ||||||
Income (loss) from discontinued operations
|
|
(0.03
|
)
|
|
0.09
|
|
|
(0.25
|
) | ||||||
|
Net income (loss)
|
$
|
0.96
|
|
$
|
2.62
|
|
$
|
(1.85
|
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Diluted
|
|
|
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations
|
$
|
0.95
|
|
$
|
2.45
|
|
$
|
(1.60
|
) | ||||||
Income (loss) from discontinued operations
|
|
(0.03
|
)
|
|
0.09
|
|
|
(0.25
|
) | ||||||
|
Net income (loss)
|
$
|
0.92
|
|
$
|
2.54
|
|
$
|
(1.85
|
) |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Preferred Stock
|
|
|
|
||||||||
Balance as of beginning-of-year
|
$ | - | $ | 806 | $ | - | |||||
Issuance (redemption) of Series B preferred stock
|
- | (950 | ) | 794 | |||||||
Accretion of discount on Series B preferred stock
|
- | 144 | 12 | ||||||||
Balance as of end-of-year
|
- | - | 806 | ||||||||
|
|||||||||||
Common Stock
|
|||||||||||
Balance as of beginning-of-year
|
8,124 | 7,840 | 7,035 | ||||||||
Issuance of common stock
|
- | 368 | 652 | ||||||||
Issuance (repurchase and cancellation) of common stock warrants
|
- | (48 | ) | 156 | |||||||
Stock compensation/issued for benefit plans
|
17 | 18 | (8 | ) | |||||||
Deferred compensation payable in stock
|
- | - | 5 | ||||||||
Effect of amendment to deferred compensation plans
|
(6 | ) | (29 | ) | - | ||||||
Retirement of common stock/cancellation of shares
|
(545 | ) | (25 | ) | - | ||||||
Balance as of end-of-year
|
7,590 | 8,124 | 7,840 | ||||||||
|
|||||||||||
Retained Earnings
|
|||||||||||
Balance as of beginning-of-year
|
3,934 | 3,316 | 3,745 | ||||||||
Cumulative effect from adoption of new accounting standards
|
- | (169 | ) | 102 | |||||||
Comprehensive income (loss)
|
1,994 | 1,809 | 2,158 | ||||||||
Less other comprehensive income (loss), net of tax
|
1,700 | 829 | 2,643 | ||||||||
Net income (loss)
|
294 | 980 | (485 | ) | |||||||
Retirement of common stock
|
(31 | ) | - | - | |||||||
Dividends declared: Common (2011 - $0.230; 2010 - $0.080; 2009 - $0.040)
|
(71 | ) | (26 | ) | (11 | ) | |||||
Dividends on preferred stock
|
- | (23 | ) | (23 | ) | ||||||
Accretion of discount on Series B preferred stock
|
- | (144 | ) | (12 | ) | ||||||
Balance as of end-of-year
|
4,126 | 3,934 | 3,316 | ||||||||
|
|||||||||||
Accumulated Other Comprehensive Income (Loss)
|
|||||||||||
Balance as of beginning-of-year
|
748 | (262 | ) | (2,803 | ) | ||||||
Cumulative effect from adoption of new accounting standards
|
- | 181 | (102 | ) | |||||||
Other comprehensive income (loss), net of tax
|
1,700 | 829 | 2,643 | ||||||||
Balance as of end-of-year
|
2,448 | 748 | (262 | ) | |||||||
Total stockholders' equity as of end-of-year
|
$ | 14,164 | $ | 12,806 | $ | 11,700 |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Cash Flows from Operating Activities
|
|
|
|
||||||||
Net income (loss)
|
$ | 294 | $ | 980 | $ | (485 | ) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|||||||||||
Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front-end loads deferrals and interest, net of amortization | (252 | ) | (246 | ) | (316 | ) | |||||
Trading securities purchases, sales and maturities, net
|
88 | 47 | (3 | ) | |||||||
Change in premiums and fees receivable
|
(73 | ) | (14 | ) | 128 | ||||||
Change in accrued investment income
|
(48 | ) | (44 | ) | (75 | ) | |||||
Change in future contract benefits and other contract holder funds
|
125 | 643 | (463 | ) | |||||||
Change in reinsurance related assets and liabilities
|
(66 | ) | 22 | 77 | |||||||
Change in federal income tax accruals
|
338 | 414 | 9 | ||||||||
Realized (gain) loss
|
299 | 77 | 1,146 | ||||||||
(Income) loss attributable to equity method investments
|
(90 | ) | (93 | ) | 55 | ||||||
(Gain) loss on early extinguishment of debt
|
8 | 5 | (64 | ) | |||||||
Amortization of deferred gain on business sold through reinsurance
|
(75 | ) | (75 | ) | (76 | ) | |||||
Impairment of intangibles
|
747 | - | 730 | ||||||||
(Gain) loss on disposal of discontinued operations
|
3 | (66 | ) | 219 | |||||||
Other
|
(21 | ) | 70 | 55 | |||||||
Net cash provided by (used in) operating activities
|
1,277 | 1,720 | 937 | ||||||||
|
|||||||||||
Cash Flows from Investing Activities
|
|||||||||||
Purchases of available-for-sale securities
|
(10,702 | ) | (13,057 | ) | (13,532 | ) | |||||
Sales of available-for-sale securities
|
1,497 | 3,118 | 3,818 | ||||||||
Maturities of available-for-sale securities
|
5,324 | 4,652 | 3,330 | ||||||||
Purchases of other investments
|
(3,282 | ) | (3,581 | ) | (4,261 | ) | |||||
Sales or maturities of other investments
|
3,094 | 3,239 | 4,340 | ||||||||
Increase (decrease) in payables for collateral on investments
|
2,074 | (248 | ) | (1,799 | ) | ||||||
Proceeds from sale of subsidiaries/businesses, net of cash disposed
|
- | 321 | 327 | ||||||||
Other
|
(130 | ) | (74 | ) | (75 | ) | |||||
Net cash provided by (used in) investing activities
|
(2,125 | ) | (5,630 | ) | (7,852 | ) | |||||
|
|||||||||||
Cash Flows from Financing Activities
|
|||||||||||
Payment of long-term debt, including current maturities
|
(525 | ) | (405 | ) | (522 | ) | |||||
Issuance of long-term debt, net of issuance costs
|
298 | 749 | 788 | ||||||||
Increase (decrease) in commercial paper, net
|
(100 | ) | 1 | (216 | ) | ||||||
Deposits of fixed account values, including the fixed portion of variable
|
10,953 | 11,080 | 11,378 | ||||||||
Withdrawals of fixed account values, including the fixed portion of variable
|
(5,050 | ) | (5,305 | ) | (5,530 | ) | |||||
Transfers to and from separate accounts, net
|
(2,325 | ) | (2,957 | ) | (2,248 | ) | |||||
Common stock issued for benefit plans and excess tax benefits
|
3 | 1 | - | ||||||||
Issuance (redemption) of Series B preferred stock and issuance (repurchase and cancellation) of associated common stock warrants | - | (998 | ) | 950 | |||||||
Issuance of common stock
|
- | 368 | 652 | ||||||||
Repurchase of common stock
|
(576 | ) | (25 | ) | - | ||||||
Dividends paid to common and preferred stockholders
|
(61 | ) | (42 | ) | (79 | ) | |||||
Net cash provided by (used in) financing activities
|
2,617 | 2,467 | 5,173 | ||||||||
|
|||||||||||
Net increase (decrease) in cash and invested cash, including discontinued operations
|
1,769 | (1,443 | ) | (1,742 | ) | ||||||
Cash and invested cash, including discontinued operations, as of beginning-of-year
|
2,741 | 4,184 | 5,926 | ||||||||
Cash and invested cash, including discontinued operations, as of end-of-year
|
$ | 4,510 | $ | 2,741 | $ | 4,184 |
Summary of Significant Accounting Policies
|
Principles of Consolidation
|
Accounting Estimates and Assumptions
|
Business Combinations
|
Fair Value Measurement
|
·
|
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, that 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 asset or liability, including assumptions regarding risk.
|
·
|
Corporate bonds and U.S. Government bonds – We also use Trade Reporting and Compliance Engine
TM
reported tables for our corporate bonds and vendor trading platform data for our U.S. Government bonds.
|
·
|
Mortgage- and asset-backed securities – We also utilize additional inputs which include new issues data, monthly payment information and monthly collateral performance, including prepayments, severity, delinquencies, step-down features and over collateralization features for each of our mortgage-backed securities (“MBS”), which include collateralized mortgage obligations and mortgage pass through securities backed by residential mortgages (“RMBS”), commercial mortgage-backed securities (“CMBS”) and collateralized debt obligations (“CDOs”).
|
·
|
State and municipal bonds – We also use additional inputs that include information from the Municipal Securities Rule Making Board, as well as material event notices, new issue data, issuer financial statements and Municipal Market Data benchmark yields for our state and municipal bonds.
|
·
|
Hybrid and redeemable preferred and equity securities – We also utilize additional inputs of exchange prices (underlying and common stock of the same issuer) for our hybrid and redeemable preferred and equity securities, including banking, insurance, other financial services and other securities.
|
·
|
The estimated range and average period until recovery;
|
·
|
The estimated range and average holding period to maturity;
|
·
|
Remaining payment terms of the security;
|
·
|
Current delinquencies and nonperforming assets of underlying collateral;
|
·
|
Expected future default rates;
|
·
|
Collateral value by vintage, geographic region, industry concentration or property type;
|
·
|
Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
|
·
|
Contractual and regulatory cash obligations.
|
·
|
The current economic environment and market conditions;
|
·
|
Our business strategy and current business plans;
|
·
|
The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;
|
·
|
Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies;
|
·
|
The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts;
|
·
|
The capital risk limits approved by management; and
|
·
|
Our current financial condition and liquidity demands.
|
·
|
Historic and implied volatility of the security;
|
·
|
Length of time and extent to which the fair value has been less than amortized cost;
|
·
|
Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;
|
·
|
Failure, if any, of the issuer of the security to make scheduled payments; and
|
·
|
Recoveries or additional declines in fair value subsequent to the balance sheet date.
|
·
|
Fundamentals of the issuer to determine what we would recover if they were to file bankruptcy versus the price at which the market is trading;
|
·
|
Fundamentals of the industry in which the issuer operates;
|
·
|
Earnings multiples for the given industry or sector of an industry that the underlying issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;
|
·
|
Expected cash flows of the issuer (e.g., whether the issuer has cash flows in excess of what is required to fund its operations);
|
·
|
Expectations regarding defaults and recovery rates;
|
·
|
Changes to the rating of the security by a rating agency; and
|
·
|
Additional market information (e.g., if there has been a replacement of the corporate debt security).
|
·
|
Discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover;
|
·
|
Level of creditworthiness of the home equity loans or residential mortgages that back an RMBS or commercial mortgages that back a CMBS;
|
·
|
Susceptibility to fair value fluctuations for changes in the interest rate environment;
|
·
|
Susceptibility to reinvestment risks, in cases where market yields are lower than the securities’ book yield earned;
|
·
|
Susceptibility to reinvestment risks, in cases where market yields are higher than the book yields earned on a security;
|
·
|
Expectations of sale of such a security where market yields are higher than the book yields earned on a security; and
|
·
|
Susceptibility to variability of prepayments.
|
|
For the Years Ended December 31,
|
||||||||||||
|
2011
|
2010
|
2009
|
||||||||||
|
|
|
|
||||||||||
Revenues
|
|
|
|
||||||||||
Investment advisory fees - external
|
$ | - | $ | - | $ | 207 | |||||||
Investment advisory fees - internal
|
- | - | 84 | ||||||||||
Other revenues and fees
|
- | - | 91 | ||||||||||
Gain (loss) on sale of business
|
- | 4 | 9 | ||||||||||
Total revenues | $ | - | $ | 4 | $ | 391 | |||||||
|
|||||||||||||
Discontinued Operations Before Disposal
|
|||||||||||||
Income (loss) from discontinued operations before disposal,
before federal income taxes
|
$ | - | $ | (13 | ) | $ | 37 | ||||||
Federal income tax expense (benefit)
|
- | (2 | ) | 18 | |||||||||
Income (loss) from discontinued operations before disposal | - | (11 | ) | 19 | |||||||||
|
|||||||||||||
Disposal
|
|||||||||||||
Gain (loss) on disposal, before federal income taxes
|
(3 | ) | 37 | - | |||||||||
Federal income tax expense (benefit)
|
5 | (13 | ) | - | |||||||||
Gain (loss) on disposal | (8 | ) | 24 | - | |||||||||
Income (loss) from discontinued operations | $ | (8 | ) | $ | 13 | $ | 19 |
|
For the Years Ended
|
|||||||||
|
December 31,
|
|||||||||
|
2010
|
2009
|
||||||||
|
|
|
||||||||
Revenues
|
|
|
||||||||
Insurance premiums
|
$ | - | $ | 41 | ||||||
Insurance fees
|
- | 99 | ||||||||
Net investment income
|
- | 43 | ||||||||
Realized gain (loss)
|
- | (1 | ) | |||||||
Total revenues | $ | - | $ | 182 | ||||||
|
||||||||||
Discontinued Operations Before Disposal
|
||||||||||
Income (loss) from discontinued operations before disposal,
before federal income taxes
|
$ | - | $ | 38 | ||||||
Federal income tax expense (benefit)
|
- | 13 | ||||||||
Income (loss) from discontinued operations before disposal | - | 25 | ||||||||
|
||||||||||
Disposal
|
||||||||||
Gain (loss) on disposal, before federal income taxes
|
29 | (219 | ) | |||||||
Federal income tax expense (benefit)
|
13 | (105 | ) | |||||||
Gain (loss) on disposal | 16 | (114 | ) | |||||||
Income (loss) from discontinued operations | $ | 16 | $ | (89 | ) |
Consolidated VIEs
|
CLNs
|
|
Amount and Date of Issuance
|
|
||||||
|
|
$400
|
|
$200
|
|
|
||
|
|
December
|
|
April
|
|
|
||
|
|
2006
|
|
2007
|
|
|
||
Original attachment point (subordination)
|
|
5.50
|
%
|
|
2.05
|
%
|
|
|
Current attachment point (subordination)
|
|
4.17
|
%
|
|
1.48
|
%
|
|
|
Maturity
|
12/20/2016
|
|
3/20/2017
|
|
|
|||
Current rating of tranche
|
|
B+
|
|
Ba2
|
|
|
||
Current rating of underlying collateral pool
|
|
Aa1-B3
|
|
Aaa-Caa1
|
|
|
||
Number of defaults in underlying collateral pool
|
|
2
|
|
2
|
|
|
||
Number of entities
|
|
123
|
|
99
|
|
|
||
Number of countries
|
|
19
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
AAA |
AA
|
A
|
BBB
|
BB
|
B
|
CCC
|
Total
|
||||||||||||||||||
Industry |
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Telecommunications |
-
|
%
|
-
|
%
|
5.5
|
% |
4.8
|
% |
0.4
|
% |
0.5
|
% |
-
|
% |
11.2
|
% | ||||||||||
Financial intermediaries |
0.
3
|
%
|
3.3
|
%
|
6.4
|
% |
0.5
|
% |
-
|
% |
-
|
% |
-
|
% |
10.5
|
% | ||||||||||
Oil and gas |
-
|
%
|
0.7
|
%
|
1.0
|
% |
4.6
|
% |
-
|
% |
-
|
% |
-
|
% |
6.3
|
% | ||||||||||
Utilities |
-
|
%
|
-
|
% |
3.1
|
% |
1.4
|
% |
-
|
% |
-
|
% |
-
|
% |
4.5
|
% | ||||||||||
Chemicals and plastics |
-
|
%
|
-
|
% |
2.3
|
% |
1.2
|
% |
0.4
|
% |
-
|
% |
-
|
% |
3.9
|
% | ||||||||||
Drugs |
0.3
|
%
|
2.2
|
% |
1.2
|
% |
-
|
% |
-
|
% |
-
|
% |
-
|
% |
3.7
|
% | ||||||||||
Retailers (except food and drug) |
-
|
%
|
-
|
% |
2.1
|
% |
0.9
|
% |
0.5
|
% |
-
|
% |
-
|
% |
3.5
|
% | ||||||||||
Industrial equipment |
-
|
%
|
-
|
% |
3.0
|
% |
0.3
|
% |
-
|
% |
-
|
% |
-
|
% |
3.3
|
% | ||||||||||
Sovereign |
-
|
%
|
0.7
|
% |
1.6
|
% |
1.0
|
% |
-
|
% |
-
|
% |
-
|
% |
3.3
|
% | ||||||||||
Food products |
-
|
%
|
0.3
|
% |
1.8
|
% |
1.1
|
% |
-
|
% |
-
|
% |
-
|
% |
3.2
|
% | ||||||||||
Conglomerates |
-
|
%
|
2.6
|
% |
0.5
|
% |
-
|
% |
-
|
% |
-
|
% |
-
|
% |
3.1
|
% | ||||||||||
Forest products |
-
|
%
|
-
|
% |
-
|
% |
1.6
|
% |
1.4
|
% |
-
|
% |
-
|
% |
3.0
|
% | ||||||||||
Other |
-
|
%
|
3.0
|
% |
14.9
|
% |
17.3
|
% |
3.5
|
% |
1.5
|
% |
0.3
|
% |
40.5
|
% | ||||||||||
Total
|
0.6
|
%
|
12.8
|
% |
43.4
|
% |
34.7
|
% |
6.2
|
% |
2.0
|
% |
0.3
|
% |
100.0
|
% |
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||||||||||
Number
|
|
|
|
|
Number |
|
|
|
|
|||||||||||||
of
|
Notional
|
Carrying
|
of |
Notional
|
Carrying
|
|||||||||||||||||
Instruments
|
Amounts
|
Value
|
Instruments |
Amounts
|
Value
|
|||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Asset-backed credit card loan |
|
N/A
|
$
|
-
|
$
|
592
|
N/A
|
$
|
-
|
$
|
584
|
|||||||||||
U.S. Government bonds |
|
N/A
|
|
-
|
|
108
|
N/A
|
|
-
|
|
-
|
|||||||||||
Excess mortality swap
|
|
1
|
|
100
|
|
-
|
-
|
|
-
|
|
-
|
|||||||||||
Total assets
(1)
|
|
1
|
$
|
100
|
$
|
700
|
-
|
$
|
-
|
$
|
584
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Credit default swaps |
|
2
|
$
|
600
|
$
|
295
|
2
|
$
|
600
|
$
|
215
|
|||||||||||
Contingent forwards |
|
2
|
|
-
|
|
(4
|
) |
2
|
|
-
|
|
(6
|
) | |||||||||
Total non-qualifying hedges
|
|
4
|
|
600
|
|
291
|
4
|
|
600
|
|
209
|
|||||||||||
Federal income tax
|
|
N/A
|
|
-
|
|
(98
|
) |
N/A
|
|
-
|
|
(77
|
) | |||||||||
Total liabilities
(2)
|
|
4
|
$
|
600
|
$
|
193
|
4
|
$
|
600
|
$
|
132
|
(1)
|
Reported in VIEs' fixed maturity securities on our Consolidated Balance Sheets.
|
(2)
|
Reported in VIEs' liabilities on our Consolidated Balance Sheets.
|
For the Years Ended
|
|||||||
December 31,
|
|||||||
2011
|
2010
|
||||||
Non-Qualifying Hedges
|
|
|
|||||
Credit default swaps
|
$ | (80 | ) | $ | 25 | ||
Contingent forwards
|
(2 | ) | (9 | ) | |||
Total non-qualifying hedges (1) | $ | (82 | ) | $ | 16 |
(1)
|
Reported in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
Unconsolidated VIEs
|
|
As of December 31, 2011
|
||||||||||||||||||
|
Amortized
|
Gross Unrealized
|
Fair
|
||||||||||||||||
|
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
||||||||||||||
Fixed maturity securities: |
|
|
|
|
|
||||||||||||||
Corporate bonds
|
$ | 53,661 | $ | 6,185 | $ | 517 | $ | 68 | $ | 59,261 | |||||||||
U.S. Government bonds
|
439 | 55 | - | - | 494 | ||||||||||||||
Foreign government bonds
|
668 | 65 | - | - | 733 | ||||||||||||||
RMBS
|
7,690 | 548 | 73 | 126 | 8,039 | ||||||||||||||
CMBS
|
1,642 | 73 | 106 | 9 | 1,600 | ||||||||||||||
CDOs
|
121 | - | 19 | - | 102 | ||||||||||||||
State and municipal bonds
|
3,490 | 566 | 9 | - | 4,047 | ||||||||||||||
Hybrid and redeemable preferred securities
|
1,277 | 50 | 170 | - | 1,157 | ||||||||||||||
VIEs' fixed maturity securities
|
673 | 27 | - | - | 700 | ||||||||||||||
Total fixed maturity securities
|
69,661 | 7,569 | 894 | 203 | 76,133 | ||||||||||||||
Equity securities | 135 | 16 | 12 | - | 139 | ||||||||||||||
Total AFS securities
|
$ | 69,796 | $ | 7,585 | $ | 906 | $ | 203 | $ | 76,272 |
|
As of December 31, 2010
|
||||||||||||||||||
|
Amortized
|
Gross Unrealized
|
Fair
|
||||||||||||||||
|
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
||||||||||||||
Fixed maturity securities: |
|
|
|
|
|
||||||||||||||
Corporate bonds
|
$ | 48,863 | $ | 3,571 | $ | 607 | $ | 87 | $ | 51,740 | |||||||||
U.S. Government bonds
|
150 | 17 | 2 | - | 165 | ||||||||||||||
Foreign government bonds
|
473 | 38 | 3 | - | 508 | ||||||||||||||
RMBS
|
8,673 | 430 | 119 | 146 | 8,838 | ||||||||||||||
CMBS
|
2,144 | 95 | 180 | 6 | 2,053 | ||||||||||||||
CDOs
|
174 | 22 | 13 | 9 | 174 | ||||||||||||||
State and municipal bonds
|
3,222 | 27 | 94 | - | 3,155 | ||||||||||||||
Hybrid and redeemable preferred securities
|
1,476 | 56 | 135 | - | 1,397 | ||||||||||||||
VIEs' fixed maturity securities
|
570 | 14 | - | - | 584 | ||||||||||||||
Total fixed maturity securities
|
65,745 | 4,270 | 1,153 | 248 | 68,614 | ||||||||||||||
Equity securities | 179 | 25 | 7 | - | 197 | ||||||||||||||
Total AFS securities
|
$ | 65,924 | $ | 4,295 | $ | 1,160 | $ | 248 | $ | 68,811 |
|
As of December 31, 2011
|
||||||||
|
Amortized
|
Fair
|
|||||||
|
Cost
|
Value
|
|||||||
Due in one year or less
|
$ | 2,342 | $ | 2,378 | |||||
Due after one year through five years
|
12,418 | 13,288 | |||||||
Due after five years through ten years
|
22,456 | 24,593 | |||||||
Due after ten years
|
22,992 | 26,133 | |||||||
Subtotal
|
60,208 | 66,392 | |||||||
MBS
|
9,332 | 9,639 | |||||||
CDOs
|
121 | 102 | |||||||
Total fixed maturity AFS securities
|
$ | 69,661 | $ | 76,133 |
|
As of December 31, 2011
|
||||||||||
|
Amortized
|
Fair
|
Unrealized
|
||||||||
|
Cost
|
Value
|
Loss
|
||||||||
Total
|
|
|
|
||||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,023 | $ | 1,553 | $ | 470 | |||||
AFS securities backed by pools of commercial mortgages
|
472 | 344 | 128 | ||||||||
Total
|
$ | 2,495 | $ | 1,897 | $ | 598 | |||||
|
|||||||||||
Subject to Detailed Analysis
|
|||||||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,015 | $ | 1,545 | $ | 470 | |||||
AFS securities backed by pools of commercial mortgages
|
126 | 61 | 65 | ||||||||
Total
|
$ | 2,141 | $ | 1,606 | $ | 535 |
|
As of December 31, 2010
|
||||||||||
|
Amortized
|
Fair
|
Unrealized
|
||||||||
|
Cost
|
Value
|
Loss
|
||||||||
Total
|
|
|
|
||||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,539 | $ | 2,006 | $ | 533 | |||||
AFS securities backed by pools of commercial mortgages
|
611 | 410 | 201 | ||||||||
Total
|
$ | 3,150 | $ | 2,416 | $ | 734 | |||||
|
|||||||||||
Subject to Detailed Analysis
|
|||||||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,303 | $ | 1,776 | $ | 527 | |||||
AFS securities backed by pools of commercial mortgages
|
185 | 76 | 109 | ||||||||
Total
|
$ | 2,488 | $ | 1,852 | $ | 636 |
|
As of December 31, 2011
|
||||||||||||
|
|
|
|
Number
|
|||||||||
|
Fair
|
Gross Unrealized
|
of
|
||||||||||
|
Value
|
Losses
|
OTTI
|
Securities
(1)
|
|||||||||
Less than six months
|
$ | 385 | $ | 125 | $ | 31 | 56 | ||||||
Six months or greater, but less than nine months
|
53 | 30 | 12 | 18 | |||||||||
Nine months or greater, but less than twelve months
|
2 | - | 1 | 7 | |||||||||
Twelve months or greater
|
615 | 470 | 111 | 175 | |||||||||
Total
|
$ | 1,055 | $ | 625 | $ | 155 | 256 |
|
As of December 31, 2010
|
||||||||||||
|
|
|
|
Number
|
|||||||||
|
Fair
|
Gross Unrealized
|
of
|
||||||||||
|
Value
|
Losses
|
OTTI
|
Securities
(1)
|
|||||||||
Less than six months
|
$ | 170 | $ | 73 | $ | 5 | 41 | ||||||
Six months or greater, but less than nine months
|
60 | 22 | - | 13 | |||||||||
Nine months or greater, but less than twelve months
|
42 | 17 | 1 | 13 | |||||||||
Twelve months or greater
|
929 | 520 | 184 | 224 | |||||||||
Total
|
$ | 1,201 | $ | 632 | $ | 190 | 291 |
(1)
|
We may reflect a security in more than one aging category based on various purchase dates.
|
|
For the Years Ended December 31,
|
||||||||||||
|
2011
|
2010
|
2009
|
||||||||||
Balance as of beginning-of-year
|
$ | 319 | $ | 268 | $ | - | |||||||
Cumulative effect from adoption of new accounting standard | - | - | 31 | ||||||||||
Increases attributable to: | |||||||||||||
Credit losses on securities for which an OTTI was not previously recognized
|
55 | 14 | 267 | ||||||||||
Credit losses on securities for which an OTTI was previously recognized
|
71 | 65 | - | ||||||||||
Decreases attributable to: | |||||||||||||
Securities sold
|
(55 | ) | (28 | ) | (30 | ) | |||||||
Balance as of end-of-year
|
$ | 390 | $ | 319 | $ | 268 |
·
|
Failure of the issuer of the security to make scheduled payments;
|
·
|
Deterioration of creditworthiness of the issuer;
|
·
|
Deterioration of conditions specifically related to the security;
|
·
|
Deterioration of fundamentals of the industry in which the issuer operates;
|
·
|
Deterioration of fundamentals in the economy including, but not limited to, higher unemployment and lower housing prices; and
|
·
|
Deterioration of the rating of the security by a rating agency.
|
|
As of December 31, 2011
|
|||||||||||||||
|
|
Gross Unrealized
|
|
OTTI in
|
||||||||||||
|
Amortized
|
|
Losses and
|
Fair
|
Credit
|
|||||||||||
|
Cost
|
Gains
|
OTTI
|
Value
|
Losses
|
|||||||||||
Corporate bonds
|
$ | 169 | $ | 1 | $ | 67 | $ | 103 | $ | 51 | ||||||
RMBS
|
690 | 1 | 128 | 563 | 301 | |||||||||||
CMBS
|
17 | - | 10 | 7 | 38 | |||||||||||
Total
|
$ | 876 | $ | 2 | $ | 205 | $ | 673 | $ | 390 |
|
As of December 31,
|
||||||||
|
2011
|
2010
|
|||||||
Fixed maturity securities:
|
|
|
|||||||
Corporate bonds
|
$ | 1,908 | $ | 1,801 | |||||
U.S. Government bonds
|
376 | 362 | |||||||
Foreign government bonds
|
39 | 29 | |||||||
RMBS
|
244 | 255 | |||||||
CMBS
|
31 | 67 | |||||||
CDOs
|
4 | 5 | |||||||
State and municipal bonds
|
26 | 24 | |||||||
Hybrid and redeemable preferred securities
|
45 | 51 | |||||||
Total fixed maturity securities
|
2,673 | 2,594 | |||||||
Equity securities
|
2 | 2 | |||||||
Total trading securities
|
$ | 2,675 | $ | 2,596 |
|
As of December 31,
|
||||||
|
2011
|
2010
|
|||||
Current
|
$ | 6,858 | $ | 6,697 | |||
60 to 90 days past due
|
26 | 8 | |||||
Greater than 90 days past due
|
76 | 40 | |||||
Valuation allowance associated with impaired mortgage loans on real estate
|
(31 | ) | (13 | ) | |||
Unamortized premium (discount)
|
13 | 20 | |||||
Total carrying value
|
$ | 6,942 | $ | 6,752 |
|
As of December 31, |
|
|||||
|
2011
|
2010
|
|||||
Number of impaired mortgage loans on real estate
|
12 | 9 | |||||
|
|||||||
Principal balance of impaired mortgage loans on real estate
|
$ | 100 | $ | 75 | |||
Valuation allowance associated with impaired mortgage loans on real estate
|
(31 | ) | (13 | ) | |||
Carrying value of impaired mortgage loans on real estate
|
$ | 69 | $ | 62 |
|
For the Years Ended December 31,
|
||||||||
|
2011
|
2010
|
2009
|
||||||
Average carrying value for impaired mortgage loans on real estate
|
$ | 57 | $ | 54 | $ | 33 | |||
Interest income recognized on impaired mortgage loans on real estate
|
2 | 3 | 1 | ||||||
Interest income collected on impaired mortgage loans on real estate
|
2 | 3 | 1 |
|
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||||||
|
|
|
Debt-
|
|
|
Debt-
|
|||||||||||||
|
|
|
Service
|
|
|
Service
|
|||||||||||||
|
Principal
|
% of |
Coverage
|
Principal | % of |
Coverage
|
|||||||||||||
Loan-to-Value
|
Amount
|
Total |
Ratio
|
Amount | Total |
Ratio
|
|||||||||||||
Less than 65%
|
$ | 5,338 | 76.7 | % | 1.61 | 4,863 | 72.1 | % | 1.62 | ||||||||||
65% to 74%
|
1,198 | 17.2 | % | 1.37 | 1,484 | 22.0 | % | 1.40 | |||||||||||
75% to 100%
|
308 | 4.4 | % | 0.92 | 179 | 2.7 | % | 0.85 | |||||||||||
Greater than 100%
|
116 | 1.7 | % | 0.36 | 219 | 3.2 | % | 1.06 | |||||||||||
Total mortgage loans on real estate
|
$ | 6,960 | 100.0 | % | 6,745 | 100.0 | % |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Fixed maturity AFS securities
|
$ | 3,842 | $ | 3,694 | $ | 3,474 | |||||
VIEs' fixed maturity AFS securities
|
14 | 14 | - | ||||||||
Equity AFS securities
|
5 | 6 | 8 | ||||||||
Trading securities
|
154 | 157 | 159 | ||||||||
Mortgage loans on real estate
|
408 | 424 | 462 | ||||||||
Real estate
|
22 | 24 | 18 | ||||||||
Standby real estate equity commitments
|
1 | 1 | 1 | ||||||||
Policy loans
|
165 | 169 | 172 | ||||||||
Invested cash
|
4 | 7 | 15 | ||||||||
Commercial mortgage loan prepayment
and bond makewhole premiums
|
82 | 67 | 24 | ||||||||
Alternative investments
|
90 | 93 | (55 | ) | |||||||
Consent fees
|
3 | 8 | 5 | ||||||||
Other investments
|
(27 | ) | (3 | ) | 9 | ||||||
Investment income
|
4,763 | 4,661 | 4,292 | ||||||||
Investment expense
|
(111 | ) | (120 | ) | (114 | ) | |||||
Net investment income
|
$ | 4,652 | $ | 4,541 | $ | 4,178 |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Fixed maturity AFS securities: |
|
|
|
||||||||
Gross gains
|
$ | 86 | $ | 107 | $ | 161 | |||||
Gross losses
|
(227 | ) | (248 | ) | (709 | ) | |||||
Equity AFS securities: | |||||||||||
Gross gains
|
12 | 9 | 6 | ||||||||
Gross losses
|
- | (3 | ) | (27 | ) | ||||||
Gain (loss) on other investments | (9 | ) | (53 | ) | (130 | ) | |||||
Associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds | (13 | ) | 8 | 161 | |||||||
Total realized gain (loss) related to certain investments
|
$ | (151 | ) | $ | (180 | ) | $ | (538 | ) |
|
For the Years Ended December 31,
|
||||||||||||
|
2011
|
2010
|
2009
|
||||||||||
OTTI Recognized in Net Income (Loss) |
|
|
|
||||||||||
Fixed maturity securities: |
|
|
|
||||||||||
Corporate bonds
|
$ | (14 | ) | $ | (90 | ) | $ | (214 | ) | ||||
RMBS
|
(79 | ) | (65 | ) | (250 | ) | |||||||
CMBS
|
(57 | ) | (41 | ) | - | ||||||||
CDOs
|
(1 | ) | (1 | ) | (39 | ) | |||||||
Hybrid and redeemable preferred securities
|
(2 | ) | (5 | ) | (67 | ) | |||||||
Total fixed maturity securities | (153 | ) | (202 | ) | (570 | ) | |||||||
Equity securities | - | (3 | ) | (27 | ) | ||||||||
Gross OTTI recognized in net income (loss)
|
(153 | ) | (205 | ) | (597 | ) | |||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
35 | 53 | 205 | ||||||||||
Net OTTI recognized in net income (loss), pre-tax
|
$ | (118 | ) | $ | (152 | ) | $ | (392 | ) | ||||
|
|||||||||||||
Portion of OTTI Recognized in OCI | |||||||||||||
Gross OTTI recognized in OCI | $ | 58 | $ | 98 | $ | 357 | |||||||
Change in DAC, VOBA, DSI and DFEL | (11 | ) | (10 | ) | (82 | ) | |||||||
Net portion of OTTI recognized in OCI, pre-tax | $ | 47 | $ | 88 | $ | 275 |
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||
Value
|
Value
|
Value
|
Value
|
|||||||||||
Collateral payable held for derivative investments
(1)
|
$ | 2,980 | $ | 2,980 | $ | 800 | $ | 800 | ||||||
Securities pledged under securities lending agreements
(2)
|
200 | 193 | 199 | 192 | ||||||||||
Securities pledged under reverse repurchase agreements
(3)
|
280 | 294 | 280 | 294 | ||||||||||
Securities pledged for Term Asset-Backed Securities
|
||||||||||||||
Loan Facility ("TALF")
(4)
|
173 | 199 | 280 | 318 | ||||||||||
Securities pledged for Federal Home Loan Bank of
|
||||||||||||||
Indianapolis Securities ("FHLBI")
(5)
|
100 | 142 | 100 | 110 | ||||||||||
Total payables for collateral on investments
|
$ | 3,733 | $ | 3,808 | $ | 1,659 | $ | 1,714 |
(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 securities under reverse repurchase agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount equal 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 reverse repurchase program is typically invested in fixed maturity AFS securities.
|
(4)
|
Our pledged securities for TALF are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount that has typically averaged 90% of the fair value of the TALF securities. The cash received in these transactions is invested in fixed maturity AFS securities.
|
(5)
|
Our pledged securities for FHLBI are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We generally obtain collateral in an amount equal to 85% to 95% of the fair value of the FHLBI securities. The cash received in these transactions is typically invested in cash and invested cash or fixed maturity AFS securities.
|
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Collateral payable held for derivative investments
|
$ | 2,180 | $ | 183 | $ | (2,192 | ) | |||
Securities pledged under securities lending agreements
|
1 | (302 | ) | 74 | ||||||
Securities pledged under reverse repurchase agreements
|
- | (64 | ) | (126 | ) | |||||
Securities pledged for TALF
|
(107 | ) | (65 | ) | 345 | |||||
Securities pledged for FHLBI
|
- | - | 100 | |||||||
Total increase (decrease) in payables for collateral on investments
|
$ | 2,074 | $ | (248 | ) | $ | (1,799 | ) |
As of December 31, 2011
|
As of December 31, 2010
|
||||||||||||||||||||
Notional
|
Fair Value
|
Notional
|
Fair Value
|
||||||||||||||||||
Amounts
|
Asset
|
Liability
|
Amounts
|
Asset
|
Liability
|
||||||||||||||||
Qualifying Hedges
|
|
|
|
|
|
|
|||||||||||||||
Cash flow hedges:
|
|
|
|
|
|
|
|||||||||||||||
Interest rate contracts
(1)
|
$ | 2,512 | $ | 130 | $ | - | $ | 2,076 | $ | (40 | ) | $ | - | ||||||||
Foreign currency contracts
(1)
|
340 | 38 | - | 340 | 30 | - | |||||||||||||||
Total cash flow hedges
|
2,852 | 168 | - | 2,416 | (10 | ) | - | ||||||||||||||
Fair value hedges:
|
|||||||||||||||||||||
Interest rate contracts
(2)
|
1,675 | 319 | 319 | 1,675 | 55 | 55 | |||||||||||||||
Non-Qualifying Hedges
|
|||||||||||||||||||||
Interest rate contracts
(1)
|
30,232 | 568 | - | 18,406 | (426 | ) | - | ||||||||||||||
Foreign currency contracts
(1)
|
4 | - | - | 219 | - | - | |||||||||||||||
Equity market contracts
(1)
|
16,401 | 2,096 | - | 11,577 | 1,442 | - | |||||||||||||||
Credit contracts
(1)
|
48 | - | - | - | - | - | |||||||||||||||
Credit contracts
(3)
|
148 | - | 16 | 145 | - | 16 | |||||||||||||||
Embedded derivatives:
|
|||||||||||||||||||||
Deferred compensation plans
(3)
|
- | - | 354 | - | - | 363 | |||||||||||||||
Indexed annuity contracts
(4)
|
- | - | 399 | - | - | 497 | |||||||||||||||
GLB reserves
(4)
|
- | - | 2,217 | - | - | 408 | |||||||||||||||
Reinsurance related
(5)
|
- | - | 168 | - | - | 102 | |||||||||||||||
AFS securities
(1)
|
- | - | - | - | 15 | - | |||||||||||||||
Total derivative instruments
|
$ | 51,360 | $ | 3,151 | $ | 3,473 | $ | 34,438 | $ | 1,076 | $ | 1,441 |
(1)
|
Reported in derivative investments on our Consolidated Balance Sheets.
|
(2)
|
The asset is reported in derivative investments and the liability in long-term debt on our Consolidated Balance Sheets.
|
(3)
|
Reported in other liabilities on our Consolidated Balance Sheets.
|
(4)
|
Reported in future contract benefits on our Consolidated Balance Sheets.
|
(5)
|
Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.
|
Remaining Life as of December 31, 2011
|
|||||||||||||||||||
Less Than
|
1 – 5 | 6 – 10 | 11 – 30 |
Over 30
|
|
||||||||||||||
1 Year
|
Years
|
Years
|
Years
|
Years
|
Total
|
||||||||||||||
Interest rate contracts
(1)
|
$ | 2,154 | $ | 11,353 | $ | 11,349 | $ | 9,556 | $ | 7 | $ | 34,419 | |||||||
Foreign currency contracts
(2)
|
4 | 154 | 105 | 81 | - | 344 | |||||||||||||
Equity market contracts
|
8,638 | 3,155 | 4,589 | 17 | 2 | 16,401 | |||||||||||||
Credit contracts
|
40 | 116 | 40 | - | - | 196 | |||||||||||||
Total derivative instruments with notional amounts | $ | 10,836 | $ | 14,778 | $ | 16,083 | $ | 9,654 | $ | 9 | $ | 51,360 |
(1)
|
(2)
|
As of December 31, 2011, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was July 2022.
|
For the Years Ended
December 31,
|
||||||||||||||
2011
|
2010
|
2009 | ||||||||||||
Unrealized Gain (Loss) on Derivative Instruments
|
|
|
||||||||||||
Balance as of beginning-of-year
|
$ | (15 | ) | $ | 11 | $ |
127
|
|||||||
Other comprehensive income (loss):
|
||||||||||||||
Unrealized holding gains (losses) arising during the year:
|
||||||||||||||
Cash flow hedges:
|
||||||||||||||
Interest rate contracts
|
178 | (47 | ) | 30 | ||||||||||
Foreign currency contracts
|
3 | 14 | (52 | ) | ||||||||||
Fair value hedges:
|
||||||||||||||
Interest rate contracts
|
4 | 4 | 4 | |||||||||||
Equity market contracts | - | - | (28 | ) | ||||||||||
Net investment in a foreign subsidiary | - | - | (74 | ) | ||||||||||
AFS securities embedded derivatives
|
- | 2 | - | |||||||||||
Change in foreign currency exchange rate adjustment | 7 | 4 | - | |||||||||||
Change in DAC, VOBA, DSI and DFEL | (1 | ) | (4 | ) | 22 | |||||||||
Income tax benefit (expense) | (66 | ) | 9 | (13 | ) | |||||||||
Less: | ||||||||||||||
Reclassification adjustment for gains (losses) included in net income (loss):
|
||||||||||||||
Cash flow hedges:
|
||||||||||||||
Interest rate contracts
(1)
|
(15 | ) | 4 | 4 | ||||||||||
Interest rate contracts
(2)
|
(1 | ) | 4 | - | ||||||||||
Foreign currency contracts
(1)
|
2 | 2 | - | |||||||||||
Fair value hedges:
|
||||||||||||||
Interest rate contracts
(2)
|
4 | 4 | 4 | |||||||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
- | (1 | ) | - | ||||||||||
Income tax benefit (expense)
|
4 | (5 | ) | (3 | ) | |||||||||
Balance as of end-of-year
|
$ | 116 | $ | (15 | ) | $ | 11 |
(1)
|
The OCI offset is reported within net investment income on our Consolidated Statements of Income (Loss).
|
(2)
|
The OCI offset is reported within interest and debt expense on our Consolidated Statements of Income (Loss).
|
For the Years Ended December 31,
|
||||||||||||
2011
|
2010
|
2009
|
||||||||||
Qualifying Hedges
|
|
|
|
|||||||||
Cash flow hedges:
|
|
|
|
|||||||||
Interest rate contracts
(1)
|
$ | (15 | ) | $ | 3 | $ | 3 | |||||
Foreign currency contracts
(1)
|
2 | 2 | 1 | |||||||||
Total cash flow hedges
|
(13 | ) | 5 | 4 | ||||||||
Fair value hedges:
|
||||||||||||
Interest rate contracts
(2)
|
50 | 42 | 17 | |||||||||
Equity market contracts
(3)
|
- | 15 | 1 | |||||||||
Total fair value hedges
|
50 | 57 | 18 | |||||||||
Non-Qualifying Hedges
|
||||||||||||
Interest rate contracts
(1)
|
(44 | ) | 5 | - | ||||||||
Interest rate contracts
(3)
|
1,144 | 175 | (1,553 | ) | ||||||||
Foreign currency contracts
(1)
|
- | 43 | (98 | ) | ||||||||
Foreign currency contracts
(3)
|
(12 | ) | (13 | ) | (7 | ) | ||||||
Equity market contracts
(3)
|
316 | (386 | ) | (1,379 | ) | |||||||
Equity market contracts
(4)
|
21 | (118 | ) | 35 | ||||||||
Credit contracts
(1)
|
- | 1 | 1 | |||||||||
Credit contracts
(3)
|
(7 | ) | 7 | (37 | ) | |||||||
Embedded derivatives:
|
||||||||||||
Deferred compensation plans
(4)
|
(11 | ) | (34 | ) | (63 | ) | ||||||
Indexed annuity contracts
(3)
|
5 | (81 | ) | (75 | ) | |||||||
GLB reserves
(3)
|
(1,809 | ) | 268 | 2,228 | ||||||||
Reinsurance related
(3)
|
(66 | ) | (71 | ) | (62 | ) | ||||||
AFS securities
(1)
|
- | 2 | - | |||||||||
Total derivative instruments
|
$ | (426 | ) | $ | (140 | ) | $ | (988 | ) |
(1)
|
Reported in net investment income on our Consolidated Statements of Income (Loss).
|
(2)
|
Reported in interest and debt expense on our Consolidated Statements of Income (Loss).
|
(3)
|
Reported in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
(4)
|
Reported in underwriting, acquisition, insurance and other expenses on our Consolidated Statements of Income (Loss).
|
|
For the Years Ended December 31,
|
||||||||
|
2011
|
2010
|
2009
|
||||||
Ineffective portion recognized in realized gain (loss)
|
$ | - | $ | - | $ | (1 | ) | ||
Gain (loss) recognized as a component of OCI with the offset
to net investment income
|
(13 | ) | 6 | 4 |
|
For the Years Ended December 31,
|
||||||||
|
2011
|
2010
|
2009
|
||||||
Ineffective portion recognized in realized gain (loss)
|
$ | - | $ | 1 | $ | 1 | |||
Gain (loss) recognized as a component of OCI with the offset
to interest expense
|
4 | 4 | 4 |
As of December 31, 2011
|
||||||||||||||||||
Credit
|
|
|
||||||||||||||||
Reason
|
Nature
|
Rating of
|
Number
|
Maximum
|
||||||||||||||
for
|
of
|
Underlying
|
of
|
Fair
|
Potential
|
|||||||||||||
Maturity
|
Entering
|
Recourse
|
Obligation
(1)
|
Instruments |
Value
(2)
|
Payout
|
||||||||||||
12/20/2012
(3)
|
(5) | (6) |
BBB+
|
4 | $ | - | $ | 40 | ||||||||||
12/20/2016
(4)
|
(5) | (6) |
BBB+
|
3 | (12 | ) | 68 | |||||||||||
03/20/2017
(4)
|
(5) | (6) |
BBB
|
2 | (4 | ) | 40 | |||||||||||
|
9 | $ | (16 | ) | $ | 148 |
As of December 31, 2010
|
||||||||||||||||||
Credit
|
|
|
||||||||||||||||
Reason
|
Nature
|
Rating of
|
Number
|
Maximum
|
||||||||||||||
for
|
of
|
Underlying
|
of
|
Fair
|
Potential
|
|||||||||||||
Maturity
|
Entering
|
Recourse
|
Obligation
(1)
|
Instruments
|
Value
(2)
|
Payout
|
||||||||||||
12/20/2012
(3)
|
(5) | (6) |
BBB+
|
4 | $ | - | $ | 40 | ||||||||||
12/20/2016
(4)
|
(5) | (6) |
BBB
|
3 | (12 | ) | 65 | |||||||||||
03/20/2017
(4)
|
(5) | (6) |
BBB-
|
2 | (4 | ) | 40 | |||||||||||
|
9 | $ | (16 | ) | $ | 145 |
(1)
|
Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings.
|
(2)
|
Broker quotes are used to determine the market value of credit default swaps.
|
(3)
|
These credit default swaps were sold to our contract holders, prior to 2007, where we determined there was a spread versus premium mismatch.
|
(4)
|
These credit default swaps were sold to a counter-party of the consolidated VIEs discussed in Note 4.
|
(5)
|
Credit default swap was entered into in order to generate income by providing default protection in return for a quarterly payment.
|
(6)
|
Seller does not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.
|
|
As of December 31,
|
|||||||
|
2011
|
2010
|
||||||
Maximum potential payout
|
$ | 148 | $ | 145 | ||||
Less:
|
||||||||
Counterparty thresholds
|
- | 10 | ||||||
Maximum collateral potentially required to post
|
$ | 148 | $ | 135 |
|
As of December 31, 2011
|
As of December 31, 2010
|
|||||||||||
|
Collateral
|
Collateral
|
Collateral
|
Collateral
|
|||||||||
|
Posted by
|
Posted by
|
Posted by
|
Posted by
|
|||||||||
S&P
|
Counter-
|
LNC
|
Counter-
|
LNC
|
|||||||||
Credit
|
Party
|
(Held by
|
Party
|
(Held by
|
|||||||||
Rating of
|
(Held by
|
Counter-
|
(Held by
|
Counter-
|
|||||||||
Counterparty
|
LNC)
|
Party)
|
LNC)
|
Party)
|
|||||||||
|
|
|
|
|
|||||||||
AAA
|
$ | - | $ | - | $ | 1 | $ | - | |||||
AA
|
35 | - | 99 | - | |||||||||
AA-
|
219 | - | 65 | - | |||||||||
A+ | 848 | - | 548 | (76 | ) | ||||||||
A | 1,681 | (120 | ) | 436 | (223 | ) | |||||||
A- | 387 | - | - | - | |||||||||
$ | 3,170 | $ | (120 | ) | $ | 1,149 | $ | (299 | ) |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Current
|
$ | 16 | $ | (138 | ) | $ | (751 | ) | ||
Deferred
|
281 | 421 | 645 | |||||||
Federal income tax expense (benefit)
|
$ | 297 | $ | 283 | $ | (106 | ) |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Tax rate times pre-tax income
|
$ | 210 | $ | 432 | $ | (182 | ) | ||||
Effect of:
|
|||||||||||
Tax-preferred investment income
|
(122 | ) | (105 | ) | (92 | ) | |||||
Tax credits
|
(42 | ) | (42 | ) | (46 | ) | |||||
Goodwill
|
261 | - | 238 | ||||||||
Prior year tax return adjustment
|
(28 | ) | (12 | ) | (60 | ) | |||||
Other items
|
18 | 10 | 36 | ||||||||
Federal income tax expense (benefit)
|
$ | 297 | $ | 283 | $ | (106 | ) | ||||
Effective tax rate
|
50 | % | 23 | % | 20 | % |
|
As of December 31,
|
||||||
|
2011
|
2010
|
|||||
Current
|
$ | (241 | ) | $ | (182 | ) | |
Deferred
|
(2,432 | ) | (1,221 | ) | |||
Total federal income tax asset (liability)
|
$ | (2,673 | ) | $ | (1,403 | ) |
|
As of December 31,
|
|||||||
|
2011
|
2010
|
||||||
Deferred Tax Assets
|
|
|
||||||
Future contract benefits and other contract holder funds
|
$ | 909 | $ | 1,400 | ||||
Deferred gain on business sold through reinsurance
|
122 | 160 | ||||||
Reinsurance related embedded derivative asset
|
59 | 22 | ||||||
Investments
|
489 | 401 | ||||||
Compensation and benefit plans
|
304 | 272 | ||||||
Net operating loss
|
23 | - | ||||||
Net capital loss
|
59 | 97 | ||||||
Tax credits
|
208 | 105 | ||||||
VIE
|
98 | 77 | ||||||
Other
|
202 | 108 | ||||||
Total deferred tax assets
|
2,473 | 2,642 | ||||||
Deferred Tax Liabilities
|
||||||||
DAC
|
1,823 | 1,977 | ||||||
VOBA
|
370 | 483 | ||||||
Net unrealized gain on AFS securities
|
2,259 | 1,014 | ||||||
Net unrealized gain on trading securities
|
131 | 90 | ||||||
Intangibles
|
160 | 165 | ||||||
Other
|
162 | 134 | ||||||
Total deferred tax liabilities
|
4,905 | 3,863 | ||||||
Net deferred tax asset (liability)
|
$ | (2,432 | ) | $ | (1,221 | ) |
|
For the
|
|||||||
|
Years Ended
|
|||||||
|
December 31,
|
|||||||
|
2011
|
2010
|
||||||
Balance as of beginning-of-year | $ | 318 | $ | 336 | ||||
Increases for prior year tax positions
|
2 | 2 | ||||||
Decreases for prior year tax positions
|
(10 | ) | (7 | ) | ||||
Increases for current year tax positions
|
12 | 9 | ||||||
Decreases for current year tax positions
|
(6 | ) | (8 | ) | ||||
Decreases for settlements with taxing authorities
|
- | (10 | ) | |||||
Decreases for lapse of statute of limitations
|
- | (4 | ) | |||||
Balance as of end-of-year
|
$ | 316 | $ | 318 |
|
For the Years Ended December 31,
|
|||||||||||
|
2011
|
2010
|
2009
|
|||||||||
Balance as of beginning-of-year | $ | 7,552 | $ | 7,424 | $ | 7,640 | ||||||
Business acquired (sold) through reinsurance
|
- | - | (37 | ) | ||||||||
Deferrals
|
1,681 | 1,641 | 1,621 | |||||||||
Amortization, net of interest:
|
||||||||||||
Prospective unlocking - assumption changes
|
(274 | ) | (31 | ) | (15 | ) | ||||||
Prospective unlocking - model refinements
|
114 | 145 | - | |||||||||
Retrospective unlocking
|
96 | 41 | 19 | |||||||||
Other amortization
|
(959 | ) | (930 | ) | (746 | ) | ||||||
Adjustment related to realized (gains) losses
|
(23 | ) | (50 | ) | 148 | |||||||
Adjustment related to unrealized (gains) losses
|
(1,051 | ) | (688 | ) | (1,206 | ) | ||||||
Balance as of end-of-year
|
$ | 7,136 | $ | 7,552 | $ | 7,424 |
For the Years Ended December 31,
|
||||||||||||
2011
|
2010
|
2009
|
||||||||||
Balance as of beginning-of-year | $ | 1,378 | $ | 2,086 | $ | 3,762 | ||||||
Business acquired (sold) through reinsurance
|
12 | - | (255 | ) | ||||||||
Deferrals
|
20 | 26 | 30 | |||||||||
Amortization:
|
||||||||||||
Prospective unlocking - assumption changes
|
72 | (41 | ) | (20 | ) | |||||||
Prospective unlocking - model refinements
|
102 | (7 | ) | - | ||||||||
Retrospective unlocking
|
21 | 11 | (44 | ) | ||||||||
Other amortization
|
(300 | ) | (361 | ) | (349 | ) | ||||||
Accretion of interest
(1)
|
78 | 89 | 102 | |||||||||
Adjustment related to realized (gains) losses
|
(6 | ) | (8 | ) | 43 | |||||||
Adjustment related to unrealized (gains) losses
|
(322 | ) | (417 | ) | (1,183 | ) | ||||||
Balance as of end-of-year
|
$ | 1,055 | $ | 1,378 | $ | 2,086 |
(1)
|
The interest accrual rates utilized to calculate the accretion of interest ranged from 3.40% to 7.25%.
|
|
|
|
|
2012
|
$
|
117
|
|
2013
|
|
101
|
|
2014
|
|
76
|
|
2015
|
|
68
|
|
2016
|
|
64
|
|
|
For the Years Ended December 31,
|
|||||||||||
|
2011
|
2010
|
2009
|
|||||||||
Balance as of beginning-of-year | $ | 286 | $ | 323 | $ | 263 | ||||||
Deferrals
|
39 | 66 | 76 | |||||||||
Amortization, net of interest:
|
||||||||||||
Prospective unlocking - assumption changes
|
(2 | ) | (3 | ) | - | |||||||
Retrospective unlocking
|
17 | 7 | 5 | |||||||||
Other amortization
|
(55 | ) | (58 | ) | (33 | ) | ||||||
Adjustment related to realized (gains) losses
|
(1 | ) | (8 | ) | 13 | |||||||
Adjustment related to unrealized (gains) losses
|
(13 | ) | (41 | ) | (1 | ) | ||||||
Balance as of end-of-year
|
$ | 271 | $ | 286 | $ | 323 |
|
For the Years Ended December 31,
|
|||||||||||
|
2011
|
2010
|
2009
|
|||||||||
Balance as of beginning-of-year | $ | 1,502 | $ | 1,338 | $ | 1,019 | ||||||
Business acquired (sold) through reinsurance
|
- | - | (11 | ) | ||||||||
Deferrals
|
544 | 546 | 497 | |||||||||
Amortization, net of interest:
|
||||||||||||
Prospective unlocking - assumption changes
|
5 | (57 | ) | (22 | ) | |||||||
Prospective unlocking - model refinements
|
26 | 56 | - | |||||||||
Retrospective unlocking
|
15 | (23 | ) | (16 | ) | |||||||
Other amortization
|
(180 | ) | (173 | ) | (129 | ) | ||||||
Adjustment related to realized (gains) losses
|
(9 | ) | (8 | ) | (1 | ) | ||||||
Adjustment related to unrealized (gains) losses
|
(534 | ) | (177 | ) | 1 | |||||||
Balance as of end-of-year
|
$ | 1,369 | $ | 1,502 | $ | 1,338 |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Direct insurance premiums and fees
|
$ | 6,997 | $ | 6,599 | $ | 6,124 | ||||
Reinsurance assumed
|
10 | 13 | 10 | |||||||
Reinsurance ceded
|
(1,276 | ) | (1,202 | ) | (1,148 | ) | ||||
Total insurance premiums and fees
|
$ | 5,731 | $ | 5,410 | $ | 4,986 | ||||
|
||||||||||
Direct insurance benefits
|
$ | 4,897 | $ | 4,547 | $ | 3,891 | ||||
Reinsurance recoveries netted against benefits
|
(1,552 | ) | (1,220 | ) | (1,057 | ) | ||||
Total benefits
|
$ | 3,345 | $ | 3,327 | $ | 2,834 |
|
For the Year Ended December 31, 2011
|
||||||||||||||||||
|
Acquisition
|
Cumulative
|
|
|
|
|
|||||||||||||
|
Balance
|
Impairment
|
|
|
|
|
|||||||||||||
|
as of
|
as of
|
Acquisition
|
|
|
Balance
|
|||||||||||||
|
Beginning-
|
Beginning-
|
Accounting
|
|
|
as of End-
|
|||||||||||||
|
of-Year
|
of-Year
|
Adjustments
|
Impairment
|
Other
|
of-Year
|
|||||||||||||
Annuities
|
$ | 1,040 | $ | (600 | ) | $ | - | $ | - | $ | - | $ | 440 | ||||||
Retirement Plan Services
|
20 | - | - | - | - | 20 | |||||||||||||
Life Insurance
|
2,188 | - | - | (650 | ) | 1 | 1,539 | ||||||||||||
Group Protection
|
274 | - | - | - | - | 274 | |||||||||||||
Other Operations - Media
|
341 | (244 | ) | - | (97 | ) | - | - | |||||||||||
Total goodwill
|
$ | 3,863 | $ | (844 | ) | $ | - | $ | (747 | ) | $ | 1 | $ | 2,273 |
|
For the Year Ended December 31, 2010
|
||||||||||||||||||
|
Acquisition
|
Cumulative
|
|
|
|
|
|||||||||||||
|
Balance
|
Impairment
|
|
|
|
|
|||||||||||||
|
as of
|
as of
|
Acquisition
|
|
|
Balance
|
|||||||||||||
|
Beginning-
|
Beginning-
|
Accounting
|
|
|
as of End-
|
|||||||||||||
|
of-Year
|
of-Year
|
Adjustments
|
Impairment
|
Other
|
of-Year
|
|||||||||||||
Annuities
|
$ | 1,040 | $ | (600 | ) | $ | - | $ | - | $ | - | $ | 440 | ||||||
Retirement Plan Services
|
20 | - | - | - | - | 20 | |||||||||||||
Life Insurance
|
2,188 | - | - | - | - | 2,188 | |||||||||||||
Group Protection
|
274 | - | - | - | - | 274 | |||||||||||||
Other Operations - Media
|
335 | (244 | ) | 6 | - | - | 97 | ||||||||||||
Total goodwill
|
$ | 3,857 | $ | (844 | ) | $ | 6 | $ | - | $ | - | $ | 3,019 |
As of December 31,
|
||||||||||||||
2011
|
2010
|
|||||||||||||
Gross
|
|
Gross
|
|
|||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
|||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
|||||||||||
Life Insurance: |
|
|
|
|
||||||||||
Sales force
|
$ | 100 | $ | 23 | $ | 100 | $ | 19 | ||||||
Retirement Plan Services: | ||||||||||||||
Mutual fund contract rights
(1)
|
2 | - | 2 | - | ||||||||||
Other Operations: | ||||||||||||||
FCC licenses
(1)
|
118 | - | 118 | - | ||||||||||
Other
|
4 | 3 | 4 | 3 | ||||||||||
Total
|
$ | 224 | $ | 26 | $ | 224 | $ | 22 |
(1)
|
No amortization recorded as the intangible asset has indefinite life.
|
|
|
|
|
2012
|
$
|
4
|
|
2013
|
|
4
|
|
2014
|
|
4
|
|
2015
|
|
4
|
|
2016
|
|
4
|
|
|
As of December 31,
|
|
|
|||||
|
2011
|
|
2010
|
|
|
|||
Return of Net Deposits
|
|
|
|
|
|
|
|
|
Total account value
|
$
|
54,004
|
|
$
|
52,211
|
|
|
|
Net amount at risk
(1)
|
|
1,379
|
|
|
816
|
|
|
|
Average attained age of contract holders
|
|
59 years
|
|
|
58 years
|
|
|
|
Minimum Return
|
|
|
|
|
|
|
|
|
Total account value
|
$
|
155
|
|
$
|
187
|
|
|
|
Net amount at risk
(1)
|
|
48
|
|
|
46
|
|
|
|
Average attained age of contract holders
|
|
72 years
|
|
|
70 years
|
|
|
|
Guaranteed minimum return
|
|
5
|
%
|
|
5
|
%
|
|
|
Anniversary Contract Value
|
|
|
|
|
|
|
|
|
Total account value
|
$
|
21,648
|
|
$
|
23,483
|
|
|
|
Net amount at risk
(1)
|
|
2,939
|
|
|
2,183
|
|
|
|
Average attained age of contract holders
|
|
67 years
|
|
|
66 years
|
|
|
(1)
|
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Balance as of beginning-of-year
|
$ | 44 | $ | 71 | $ | 277 | |||||
Changes in reserves
|
93 | 57 | (33 | ) | |||||||
Benefits paid
|
(53 | ) | (84 | ) | (173 | ) | |||||
Balance as of end-of-year
|
$ | 84 | $ | 44 | $ | 71 |
|
As of December 31,
|
||||||
|
2011
|
2010 | |||||
Asset Type
|
|
|
|||||
Domestic equity
|
$ | 34,286 | $ | 35,659 | |||
International equity
|
13,095 | 14,172 | |||||
Bonds
|
17,735 | 15,913 | |||||
Money market
|
5,892 | 5,725 | |||||
Total
|
$ | 71,008 | $ | 71,469 | |||
|
|||||||
Percent of total variable annuity separate account values
|
98 | % | 98 | % |
As of December 31,
|
|||||||||
2011
|
2010
|
||||||||
Short-Term Debt
|
|
|
|||||||
Commercial paper
(1)
|
$ | - | $ | 100 | |||||
Current maturities of long-term debt
|
300 | 250 | |||||||
Other short-term debt
|
- | 1 | |||||||
Total short-term debt
|
$ | 300 | $ | 351 | |||||
Long-Term Debt, Excluding Current Portion
|
|||||||||
Senior notes:
|
|||||||||
5.65% notes, due 2012
|
$ | - | $ | 300 | |||||
LIBOR + 175 bps loan, due 2013
|
200 | 200 | |||||||
4.75% notes, due 2014
|
300 | 300 | |||||||
4.75% notes, due 2014
|
200 | 200 | |||||||
4.30% notes, due 2015
(2)
|
250 | 250 | |||||||
LIBOR + 3 bps notes, due 2017
|
250 | 250 | |||||||
7.00% notes, due 2018
|
200 | 200 | |||||||
8.75% notes, due 2019
(2)
|
500 | 500 | |||||||
6.25% notes, due 2020
(2)
|
300 | 300 | |||||||
4.85% notes, due 2021
(2)
|
300 | - | |||||||
6.15% notes, due 2036
|
500 | 500 | |||||||
6.30% notes, due 2037
|
375 | 375 | |||||||
7.00% notes, due 2040
(2)
|
500 | 500 | |||||||
Total senior notes
|
3,875 | 3,875 | |||||||
Capital securities:
|
|||||||||
6.75%, due 2066
(3)
|
- | 275 | |||||||
7.00%, due 2066
|
722 | 722 | |||||||
6.05%, due 2067
|
491 | 491 | |||||||
Total capital securities
|
1,213 | 1,488 | |||||||
Unamortized premiums (discounts)
|
(16 | ) | (19 | ) | |||||
Fair value hedge on interest rate swap agreements
|
319 | 55 | |||||||
Total unamortized premiums (discounts) and fair value hedge on interest rate swap agreements
|
303 | 36 | |||||||
Total long-term debt
|
$ | 5,391 | $ | 5,399 |
(1)
|
The weighted-average interest rate of commercial paper was 0.20% and 0.41% as of December 31, 2011 and 2010, respectively.
|
(2)
|
We have the option to repurchase the outstanding notes by paying the greater of 100% of the principal amount of the notes to be redeemed or the make-whole amount (as defined in each note agreement), plus in each case any accrued and unpaid interest as of the date of redemption.
|
(3)
|
During the third quarter of 2011, we redeemed all of our 6.75% capital securities due 2066. See below for the details of the loss on extinguishment of debt.
|
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Principal balance outstanding prior to payoff
|
$ | 275 | $ | 155 | $ | 87 | ||||
Unamortized debt issuance costs and discounts prior to payoff
|
(8 | ) | (5 | ) | (1 | ) | ||||
Amount paid to retire
|
(275 | ) | (155 | ) | (22 | ) | ||||
Gain (loss) on extinguishment of debt, pre-tax
|
$ | (8 | ) | $ | (5 | ) | $ | 64 | ||
|
|
|
|
|
|
2012
|
$
|
300
|
|
|
2013
|
|
200
|
|
|
2014
|
|
500
|
|
|
2015
|
|
250
|
|
|
2016
|
|
-
|
|
|
Thereafter
|
|
4,138
|
|
|
|
Total
|
$
|
5,388
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
||||
|
|
Expiration
|
|
Maximum
|
|
LOCs
|
|
||
|
|
Date
|
|
Available
|
|
Issued
|
|
||
Credit Facilities
|
|
|
|
|
|
|
|
|
|
Four-year revolving credit facility
|
Jun-2015
|
|
$
|
2,000
|
|
$
|
219
|
|
|
LOC facility
|
Mar-2023
|
|
|
828
|
|
|
828
|
|
|
LOC facility
|
Aug-2031
|
|
|
419
|
|
|
419
|
|
|
LOC facility
|
Oct-2031
|
|
|
574
|
|
|
574
|
|
|
|
Total
|
|
|
$
|
3,821
|
|
$
|
2,040
|
|
·
|
LNL’s risk-based capital ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or
|
·
|
(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding accumulated other comprehensive income and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.”
|
|
|
|
|
2012
|
$
|
40
|
|
2013
|
|
35
|
|
2014
|
|
31
|
|
2015
|
|
26
|
|
2016
|
|
22
|
|
For the Years Ended December 31,
|
||||||||||
2011
|
2010
|
2009
|
||||||||
Series A Preferred Stock
|
|
|
|
|||||||
Balance as of beginning-of-year
|
10,914 | 11,497 | 11,565 | |||||||
Conversion of convertible preferred stock
(1)
|
(842 | ) | (583 | ) | (68 | ) | ||||
Balance as of end-of-year
|
10,072 | 10,914 | 11,497 | |||||||
Series B Preferred Stock
|
||||||||||
Balance as of beginning-of-year
|
- | 950,000 | - | |||||||
Issuance (redemption) of Series B preferred stock
|
- | (950,000 | ) | 950,000 | ||||||
Balance as of end-of-year
|
- | - | 950,000 | |||||||
Common Stock
|
||||||||||
Balance as of beginning-of-year
|
315,718,554 | 302,223,281 | 255,869,859 | |||||||
Stock issued
|
- | 14,137,615 | 46,000,000 | |||||||
Conversion of convertible preferred stock
(1)
|
13,472 | 9,328 | 1,088 | |||||||
Stock compensation/issued for benefit plans
|
248,553 | 414,712 | 436,100 | |||||||
Retirement/cancellation of shares
|
(24,661,357 | ) | (1,066,382 | ) | (83,766 | ) | ||||
Balance as of end-of-year
|
291,319,222 | 315,718,554 | 302,223,281 | |||||||
Common Stock as of End-of-Year
|
||||||||||
Assuming conversion of preferred stock
|
291,480,374 | 315,893,178 | 302,407,233 | |||||||
Diluted basis
|
298,225,244 | 324,043,137 | 311,846,021 |
For the Years Ended December 31,
|
|||||||||
2011
|
2010
|
2009
|
|||||||
Weighted-average shares, as used in basic calculation
|
307,216,181 | 310,005,264 | 280,031,363 | ||||||
Shares to cover exercise of outstanding warrants
|
10,150,292 | 12,260,236 | 6,209,013 | ||||||
Shares to cover conversion of preferred stock
|
173,289 | 178,720 | 184,687 | ||||||
Shares to cover non-vested stock
|
813,905 | 616,314 | 550,700 | ||||||
Average stock options outstanding during the year
|
636,989 | 707,704 | 401,369 | ||||||
Assumed acquisition of shares with assumed proceeds from exercising outstanding warrants | (4,658,020 | ) | (5,148,473 | ) | (2,945,429 | ) | |||
Assumed acquisition of shares with assumed proceeds and benefits from exercising stock options (at average market price for the year) | (427,425 | ) | (464,813 | ) | (275,543 | ) | |||
Shares repurchaseable from measured but unrecognized stock option expense | (65,882 | ) | (139,673 | ) | (85,511 | ) | |||
Average deferred compensation shares
|
1,110,722 | 1,198,468 | 1,564,954 | ||||||
Weighted-average shares, as used in diluted calculation
|
314,950,051 | 319,213,747 | 285,635,603 |
|
For the Years Ended December 31,
|
|||||||||||
|
2011
|
2010
|
2009
|
|||||||||
Unrealized Gain (Loss) on AFS Securities |
|
|
|
|||||||||
Balance as of beginning-of-year | $ | 1,072 | $ | 49 | $ | (2,654 | ) | |||||
Cumulative effect from adoption of new accounting standards
|
- | 181 | (84 | ) | ||||||||
Unrealized holding gains (losses) arising during the year
|
3,414 | 2,528 | 6,204 | |||||||||
Change in foreign currency exchange rate adjustment
|
(5 | ) | (6 | ) | 26 | |||||||
Change in DAC, VOBA, DSI and other contract holder funds
|
(993 | ) | (1,196 | ) | (2,371 | ) | ||||||
Income tax benefit (expense)
|
(864 | ) | (478 | ) | (1,366 | ) | ||||||
Less:
|
||||||||||||
Reclassification adjustment for gains (losses) included in net income (loss)
|
(129 | ) | (135 | ) | (569 | ) | ||||||
Reclassification adjustment for gains (losses) on derivatives included in net income (loss)
|
- | 135 | (45 | ) | ||||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
(13 | ) | 9 | 161 | ||||||||
Income tax benefit (expense)
|
50 | (3 | ) | 159 | ||||||||
Balance as of end-of-year
|
$ | 2,716 | $ | 1,072 | $ | 49 | ||||||
Unrealized OTTI on AFS Securities | ||||||||||||
Balance as of beginning-of-year | $ | (129 | ) | $ | (115 | ) | $ | - | ||||
(Increases) attributable to:
|
||||||||||||
Cumulative effect from adoption of new accounting standards
|
- | - | (18 | ) | ||||||||
Gross OTTI recognized in OCI during the year
|
(58 | ) | (98 | ) | (357 | ) | ||||||
Change in DAC, VOBA, DSI and DFEL
|
11 | 10 | 82 | |||||||||
Income tax benefit (expense)
|
16 | 30 | 96 | |||||||||
Decreases attributable to:
|
||||||||||||
Sales, maturities or other settlements of AFS securities
|
103 | 87 | 154 | |||||||||
Change in DAC, VOBA, DSI and DFEL
|
(22 | ) | (20 | ) | (29 | ) | ||||||
Income tax benefit (expense)
|
(28 | ) | (23 | ) | (43 | ) | ||||||
Balance as of end-of-year
|
$ | (107 | ) | $ | (129 | ) | $ | (115 | ) | |||
Unrealized Gain (Loss) on Derivative Instruments | ||||||||||||
Balance as of beginning-of-year | $ | (15 | ) | $ | 11 | $ | 127 | |||||
Unrealized holding gains (losses) arising during the year
|
185 | (27 | ) | (89 | ) | |||||||
Change in foreign currency exchange rate adjustment
|
7 | 4 | (31 | ) | ||||||||
Change in DAC, VOBA, DSI and DFEL
|
(1 | ) | (4 | ) | 22 | |||||||
Income tax benefit (expense)
|
(66 | ) | 9 | (13 | ) | |||||||
Less:
|
||||||||||||
Reclassification adjustment for gains (losses) included in net income (loss)
|
(10 | ) | 14 | 8 | ||||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
- | (1 | ) | - | ||||||||
Income tax benefit (expense)
|
4 | (5 | ) | (3 | ) | |||||||
Balance as of end-of-year
|
$ | 116 | $ | (15 | ) | $ | 11 | |||||
Foreign Currency Translation Adjustment | ||||||||||||
Balance as of beginning-of-year | $ | 1 | $ | 3 | $ | 6 | ||||||
Foreign currency translation adjustment arising during the year
|
- | (3 | ) | (2 | ) | |||||||
Income tax benefit (expense)
|
- | 1 | (1 | ) | ||||||||
Balance as of end-of-year
|
$ | 1 | $ | 1 | $ | 3 | ||||||
Funded Status of Employee Benefit Plans | ||||||||||||
Balance as of beginning-of-year | $ | (181 | ) | $ | (210 | ) | $ | (282 | ) | |||
Adjustment arising during the year
|
(149 | ) | 45 | 111 | ||||||||
Income tax benefit (expense)
|
52 | (16 | ) | (39 | ) | |||||||
Balance as of end-of-year
|
$ | (278 | ) | $ | (181 | ) | $ | (210 | ) |
For the Years Ended December 31,
|
|||||||||||
2011
|
2010
|
2009
|
|||||||||
Total realized gain (loss) related to certain investments
(1)
|
$ | (151 | ) | $ | (180 | ) | $ | (538 | ) | ||
Realized gain (loss) on the mark-to-market on certain instruments
(2)
|
(83 | ) | 75 | 36 | |||||||
Indexed annuity net derivative results:
(3)
|
|||||||||||
Gross gain (loss)
|
2 | 34 | 8 | ||||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
(2 | ) | (15 | ) | (4 | ) | |||||
Variable annuity net derivatives results:
(4)
|
|||||||||||
Gross gain (loss)
|
(60 | ) | 56 | (710 | ) | ||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
(5 | ) | (47 | ) | 61 | ||||||
Realized gain (loss) on sale of subsidiaries/businesses
|
- | - | 1 | ||||||||
Total realized gain (loss)
|
$ | (299 | ) | $ | (77 | ) | $ | (1,146 | ) |
(2)
|
Represents changes in the fair values of certain derivative investments (including those associated with our consolidated VIEs), total return swaps (embedded derivatives that are theoretically included in our various modified coinsurance and coinsurance with funds withheld reinsurance arrangements that have contractual returns related to various assets and liabilities associated with these arrangements) and trading securities.
|
(3)
|
Represents the net difference between the change in the fair value of the S&P 500 call options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity products along with changes in the fair value of embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.
|
(4)
|
Includes the net difference in the change in embedded derivative reserves of our GLB products and the change in the fair value of the derivative instruments we own to hedge GDB and GLB products, including the cost of purchasing the hedging instruments.
|
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Commissions
|
$ | 1,672 | $ | 1,616 | $ | 1,543 | ||||
General and administrative expenses
|
1,422 | 1,412 | 1,284 | |||||||
Expenses associated with reserve financing and unrelated LOCs
|
47 | 34 | 7 | |||||||
DAC and VOBA deferrals and interest, net of amortization
|
(651 | ) | (583 | ) | (598 | ) | ||||
Broker-dealer expenses
|
353 | 320 | 290 | |||||||
Other intangibles amortization
|
4 | 4 | 4 | |||||||
Media expenses
|
69 | 59 | 53 | |||||||
Taxes, licenses and fees
|
247 | 197 | 160 | |||||||
Merger-related expenses
|
- | 9 | 17 | |||||||
Restructuring charges (recoveries) for expense initiatives
|
- | (1 | ) | 34 | ||||||
Total
|
$ | 3,163 | $ | 3,067 | $ | 2,794 |
As of or for the Years Ended December 31,
|
||||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
U.S.
|
Non-U.S.
|
Other
|
||||||||||||||||||
Pension Benefits
|
Pension Benefits
|
Postretirement Benefits
|
||||||||||||||||||
Change in Plan Assets
|
|
|
|
|
|
|
||||||||||||||
Fair value as of beginning-of-year
|
$ | 918 | $ | 842 | $ | 314 | $ | 307 | $ | 37 | $ | 34 | ||||||||
Actual return on plan assets
|
72 | 118 | 49 | 29 | 3 | 2 | ||||||||||||||
Company and participant contributions
|
36 | 31 | 1 | - | 15 | 15 | ||||||||||||||
Benefits paid
|
(70 | ) | (73 | ) | (12 | ) | (12 | ) | (17 | ) | (15 | ) | ||||||||
Medicare Part D subsidy
|
- | - | - | - | 1 | 1 | ||||||||||||||
Foreign exchange translation
|
- | - | (2 | ) | (10 | ) | - | - | ||||||||||||
Fair value as of end-of-year
|
956 | 918 | 350 | 314 | 39 | 37 | ||||||||||||||
Change in Benefit Obligation
|
||||||||||||||||||||
Balance as of beginning-of-year
|
1,093 | 1,050 | 271 | 289 | 155 | 151 | ||||||||||||||
Service cost
(1)
|
3 | 3 | - | - | 4 | 3 | ||||||||||||||
Interest cost
|
58 | 61 | 15 | 16 | 7 | 9 | ||||||||||||||
Company and participant contributions
|
- | - | - | - | 6 | 6 | ||||||||||||||
Curtailments
|
- | - | - | - | - | - | ||||||||||||||
Actuarial (gains) losses
|
154 | 52 | 38 | (12 | ) | 5 | - | |||||||||||||
Benefits paid
|
(70 | ) | (73 | ) | (12 | ) | (12 | ) | (17 | ) | (15 | ) | ||||||||
Medicare Part D subsidy
|
- | - | - | - | 1 | 1 | ||||||||||||||
Foreign exchange translation
|
- | - | (1 | ) | (10 | ) | - | - | ||||||||||||
Balance as of end-of-year
|
1,238 | 1,093 | 311 | 271 | 161 | 155 | ||||||||||||||
Funded status of the plans
|
$ | (282 | ) | $ | (175 | ) | $ | 39 | $ | 43 | $ | (122 | ) | $ | (118 | ) | ||||
Amounts Recognized on the Consolidated Balance Sheets
|
||||||||||||||||||||
Other assets
|
$ | 18 | $ | 15 | $ | 39 | $ | 43 | $ | - | $ | - | ||||||||
Other liabilities
|
(300 | ) | (190 | ) | - | - | (122 | ) | (118 | ) | ||||||||||
Net amount recognized
|
$ | (282 | ) | $ | (175 | ) | $ | 39 | $ | 43 | $ | (122 | ) | $ | (118 | ) | ||||
Amounts Recognized in Accumulated OCI, Net of Tax
|
||||||||||||||||||||
Net (gain) loss
|
$ | 243 | $ | 153 | $ | 33 | $ | 30 | $ | 5 | $ | 2 | ||||||||
Prior service credit
|
- | - | - | - | (3 | ) | (4 | ) | ||||||||||||
Net amount recognized
|
$ | 243 | $ | 153 | $ | 33 | $ | 30 | $ | 2 | $ | (2 | ) | |||||||
Rate of Increase in Compensation
|
||||||||||||||||||||
Retiree Life Insurance Plan
|
N/A | N/A | N/A | N/A | 4.00 | % | 4.00 | % | ||||||||||||
All other plans
|
N/A | N/A | N/A | N/A | N/A | N/A | ||||||||||||||
Weighted-Average Assumptions
|
||||||||||||||||||||
Benefit obligations:
|
||||||||||||||||||||
Weighted-average discount rate
|
4.45 | % | 5.50 | % | 5.00 | % | 5.70 | % | 4.25 | % | 5.00 | % | ||||||||
Expected return on plan assets
|
7.78 | % | 8.00 | % | 5.40 | % | 5.40 | % | 6.50 | % | 6.50 | % | ||||||||
Net periodic benefit cost:
|
||||||||||||||||||||
Weighted-average discount rate
|
5.45 | % | 6.00 | % | 5.70 | % | 5.80 | % | 5.00 | % | 6.00 | % | ||||||||
Expected return on plan assets
|
7.78 | % | 8.00 | % | 5.40 | % | 5.80 | % | 6.50 | % | 6.50 | % |
(1)
|
Amounts for our U.S. pension plans represent general and administrative expenses.
|
|
As of or for the
|
|||||||||
|
Years Ended December 31, | |||||||||
|
2011 | 2010 | 2009 | |||||||
Pre-65 health care cost trend rate
|
|
8.50
|
%
|
|
9.50
|
%
|
|
10.00
|
%
|
|
Post-65 health care cost trend rate
|
|
8.50
|
%
|
|
9.50
|
%
|
|
13.00
|
%
|
|
Ultimate trend rate
|
|
4.50
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
|
2021
|
|
2020
|
|
2020
|
|
As of December 31,
|
|||||
|
2011
|
2010
|
||||
U.S. Plan
|
|
|
||||
Accumulated benefit obligation
|
$ | 1,118 | $ | 1,072 | ||
Projected benefit obligation
|
1,118 | 1,072 | ||||
Fair value of plan assets
|
818 | 881 |
For the Years Ended December 31,
|
|||||||||||||||||||
2011
|
2010
|
2009
|
2011
|
2010
|
2009
|
||||||||||||||
Pension Benefits
|
Other Postretirement Benefits
|
||||||||||||||||||
U.S. Plans
|
|
|
|
|
|
|
|||||||||||||
Service cost
(1)
|
$ | 3 | $ | 3 | $ | 3 | $ | 4 | $ | 3 | $ | 3 | |||||||
Interest cost
|
58 | 61 | 62 | 7 | 9 | 8 | |||||||||||||
Expected return on plan assets
|
(71 | ) | (65 | ) | (55 | ) | (2 | ) | (2 | ) | (2 | ) | |||||||
Amortization of prior service cost
|
- | - | - | (1 | ) | (1 | ) | (1 | ) | ||||||||||
Recognized net actuarial loss (gain)
|
13 | 15 | 28 | 1 | 1 | (2 | ) | ||||||||||||
Net periodic benefit expense (recovery)
|
$ | 3 | $ | 14 | $ | 38 | $ | 9 | $ | 10 | $ | 6 | |||||||
Non-U.S. Plans
|
|||||||||||||||||||
Service cost
|
$ | - | $ | - | $ | 1 | |||||||||||||
Interest cost
|
15 | 16 | 16 | ||||||||||||||||
Expected return on plan assets
|
(16 | ) | (16 | ) | (15 | ) | |||||||||||||
Amortization of prior service cost
|
- | - | 1 | ||||||||||||||||
Recognized net actuarial loss (gain)
|
- | 1 | 1 | ||||||||||||||||
Net periodic benefit expense (recovery)
|
$ | (1 | ) | $ | 1 | $ | 4 |
(1)
|
Amounts for our pension plans represent general and administrative expenses.
|
|
For the Years Ended December 31, |
|
||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
U.S. Plan - Employees | U.S. Plan - Agents | Non-U.S. Plan | |||||||||||||||
Asset Class
|
|
|
|
|
|
|
||||||||||||
Fixed maturity securities
|
50 | % | 50 | % | 80 | % | 50 | % | 56 | % | 65 | % | ||||||
Common stock:
|
||||||||||||||||||
Domestic equity
|
35 | % | 35 | % | 14 | % | 35 | % | - | % | - | % | ||||||
International equity
|
15 | % | 15 | % | 6 | % | 15 | % | - | % | - | % | ||||||
Equity securities
|
- | % | - | % | - | % | - | % | 43 | % | 15 | % | ||||||
Cash and invested cash
|
- | % | - | % | - | % | - | % | 1 | % | 20 | % |
·
|
Maintain sufficient liquidity to pay obligations of the plans as they come due;
|
·
|
Minimize the effect of a single investment loss and large losses to the plans through prudent risk/reward diversification consistent with sound fiduciary standards;
|
·
|
Maintain an appropriate asset allocation policy;
|
·
|
Earn a return commensurate with the level of risk assumed through the asset allocation policy; and
|
·
|
Control costs of administering and managing the plans' investment operations.
|
|
As of December 31,
|
||||||||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
|
U.S.
|
Non-U.S.
|
Other
|
||||||||||||||||||
|
Pension Plans
|
Pension Plans
|
Postretirement Benefits
|
||||||||||||||||||
Fixed maturity securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds
|
$ | 370 | $ | 266 | $ | 34 | $ | 22 | $ | - | $ | - | |||||||||
U.S. Government bonds
|
114 | 103 | 13 | 2 | - | - | |||||||||||||||
Foreign government bonds
|
24 | 39 | 206 | 166 | - | - | |||||||||||||||
RMBS
|
1 | 2 | - | - | - | - | |||||||||||||||
CMBS
|
4 | 5 | - | - | - | - | |||||||||||||||
CDOs
|
1 | 1 | 1 | 2 | - | - | |||||||||||||||
Common stock | 418 | 444 | 57 | 101 | - | - | |||||||||||||||
Cash and invested cash | 24 | 58 | 39 | 21 | 39 | 37 | |||||||||||||||
Total
|
$ | 956 | $ | 918 | $ | 350 | $ | 314 | $ | 39 | $ | 37 |
Valuation Methodologies and Associated Inputs for Pension Plans’ Assets
|
|
Pension Plans
|
U.S. Other Postretirement Plans
|
||||||||||||||||
|
Qualified
|
Nonqualified
|
Qualified
|
|
|
|
||||||||||||
|
U.S.
|
U.S.
|
Non-U.S.
|
|
|
Not
|
||||||||||||
|
Defined
|
Defined
|
Defined
|
Reflecting
|
|
Reflecting
|
||||||||||||
|
Benefit
|
Benefit
|
Benefit
|
Medicare
|
Medicare
|
Medicare
|
||||||||||||
|
Pension
|
Pension
|
Pension
|
Part D
|
Part D
|
Part D
|
||||||||||||
|
Plans
|
Plans
|
Plans
|
Subsidy
|
Subsidy
|
Subsidy
|
||||||||||||
2012
|
$ | 72 | $ | 10 | $ | 12 | $ | 10 | $ | (2 | ) | $ | 12 | |||||
2013
|
70 | 10 | 13 | 10 | (2 | ) | 12 | |||||||||||
2014
|
68 | 9 | 14 | 11 | (2 | ) | 13 | |||||||||||
2015
|
67 | 11 | 14 | 11 | (2 | ) | 13 | |||||||||||
2016
|
69 | 9 | 15 | 12 | (2 | ) | 14 | |||||||||||
Following five years thereafter
|
336 | 44 | 86 | 59 | (12 | ) | 71 |
As of December 31,
|
||||||
2011
|
2010
|
|||||
Total liabilities
(1)
|
$ | 354 | $ | 363 | ||
Investments held to fund liabilities
(2)
|
133 | 130 |
(1)
|
Reported in other liabilities on our Consolidated Balance Sheets.
|
(2)
|
Reported in other assets on our Consolidated Balance Sheets.
|
For the Years Ended December 31,
|
||||||||||
2011
|
2010
|
2009
|
||||||||
Employer matching contributions
|
$ | 6 | $ | 6 | $ | 4 | ||||
Increase (decrease) in measurement of liabilities, net of total
return swap
|
1 | 1 | (5 | ) | ||||||
Total plan expenses (income)
|
$ | 7 | $ | 7 | $ | (1 | ) |
For the Years Ended December 31,
|
||||||||||
2011
|
2010
|
2009
|
||||||||
Employer matching contributions
|
$ | 1 | $ | 3 | $ | 1 | ||||
Increase (decrease) in measurement of liabilities, net of total
return swap
|
- | 3 | 3 | |||||||
Total plan expenses (income)
|
$ | 1 | $ | 6 | $ | 4 |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Stock options
|
$ | 8 | $ | 5 | $ | 6 | ||||
Performance shares
|
2 | (1 | ) | (2 | ) | |||||
Restricted stock units and nonvested stock
|
12 | 12 | 9 | |||||||
Total
|
$ | 22 | $ | 16 | $ | 13 | ||||
|
||||||||||
Recognized tax benefit
|
$ | 8 | $ | 6 | $ | 5 |
|
For the Years Ended December 31,
|
|||||||||||||||
|
2011
|
|
2010
|
|
2009
|
|||||||||||
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|||||
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|||||
|
Expense
|
|
Period
|
|
Expense
|
|
Period
|
|
Expense
|
|
Period
|
|||||
Stock options
|
$
|
6
|
|
1.7
|
|
$
|
4
|
|
1.8
|
|
$
|
6
|
|
1.7
|
||
Performance shares
|
|
4
|
|
2.0
|
|
|
-
|
|
-
|
|
|
-
|
|
1.0
|
||
SARs
|
|
1
|
|
3.4
|
|
|
1
|
|
3.7
|
|
|
2
|
|
4.1
|
||
Restricted stock units and nonvested
stock
|
|
17
|
|
1.7
|
|
|
19
|
|
1.9
|
|
|
13
|
|
2.2
|
||
Total unrecognized stock-based
incentive compensation expense
|
$
|
28
|
|
|
|
$
|
24
|
|
|
|
$
|
21
|
|
|
|
For the Years Ended December 31, |
|
|||||||||
|
2011
|
|
2010
|
|
2009 |
|
|||||
Weighted-average fair value per option granted
|
$
|
13.88
|
|
$
|
16.91
|
|
$
|
9.47 |
|
||
Assumptions:
|
|
|
|
|
|
|
|
|
|
||
|
Dividend yield
|
|
1.2 |
%
|
|
1.3 |
%
|
|
1.8 | % | |
|
Expected volatility
|
|
48.5 |
%
|
|
72.5 |
%
|
|
78.7 | % | |
|
Risk-free interest rate
|
|
1.4-2.9 |
%
|
|
2.7-3.3 |
%
|
|
1.5-3.2 | % | |
|
Expected life (in years)
|
|
6.7
|
|
|
6.3
|
|
|
5.8 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
||||
|
|
|
Weighted-
|
|
Average |
|
|
||||||
|
|
|
Average
|
|
Remaining |
|
Aggregate
|
||||||
|
|
|
Exercise
|
|
Contractual |
|
Intrinsic
|
||||||
|
Shares |
|
Price
|
|
Term |
|
Value
|
||||||
Outstanding as of December 31, 2010
|
1,948,923
|
|
$
|
49.03
|
|
|
|
|
|
||||
Granted - original
|
95,516
|
|
|
29.97
|
|
|
|
|
|
||||
Exercised (includes shares tendered)
|
(7,662
|
)
|
|
24.15
|
|
|
|
|
|
||||
Forfeited or expired
|
(187,329
|
)
|
|
48.60
|
|
|
|
|
|
||||
|
Outstanding as of December 31, 2011
|
1,849,448
|
|
$
|
48.19
|
|
1.09
|
|
$
|
-
|
|||
|
|
|
|
|
|
|
|
|
|
||||
Vested or expected to vest as of December 31, 2011
(1)
|
1,236,345
|
|
$
|
51.01
|
|
1.26
|
|
$
|
-
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Exercisable as of December 31, 2011
|
1,734,930
|
|
$
|
49.46
|
|
0.94
|
|
$
|
-
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
|
|
|
Weighted- |
|
|
|
||||
|
|
|
Weighted-
|
|
Average |
|
|
||||||
|
|
|
Average
|
|
Remaining |
|
Aggregate
|
||||||
|
|
|
Exercise
|
|
Contractual |
|
Intrinsic
|
||||||
|
Shares |
|
Price
|
|
Term |
|
Value
|
||||||
Outstanding as of December 31, 2010
|
7,755,483
|
|
$
|
47.20
|
|
|
|
|
|
||||
Granted - original
|
491,653
|
|
|
30.65
|
|
|
|
|
|
||||
Exercised (includes shares tendered)
|
(24,096
|
)
|
|
17.62
|
|
|
|
|
|
||||
Forfeited or expired
|
(1,572,482
|
)
|
|
44.47
|
|
|
|
|
|
||||
|
Outstanding as of December 31, 2011
|
6,650,558
|
|
$
|
46.73
|
|
3.66
|
|
$
|
2
|
|||
|
|
|
|
|
|
|
|
|
|
||||
Vested or expected to vest as of December 31, 2011
(1)
|
6,384,696
|
|
$
|
47.59
|
|
3.48
|
|
$
|
1
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Exercisable as of December 31, 2011
|
5,969,616
|
|
$
|
48.95
|
|
3.08
|
|
$
|
1
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
|
Weighted-
|
|
||
|
|
|
|
Average
|
|
||
|
|
|
|
Grant-Date
|
|
||
|
|
Shares |
|
Fair Value
|
|
||
Nonvested as of December 31, 2010
|
210,695
|
|
$
|
42.28
|
|
||
Granted
|
215,137
|
|
|
31.03
|
|
||
Forfeited
|
(228,383
|
)
|
|
41.41
|
|
||
|
Nonvested as of December 31, 2011
|
197,449
|
|
$
|
31.02
|
|
|
|
For the Years Ended December 31,
|
|||||||||
|
|
2011
|
|
2010
|
|
2009
|
|||||
Weighted-average fair value per SAR granted
|
$
|
9.41
|
|
$
|
7.81
|
|
$
|
12.47
|
|||
Assumptions:
|
|
|
|
|
|
|
|
|
|||
|
Dividend yield
|
|
1.9
|
%
|
|
2.4
|
%
|
|
0.2
|
% | |
|
Expected volatility
|
|
39.1
|
%
|
|
38.2
|
%
|
|
106.0
|
% | |
|
Risk-free interest rate
|
|
2.2
|
%
|
|
1.8
|
%
|
|
2.4
|
% | |
|
Expected life (in years)
|
|
5.0
|
|
|
5.0
|
|
|
5.0
|
|
|
|
|
|
|
Weighted-
|
|
|
|
||
|
|
|
Weighted-
|
|
Average
|
|
|
||||
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
||||
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
||||
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
||||
Outstanding as of December 31, 2010
|
715,631
|
|
$
|
47.02
|
|
|
|
|
|
||
Granted - original
|
106,950
|
|
|
29.97
|
|
|
|
|
|
||
Exercised (includes shares tendered)
|
(8,818
|
)
|
|
16.53
|
|
|
|
|
|
||
Forfeited or expired
|
(142,438
|
)
|
|
54.14
|
|
|
|
|
|
||
|
Outstanding as of December 31, 2011
|
671,325
|
|
$
|
43.26
|
|
1.89
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
||
Vested or expected to vest as of December 31, 2011
(1)
|
648,545
|
|
$
|
43.78
|
|
1.84
|
|
$
|
-
|
||
|
|
|
|
|
|
|
|
|
|
||
Exercisable as of December 31, 2011
|
480,041
|
|
$
|
49.44
|
|
1.30
|
|
$
|
-
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
|
Shares
|
|
Fair Value
|
|
|
Outstanding as of December 31, 2010
|
1,563,928
|
|
$
|
23.38
|
|
|
Granted
|
540,394
|
|
|
30.20
|
|
|
Vested
|
(206,294
|
)
|
|
33.36
|
|
|
Forfeited
|
(118,675
|
)
|
|
25.09
|
|
|
|
Outstanding as of December 31, 2011
|
1,779,353
|
|
$
|
23.94
|
|
|
As of December 31,
|
|
||||
|
2011
|
|
2010
|
|
||
U.S. capital and surplus
|
$
|
7,264
|
|
$
|
6,955
|
|
|
For the Years Ended December 31,
|
|
|||||||
|
2011
|
|
2010
|
|
2009
|
|
|||
U.S. net gain (loss) from operations, after-tax
|
$
|
323
|
|
$
|
557
|
|
$
|
913
|
|
U.S. net income (loss)
|
|
135
|
|
|
432
|
|
|
(4
|
)
|
U.S. dividends to LNC Parent Company
|
|
818
|
|
|
684
|
|
|
455
|
|
|
As of December 31,
|
|
||||
|
2011
|
|
2010
|
|
||
Calculation of reserves using the Indiana universal life method
|
$
|
270
|
|
$
|
314
|
|
Calculation of reserves using continuous CARVM
|
|
(2
|
)
|
|
(5
|
)
|
Conservative valuation rate on certain annuities
|
|
(20
|
)
|
|
(15
|
)
|
Lesser of LOC and XXX additional reserve as surplus
|
|
1,731
|
|
|
457
|
|
As of December 31,
|
|||||||||||||
2011
|
2010
|
||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
Value
|
Value
|
Value
|
Value
|
||||||||||
Assets
|
|
|
|
|
|||||||||
AFS securities:
|
|
|
|
|
|||||||||
Fixed maturity securities
|
$ | 75,433 | $ | 75,433 | $ | 68,030 | $ | 68,030 | |||||
VIEs' fixed maturity securities
|
700 | 700 | 584 | 584 | |||||||||
Equity securities
|
139 | 139 | 197 | 197 | |||||||||
Trading securities
|
2,675 | 2,675 | 2,596 | 2,596 | |||||||||
Mortgage loans on real estate
|
6,942 | 7,608 | 6,752 | 7,183 | |||||||||
Derivative investments
|
3,151 | 3,151 | 1,076 | 1,076 | |||||||||
Other investments
|
1,069 | 1,069 | 1,038 | 1,038 | |||||||||
Cash and invested cash
|
4,510 | 4,510 | 2,741 | 2,741 | |||||||||
Separate account assets
|
83,477 | 83,477 | 84,630 | 84,630 | |||||||||
Liabilities
|
|||||||||||||
Future contract benefits:
|
|||||||||||||
Indexed annuity contracts embedded derivatives
|
(399 | ) | (399 | ) | (497 | ) | (497 | ) | |||||
GLB reserves embedded derivatives
|
(2,217 | ) | (2,217 | ) | (408 | ) | (408 | ) | |||||
Other contract holder funds:
|
|||||||||||||
Remaining guaranteed interest and similar contracts
|
(1,114 | ) | (1,114 | ) | (1,108 | ) | (1,108 | ) | |||||
Account values of certain investment contracts
|
(27,468 | ) | (30,812 | ) | (26,130 | ) | (27,142 | ) | |||||
Short-term debt
(1)
|
(300 | ) | (309 | ) | (351 | ) | (364 | ) | |||||
Long-term debt
|
(5,391 | ) | (5,025 | ) | (5,399 | ) | (5,512 | ) | |||||
Reinsurance related embedded derivatives
|
(168 | ) | (168 | ) | (102 | ) | (102 | ) | |||||
VIEs' liabilities - derivative instruments
|
(291 | ) | (291 | ) | (209 | ) | (209 | ) | |||||
Other liabilities:
|
|||||||||||||
Deferred compensation plans embedded derivatives
|
(354 | ) | (354 | ) | (363 | ) | (363 | ) | |||||
Credit default swaps
|
(16 | ) | (16 | ) | (16 | ) | (16 | ) | |||||
Benefit Plans' Assets
(2)
|
1,345 | 1,345 | 1,269 | 1,269 |
(1)
|
The difference between the carrying value and fair value of short-term debt as of December 31, 2011 and 2010, related to current maturities of long-term debt.
|
(2)
|
Included in the funded statuses of the benefit plans, which is reported in other liabilities on our Consolidated Balance Sheets. Refer to Note 17 for additional detail.
|
|
As of December 31, 2011
|
||||||||||||||
|
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
|
$ | 63 | $ | 57,310 | $ | 1,888 | $ | 59,261 | |||||||
U.S. Government bonds
|
475 | 18 | 1 | 494 | |||||||||||
Foreign government bonds
|
- | 636 | 97 | 733 | |||||||||||
RMBS
|
- | 7,881 | 158 | 8,039 | |||||||||||
CMBS
|
- | 1,566 | 34 | 1,600 | |||||||||||
CDOs
|
- | - | 102 | 102 | |||||||||||
State and municipal bonds
|
- | 4,047 | - | 4,047 | |||||||||||
Hybrid and redeemable preferred securities
|
15 | 1,042 | 100 | 1,157 | |||||||||||
VIEs' fixed maturity securities
|
108 | 592 | - | 700 | |||||||||||
Equity AFS securities
|
37 | 46 | 56 | 139 | |||||||||||
Trading securities
|
2 | 2,605 | 68 | 2,675 | |||||||||||
Derivative investments
|
- | 681 | 2,470 | 3,151 | |||||||||||
Cash and invested cash | - | 4,510 | - | 4,510 | |||||||||||
Separate account assets | - | 83,477 | - | 83,477 | |||||||||||
Total assets
|
$ | 700 | $ | 164,411 | $ | 4,974 | $ | 170,085 | |||||||
|
|||||||||||||||
Liabilities | |||||||||||||||
Future contract benefits: | |||||||||||||||
Indexed annuity contracts embedded derivatives
|
$ | - | $ | - | $ | (399 | ) | $ | (399 | ) | |||||
GLB reserves embedded derivatives
|
- | - | (2,217 | ) | (2,217 | ) | |||||||||
Long-term debt - interest rate swap agreements | - | (319 | ) | - | (319 | ) | |||||||||
Reinsurance related embedded derivatives | - | (168 | ) | - | (168 | ) | |||||||||
VIEs' liabilities - derivative instruments | - | - | (291 | ) | (291 | ) | |||||||||
Other liabilities: | |||||||||||||||
Deferred compensation plans embedded derivatives
|
- | - | (354 | ) | (354 | ) | |||||||||
Credit default swaps
|
- | - | (16 | ) | (16 | ) | |||||||||
Total liabilities
|
$ | - | $ | (487 | ) | $ | (3,277 | ) | $ | (3,764 | ) | ||||
|
|||||||||||||||
Benefit Plans' Assets | $ | 99 | $ | 1,246 | $ | - | $ | 1,345 |
|
As of December 31, 2010
|
||||||||||||||
|
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
|
$ | 60 | $ | 49,864 | $ | 1,816 | $ | 51,740 | |||||||
U.S. Government bonds
|
160 | 3 | 2 | 165 | |||||||||||
Foreign government bonds
|
- | 395 | 113 | 508 | |||||||||||
RMBS
|
- | 8,719 | 119 | 8,838 | |||||||||||
CMBS
|
- | 1,944 | 109 | 2,053 | |||||||||||
CDOs
|
- | 2 | 172 | 174 | |||||||||||
State and municipal bonds
|
- | 3,155 | - | 3,155 | |||||||||||
Hybrid and redeemable preferred securities
|
18 | 1,260 | 119 | 1,397 | |||||||||||
VIEs' fixed maturity securities
|
- | 584 | - | 584 | |||||||||||
Equity AFS securities | 37 | 68 | 92 | 197 | |||||||||||
Trading securities | 2 | 2,518 | 76 | 2,596 | |||||||||||
Derivative investments | - | (419 | ) | 1,495 | 1,076 | ||||||||||
Cash and invested cash | - | 2,741 | - | 2,741 | |||||||||||
Separate account assets | - | 84,630 | - | 84,630 | |||||||||||
Total assets
|
$ | 277 | $ | 155,464 | $ | 4,113 | $ | 159,854 | |||||||
|
|||||||||||||||
Liabilities | |||||||||||||||
Future contract benefits: | |||||||||||||||
Indexed annuity contracts embedded derivatives | $ | - | $ | - | $ | (497 | ) | $ | (497 | ) | |||||
GLB reserves embedded derivatives | - | - | (408 | ) | (408 | ) | |||||||||
Long-term debt - interest rate swap agreements | - | (55 | ) | - | (55 | ) | |||||||||
Reinsurance related embedded derivatives | - | (102 | ) | - | (102 | ) | |||||||||
VIEs' liabilities - derivative instruments | - | - | (209 | ) | (209 | ) | |||||||||
Other liabilities: | |||||||||||||||
Deferred compensation plans embedded derivatives | - | - | (363 | ) | (363 | ) | |||||||||
Credit default swaps | - | - | (16 | ) | (16 | ) | |||||||||
Total liabilities
|
$ | - | $ | (157 | ) | $ | (1,493 | ) | $ | (1,650 | ) | ||||
|
|||||||||||||||
Benefit Plans' Assets | $ | 116 | $ | 1,113 | $ | 40 | $ | 1,269 |
For the Year Ended December 31, 2011
|
|||||||||||||||||||||
|
|
Purchases,
|
|
||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other
(1)
|
Net
|
Net
(2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|||||||||||||||||
Corporate bonds
|
$ | 1,816 | $ | 2 | $ | 42 | $ | (138 | ) | $ | 166 | $ | 1,888 | ||||||||
U.S. Government bonds
|
2 | - | - | (1 | ) | - | 1 | ||||||||||||||
Foreign government bonds
|
113 | - | 4 | (3 | ) | (17 | ) | 97 | |||||||||||||
RMBS
|
119 | (3 | ) | 7 | 35 | - | 158 | ||||||||||||||
CMBS
|
109 | (62 | ) | 62 | (78 | ) | 3 | 34 | |||||||||||||
CDOs
|
172 | 19 | (17 | ) | (72 | ) | - | 102 | |||||||||||||
Hybrid and redeemable preferred securities
|
119 | (1 | ) | (6 | ) | (9 | ) | (3 | ) | 100 | |||||||||||
Equity AFS securities
|
92 | 8 | (12 | ) | 1 | (33 | ) | 56 | |||||||||||||
Trading securities
|
76 | 1 | 3 | (8 | ) | (4 | ) | 68 | |||||||||||||
Derivative investments
|
1,495 | 495 | 363 | 117 | - | 2,470 | |||||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(497 | ) | 5 | - | 93 | - | (399 | ) | |||||||||||||
GLB reserves embedded derivatives
|
(408 | ) | (1,809 | ) | - | - | - | (2,217 | ) | ||||||||||||
VIEs' liabilities - derivative instruments (5) | (209 | ) | (82 | ) | - | - | - | (291 | ) | ||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans embedded
derivatives
(6)
|
(363 | ) | (11 | ) | - | 20 | - | (354 | ) | ||||||||||||
Credit default swaps
(7)
|
(16 | ) | (7 | ) | - | 7 | - | (16 | ) | ||||||||||||
Total, net
|
$ | 2,620 | $ | (1,445 | ) | $ | 446 | $ | (36 | ) | $ | 112 | $ | 1,697 | |||||||
Benefit plans' assets (8) | $ | 40 | $ | 2 | $ | (3 | ) | $ | (39 | ) | $ | - | $ | - |
For the Year Ended December 31, 2010
|
|||||||||||||||||||||
|
|
Purchases,
|
|
||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other
(1)
|
Net
|
Net
(2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|||||||||||||||||
Corporate bonds
|
$ | 2,070 | $ | (42 | ) | $ | 56 | $ | (218 | ) | $ | (50 | ) | $ | 1,816 | ||||||
U.S. Government bonds
|
3 | - | - | (4 | ) | 3 | 2 | ||||||||||||||
Foreign government bonds
|
92 | - | 8 | (4 | ) | 17 | 113 | ||||||||||||||
RMBS
|
136 | (5 | ) | 9 | (17 | ) | (4 | ) | 119 | ||||||||||||
CMBS
|
259 | (47 | ) | 87 | (72 | ) | (118 | ) | 109 | ||||||||||||
CDOs
|
153 | 1 | 30 | (12 | ) | - | 172 | ||||||||||||||
CLNs
|
322 | - | 278 | - | (600 | ) | - | ||||||||||||||
Hybrid and redeemable
preferred securities
|
156 | 3 | (26 | ) | (14 | ) | - | 119 | |||||||||||||
Equity AFS securities
|
88 | - | 8 | (4 | ) | - | 92 | ||||||||||||||
Trading securities
|
91 | 3 | (10 | ) | (7 | ) | (1 | ) | 76 | ||||||||||||
Derivative investments
|
1,368 | (151 | ) | 7 | 271 | - | 1,495 | ||||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(419 | ) | (81 | ) | - | 3 | - | (497 | ) | ||||||||||||
GLB reserves embedded derivatives
|
(676 | ) | 268 | - | - | - | (408 | ) | |||||||||||||
VIEs' liabilities - derivativeinstruments
(5)
|
- | 16 | - | - | (225 | ) | (209 | ) | |||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans embedded
derivatives
(6)
|
(332 | ) | (34 | ) | - | 3 | - | (363 | ) | ||||||||||||
Credit default swaps
(7)
|
(65 | ) | 7 | - | 42 | - | (16 | ) | |||||||||||||
Total, net
|
$ | 3,246 | $ | (62 | ) | $ | 447 | $ | (33 | ) | $ | (978 | ) | $ | 2,620 | ||||||
Benefit plans' assets (8) | $ | 3 | $ | - | $ | 3 | $ | 34 | $ | - | $ | 40 |
For the Year Ended December 31, 2009
|
|||||||||||||||||||||
|
|
Purchases,
|
|
||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other
(1)
|
Net
|
Net
(2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|||||||||||||||||
Corporate bonds
|
$ | 2,335 | $ | (46 | ) | $ | 321 | $ | (239 | ) | $ | (301 | ) | $ | 2,070 | ||||||
U.S. Government bonds
|
3 | - | - | - | - | 3 | |||||||||||||||
Foreign government bonds
|
60 | 1 | 2 | 10 | 19 | 92 | |||||||||||||||
RMBS
|
179 | (8 | ) | 36 | 85 | (156 | ) | 136 | |||||||||||||
CMBS
|
244 | 1 | 59 | (45 | ) | - | 259 | ||||||||||||||
CDOs
|
151 | (35 | ) | 61 | (22 | ) | (2 | ) | 153 | ||||||||||||
CLNs
|
50 | - | 272 | - | - | 322 | |||||||||||||||
State and municipal bonds
|
125 | - | - | 69 | (194 | ) | - | ||||||||||||||
Hybrid and redeemable
preferred securities
|
117 | (21 | ) | 49 | 2 | 9 | 156 | ||||||||||||||
Equity AFS securities
|
94 | (8 | ) | 26 | (24 | ) | - | 88 | |||||||||||||
Trading securities
|
81 | 34 | - | (7 | ) | (17 | ) | 91 | |||||||||||||
Derivative investments
|
2,147 | (712 | ) | (135 | ) | 68 | - | 1,368 | |||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(252 | ) | (75 | ) | - | (92 | ) | - | (419 | ) | |||||||||||
GLB reserves embedded derivatives
|
(2,904 | ) | 2,228 | - | - | - | (676 | ) | |||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans embedded
derivatives
(6)
|
(336 | ) | (63 | ) | - | 67 | - | (332 | ) | ||||||||||||
Credit default swaps
(7)
|
(51 | ) | (37 | ) | - | 23 | - | (65 | ) | ||||||||||||
Total, net
|
$ | 2,043 | $ | 1,259 | $ | 691 | $ | (105 | ) | $ | (642 | ) | $ | 3,246 | |||||||
Benefit plans' assets (8) | $ | 12 | $ | - | $ | - | $ | (2 | ) | $ | (7 | ) | $ | 3 |
(1)
|
The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).
|
(2)
|
Transfers in or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-period. For AFS and trading securities, the difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in prior years.
|
(3)
|
Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
(4)
|
Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
(5)
|
The changes in fair value of the credit default swaps and contingency forwards are included in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
(6)
|
Deferrals and subsequent changes in fair value for the participants’ investment options are reported in underwriting, acquisition, insurance and other expenses on our Consolidated Statements of Income (Loss).
|
(7)
|
Gains (losses) from sales, maturities, settlements and calls are included in net investment income on our Consolidated Statements of Income (Loss).
|
(8)
|
The expected return on plan assets is reported in underwriting, acquisition, insurance and other expenses on our Consolidated Statements of Income (Loss).
|
|
For the Year Ended December 31, 2011
|
||||||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|
|
|||||||||||||||
Corporate bonds
|
$ | 237 | $ | (216 | ) | $ | (16 | ) | $ | (54 | ) | $ | (89 | ) | $ | (138 | ) | ||||
U.S. Government bonds
|
- | - | - | (1 | ) | - | (1 | ) | |||||||||||||
Foreign government bonds
|
- | (2 | ) | - | - | (1 | ) | (3 | ) | ||||||||||||
RMBS
|
51 | (1 | ) | - | (15 | ) | - | 35 | |||||||||||||
CMBS
|
- | (53 | ) | - | (24 | ) | (1 | ) | (78 | ) | |||||||||||
CDOs
|
- | (33 | ) | - | (39 | ) | - | (72 | ) | ||||||||||||
Hybrid and redeemable
preferred securities
|
9 | (18 | ) | - | - | - | (9 | ) | |||||||||||||
Equity AFS securities
|
19 | (18 | ) | - | - | - | 1 | ||||||||||||||
Trading securities
|
- | (3 | ) | - | (5 | ) | - | (8 | ) | ||||||||||||
Derivative investments
|
396 | (2 | ) | (277 | ) | - | - | 117 | |||||||||||||
Future contract benefits: | |||||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(59 | ) | - | - | 152 | - | 93 | ||||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans embedded
derivatives
|
- | - | - | 20 | - | 20 | |||||||||||||||
Credit default swaps
|
- | 7 | - | - | - | 7 | |||||||||||||||
Total, net
|
$ | 653 | $ | (339 | ) | $ | (293 | ) | $ | 34 | $ | (91 | ) | $ | (36 | ) | |||||
|
|||||||||||||||||||||
Benefit plans' assets | $ | - | $ | (22 | ) | $ | (17 | ) | $ | - | $ | - | $ | (39 | ) |
For the Years Ended December 31,
|
|||||||||||
2011
|
2010
|
2009
|
|||||||||
Investments: (1) |
|
|
|
||||||||
Trading securities
|
$ | - | $ | - | $ | 32 | |||||
Derivative investments
|
472 | (162 | ) | (486 | ) | ||||||
Future contract benefits: (1) | |||||||||||
Indexed annuity contracts embedded derivatives
|
(1 | ) | 44 | (17 | ) | ||||||
GLB reserves embedded derivatives
|
(1,615 | ) | 419 | 2,405 | |||||||
VIEs' liabilities - derivative instruments (1) | (82 | ) | 16 | - | |||||||
Other liabilities: | |||||||||||
Deferred compensation plans embedded derivatives
(2)
|
(11 | ) | (34 | ) | (63 | ) | |||||
Credit default swaps
(3)
|
(8 | ) | (12 | ) | (14 | ) | |||||
Total, net
|
$ | (1,245 | ) | $ | 271 | $ | 1,857 |
(1)
|
Included in realized gain (loss) on our Consolidated Statements of Income (Loss).
|
(2)
|
Included in underwriting, acquisition, insurance and other expenses on our Consolidated Statements of Income (Loss).
|
(3)
|
Included in net investment income on our Consolidated Statements of Income (Loss).
|
|
For the Years Ended December 31,
|
||||||||||||||||||||
|
2011
|
2010
|
|||||||||||||||||||
|
Transfers
|
Transfers
|
|
Transfers
|
Transfers
|
|
|||||||||||||||
|
In to
|
Out of
|
|
In to
|
Out of
|
|
|||||||||||||||
|
Level 3
|
Level 3
|
Total
|
Level 3
|
Level 3
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|
|
|||||||||||||||
Corporate bonds
|
$ | 249 | $ | (83 | ) | $ | 166 | $ | 147 | $ | (197 | ) | $ | (50 | ) | ||||||
U.S. Government bonds
|
- | - | - | 3 | - | 3 | |||||||||||||||
Foreign government bonds
|
- | (17 | ) | (17 | ) | 17 | - | 17 | |||||||||||||
RMBS
|
- | - | - | - | (4 | ) | (4 | ) | |||||||||||||
CMBS
|
4 | (1 | ) | 3 | 3 | (121 | ) | (118 | ) | ||||||||||||
CLNs
|
- | - | - | - | (600 | ) | (600 | ) | |||||||||||||
Hybrid and redeemable preferred
securities
|
18 | (21 | ) | (3 | ) | - | - | - | |||||||||||||
Equity AFS securities
|
2 | (35 | ) | (33 | ) | - | - | - | |||||||||||||
Trading securities
|
1 | (5 | ) | (4 | ) | - | (1 | ) | (1 | ) | |||||||||||
Future contract benefits: | |||||||||||||||||||||
VIEs' liabilities - derivative instruments
|
- | - | - | (225 | ) | - | (225 | ) | |||||||||||||
Total, net
|
$ | 274 | $ | (162 | ) | $ | 112 | $ | (55 | ) | $ | (923 | ) | $ | (978 | ) |
·
|
Realized gains and losses associated with the following (“excluded realized gain (loss)”):
|
§
|
Sale or disposal of securities;
|
§
|
Impairments of securities;
|
§
|
Change in the fair value of derivative instruments, embedded derivatives within certain reinsurance arrangements and our trading securities;
|
§
|
Change in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities;
|
§
|
Change in the GLB embedded derivative reserves, net of the change in the fair value of the derivatives we own to hedge the changes in the embedded derivative reserves; and
|
§
|
Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC.
|
·
|
Change in reserves accounted for under the Financial Services – Insurance – Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB ASC resulting from benefit ratio unlocking on our GDB and GLB riders (“benefit ratio unlocking”);
|
·
|
Income (loss) from the initial adoption of new accounting standards;
|
·
|
Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance;
|
·
|
Gain (loss) on early extinguishment of debt;
|
·
|
Losses from the impairment of intangible assets; and
|
·
|
Income (loss) from discontinued operations.
|
·
|
Excluded realized gain (loss);
|
·
|
Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking;
|
·
|
Amortization of deferred gains arising from the reserve changes on business sold through reinsurance; and
|
·
|
Revenue adjustments from the initial adoption of new accounting standards.
|
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Revenues |
|
|
|
||||||||
Operating revenues: |
|
|
|
||||||||
Annuities
|
$ | 2,865 | $ | 2,654 | $ | 2,301 | |||||
Retirement Plan Services
|
1,017 | 988 | 926 | ||||||||
Life Insurance
|
4,739 | 4,590 | 4,295 | ||||||||
Group Protection
|
1,939 | 1,831 | 1,713 | ||||||||
Other Operations
|
461 | 487 | 465 | ||||||||
Excluded realized gain (loss), pre-tax | (388 | ) | (146 | ) | (1,200 | ) | |||||
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax | 3 | 3 | 3 | ||||||||
Amortization of DFEL associated with benefit ratio unlocking, pre-tax | - | - | (4 | ) | |||||||
Total revenues
|
$ | 10,636 | $ | 10,407 | $ | 8,499 |
|
For the Years Ended December 31,
|
||||||||||
|
2011
|
2010
|
2009
|
||||||||
Net Income (Loss) |
|
|
|
||||||||
Income (loss) from operations: |
|
|
|
||||||||
Annuities
|
$ | 592 | $ | 484 | $ | 353 | |||||
Retirement Plan Services
|
167 | 154 | 133 | ||||||||
Life Insurance
|
604 | 513 | 569 | ||||||||
Group Protection
|
101 | 72 | 124 | ||||||||
Other Operations
|
(146 | ) | (186 | ) | (237 | ) | |||||
Excluded realized gain (loss), after-tax | (252 | ) | (95 | ) | (780 | ) | |||||
Gain (loss) on early extinguishment of debt, after-tax | (5 | ) | (3 | ) | 42 | ||||||
Income (expense) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 2 | 2 | 2 | ||||||||
Impairment of intangibles, after-tax | (747 | ) | - | (710 | ) | ||||||
Benefit ratio unlocking, after-tax | (14 | ) | 10 | 89 | |||||||
Income (loss) from continuing operations, after-tax
|
302 | 951 | (415 | ) | |||||||
Income (loss) from discontinued operations, after-tax
|
(8 | ) | 29 | (70 | ) | ||||||
Net income (loss)
|
$ | 294 | $ | 980 | $ | (485 | ) |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Net Investment Income
|
|
|
|
|||||||
Annuities
|
$ | 1,106 | $ | 1,119 | $ | 1,037 | ||||
Retirement Plan Services
|
793 | 769 | 732 | |||||||
Life Insurance
|
2,294 | 2,186 | 1,975 | |||||||
Group Protection
|
152 | 141 | 127 | |||||||
Other Operations
|
307 | 326 | 307 | |||||||
Total net investment income
|
$ | 4,652 | $ | 4,541 | $ | 4,178 |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Amortization of DAC and VOBA, Net of Interest
|
|
|
|
|||||||
Annuities
|
$ | 405 | $ | 421 | $ | 360 | ||||
Retirement Plan Services
|
60 | 79 | 75 | |||||||
Life Insurance
|
539 | 538 | 571 | |||||||
Group Protection
|
46 | 46 | 47 | |||||||
Total amortization of DAC and VOBA, net of interest
|
$ | 1,050 | $ | 1,084 | $ | 1,053 |
|
For the Years Ended December 31,
|
|||||||||
|
2011
|
2010
|
2009
|
|||||||
Federal Income Tax Expense (Benefit)
|
|
|
|
|||||||
Annuities
|
$ | 114 | $ | 102 | $ | 41 | ||||
Retirement Plan Services
|
67 | 60 | 50 | |||||||
Life Insurance
|
283 | 236 | 245 | |||||||
Group Protection
|
54 | 38 | 67 | |||||||
Other Operations
|
(76 | ) | (107 | ) | (143 | ) | ||||
Excluded realized gain (loss)
|
(136 | ) | (51 | ) | (420 | ) | ||||
Gain (loss) on early extinguishment of debt
|
(3 | ) | (2 | ) | 23 | |||||
Reserve changes (net of related amortization)
on business sold through reinsurance
|
1 | 1 | 1 | |||||||
Impairment of intangibles
|
- | - | (16 | ) | ||||||
Benefit ratio unlocking
|
(7 | ) | 6 | 46 | ||||||
Total federal income tax expense (benefit)
|
$ | 297 | $ | 283 | $ | (106 | ) |
|
As of December 31,
|
||||||
|
2011
|
2010
|
|||||
Assets
|
|
|
|||||
Annuities
|
$ | 97,272 | $ | 91,435 | |||
Retirement Plan Services
|
28,774 | 28,562 | |||||
Life Insurance
|
60,544 | 56,713 | |||||
Group Protection
|
3,458 | 3,254 | |||||
Other Operations
|
12,858 | 13,860 | |||||
Total assets
|
$ | 202,906 | $ | 193,824 |
|
For the Years Ended December 31,
|
|||||||||||
|
2011
|
2010
|
2009
|
|||||||||
Interest paid | $ | 287 | $ | 282 | $ | 244 | ||||||
Income taxes paid (received) | (36 | ) | (107 | ) | (189 | ) | ||||||
Significant non-cash investing and financing transactions: | ||||||||||||
Business combinations:
|
||||||||||||
Fair value of assets acquired (includes cash and invested cash)
|
$ | - | $ | - | $ | 7 | ||||||
Liabilities assumed
|
$ | - | $ | - | $ | 7 | ||||||
Business dispositions:
|
||||||||||||
Assets disposed (includes cash and invested cash)
|
$ | - | $ | (509 | ) | $ | (8,044 | ) | ||||
Liabilities disposed
|
(3 | ) | 116 | 7,457 | ||||||||
Foreign currency awards released
|
- | - | 54 | |||||||||
Cash received
|
- | 459 | 314 | |||||||||
Gain (loss) on dispositions
|
$ | (3 | ) | $ | 66 | $ | (219 | ) | ||||
Sale of subsidiaries/businesses:
|
||||||||||||
Proceeds from sale of subsidiaries/businesses
|
$ | - | $ | 4 | $ | 15 | ||||||
Assets disposed (includes cash and invested cash)
|
- | - | (5 | ) | ||||||||
Gain (loss) on sale of subsidiaries/businesses
|
$ | - | $ | 4 | $ | 10 |
|
For the Three Months Ended
|
||||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
|||||||||
2011
|
|
|
|
|
|||||||||
Total revenues
|
$ | 2,714 | $ | 2,804 | $ | 2,548 | $ | 2,570 | |||||
Total benefits and expenses
|
2,246 | 2,363 | 2,409 | 3,019 | |||||||||
Income (loss) from continuing operations
|
339 | 325 | 151 | (513 | ) | ||||||||
Income (loss) from discontinued operations,
net of federal income taxes
|
- | - | (8 | ) | - | ||||||||
Net income (loss)
|
339 | 325 | 143 | (513 | ) | ||||||||
Earnings (loss) per common share - basic:
|
|||||||||||||
Income (loss) from continuing operations
|
1.08 | 1.04 | 0.50 | (1.73 | ) | ||||||||
Income (loss) from discontinued operations
|
- | - | (0.03 | ) | - | ||||||||
Net income (loss)
|
1.08 | 1.04 | 0.47 | (1.73 | ) | ||||||||
Earnings (loss) per common share - diluted:
|
|||||||||||||
Income (loss) from continuing operations
|
1.05 | 1.01 | 0.47 | (1.73 | ) | ||||||||
Income (loss) from discontinued operations
|
- | - | (0.03 | ) | - | ||||||||
Net income (loss)
|
1.05 | 1.01 | 0.44 | (1.73 | ) | ||||||||
|
|||||||||||||
2010
|
|||||||||||||
Total revenues
|
$ | 2,527 | $ | 2,605 | $ | 2,613 | $ | 2,662 | |||||
Total benefits and expenses
|
2,179 | 2,275 | 2,310 | 2,409 | |||||||||
Income (loss) from continuing operations
|
255 | 252 | 248 | 196 | |||||||||
Income (loss) from discontinued operations,
net of federal income taxes
|
28 | 3 | (2 | ) | - | ||||||||
Net income (loss)
|
283 | 255 | 246 | 196 | |||||||||
Earnings (loss) per common share - basic:
|
|||||||||||||
Income (loss) from continuing operations
|
0.79 | 0.34 | 0.79 | 0.62 | |||||||||
Income (loss) from discontinued operations
|
0.09 | 0.01 | (0.01 | ) | - | ||||||||
Net income (loss)
|
0.88 | 0.35 | 0.78 | 0.62 | |||||||||
Earnings (loss) per common share - diluted:
|
|||||||||||||
Income (loss) from continuing operations
|
0.76 | 0.32 | 0.76 | 0.60 | |||||||||
Income (loss) from discontinued operations
|
0.09 | 0.01 | (0.01 | ) | - | ||||||||
Net income (loss)
|
0.85 | 0.33 | 0.75 | 0.60 |
(a)
|
Conclusions Regarding Disclosure Controls and Procedures
|
(b)
|
Management’s Report on Internal Control Over Financial Reporting
|
(c)
|
Changes in Internal Control Over Financial Reporting
|
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
Number of
|
Weighted-
|
Number of
|
|||||||
|
securities to be
|
average
|
securities remaining
|
|||||||
|
issued upon
|
exercise
|
available for future
|
|||||||
|
exercise of
|
price of
|
issuance under
|
|||||||
|
outstanding
|
outstanding
|
equity compensation
|
|||||||
|
options,
|
options,
|
plans (excluding
|
|||||||
|
warrants
|
warrants
|
securities reflected
|
|||||||
|
and rights
|
and rights
|
in column (a))
|
|||||||
|
(a)
|
(b)
|
(c)
|
|||||||
Plan Category
|
|
|
|
|||||||
Equity compensation plans approved by shareholders
|
7,183,136 | (1)(2) | $ | 40.32 | 11,190,459 | (3) | ||||
Equity compensation plans not approved by shareholders
|
- | - | - | |||||||
Total
|
7,183,136 | $ | 40.32 | 11,190,459 |
(1)
|
This amount excludes outstanding stock options assumed in connection with our acquisition of Jefferson-Pilot Corporation (“JP”) as follows:
|
·
|
3,804,009 shares to be issued upon exercise of outstanding options as of December 31, 2011, under the JP Long-Term Stock Incentive Plan with a weighted-average exercise price of $46.87; and
|
·
|
73,712 shares to be issued upon exercise of outstanding options as of December 31, 2011, under the JP Non-Employee Directors Stock Option Plan with a weighted-average exercise price of $65.74.
|
(2)
|
This amount includes the following:
|
·
|
Outstanding options of 2,580,687;
|
·
|
Outstanding long-term incentive awards of 1,557,531, of which 1,162,633 represent options with performance conditions and 394,898 represent the number of performance shares based on the maximum amounts potentially payable under the awards in stock options and shares (including potential dividend equivalents). The long-term incentive awards have not been earned as of December 31, 2011. The number of options and shares, if any, to be issued pursuant to such awards will be determined based on our, and in some cases, our subsidiaries performance over the applicable three-year performance period (target amounts are set forth in Note 19 to the consolidated financial statements, included in Part II – Item 8 of the Form 10-K for the year ended December 31, 2011. Since the shares that may be received in payment of the awards have no exercise price, they are not included in the weighted-average exercise price calculation in column (b) above. The long-term incentive awards are all issued under the LNC 2009 Amended and Restated Incentive Compensation Plan (“ICP”);
|
·
|
Outstanding restricted stock units of 1,779,353; and
|
·
|
Outstanding deferred stock units of 1,265,565, which are not included in Note 19 to the consolidated financial statements, included in Part II – Item 8 of the Form 10-K for the year ended December 31, 2011.
|
(3)
|
Includes up to 10,920,004 securities available for issuance in connection with restricted stock, restricted stock units, performance stock units, deferred stock, and deferred stock unit awards under the ICP. Shares that may be issued in payment of awards, other than options and stock appreciation rights, granted between May 12, 2005, and May 13, 2009, reduce the
|
LINCOLN NATIONAL CORPORATION
|
||
Date: February 23, 2012
|
By:
|
/s/ Randal J. Freitag
|
Randal J. Freitag
Executive Vice President and Chief Financial Officer
|
Signature
|
Title
|
/s/ Dennis R. Glass
Dennis R. Glass
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
/s/ Randal J. Freitag
Randal J. Freitag
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
|
/s/ Douglas N. Miller
Douglas N. Miller
|
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
|
/s/ William J. Avery
William J. Avery
|
Director
|
/s/ William H. Cunningham
William H. Cunningham
|
Director
|
/s/ George W. Henderson, III
George W. Henderson, III
|
Director
|
/s/ Eric G. Johnson
Eric G. Johnson
|
Director
|
/s/ Gary C. Kelly
Gary C. Kelly
|
Director
|
/s/ M. Leanne Lachman
M. Leanne Lachman
|
Director
|
/s/ Michael F. Mee
Michael F. Mee
|
Director
|
/s/ William Porter Payne
William Porter Payne
|
Director
|
/s/ Patrick S. Pittard
Patrick S. Pittard
|
Director
|
/s/ Isaiah Tidwell
Isaiah Tidwell
|
Director
|
I
|
–
|
Summary of Investments – Other than Investments in Related Parties
|
FS-2
|
II
|
–
|
Condensed Financial Information of Registrant
|
FS-3
|
III
|
–
|
Supplementary Insurance Information
|
FS-6
|
IV
|
–
|
Reinsurance
|
FS-8
|
V
|
–
|
Valuation and Qualifying Accounts
|
FS-9
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|||||||
|
|
|
|
As of December 31, 2011
|
|||||||||
|
|
|
|
Fair
|
|
Carrying
|
|||||||
Type of Investment
|
|
Cost
|
|
Value
|
|
Value
|
|||||||
Available-For-Sale Fixed Maturity Securities
(1)
|
|
|
|
|
|
|
|
|
|
||||
Bonds:
|
|
|
|
|
|
|
|
|
|
||||
|
U.S. government and government agencies and authorities
|
|
$
|
439
|
|
$
|
494
|
|
$
|
494
|
|||
|
States, municipalities and political subdivisions
|
|
|
3,490
|
|
|
4,047
|
|
|
4,047
|
|||
|
Mortgage-backed securities
|
|
|
9,332
|
|
|
9,639
|
|
|
9,639
|
|||
|
Foreign governments
|
|
|
668
|
|
|
733
|
|
|
733
|
|||
|
Public utilities
|
|
|
10,644
|
|
|
12,074
|
|
|
12,074
|
|||
|
Convertibles and bonds with warrants attached
|
|
|
5
|
|
|
1
|
|
|
1
|
|||
|
All other corporate bonds
|
|
|
43,133
|
|
|
47,288
|
|
|
47,288
|
|||
Hybrid and redeemable preferred securities
|
|
|
1,277
|
|
|
1,157
|
|
|
1,157
|
||||
Variable interest entities
|
|
|
673
|
|
|
700
|
|
|
700
|
||||
|
|
Total available-for-sale fixed maturity securities
|
|
|
69,661
|
|
|
76,133
|
|
|
76,133
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Available-For-Sale Equity Securities
(1)
|
|
|
|
|
|
|
|
|
|
||||
Common stocks:
|
|
|
|
|
|
|
|
|
|
||||
|
Banks, trusts and insurance companies
|
|
|
87
|
|
|
87
|
|
|
87
|
|||
|
Industrial, miscellaneous and all other
|
|
|
12
|
|
|
4
|
|
|
4
|
|||
|
Nonredeemable preferred securities
|
|
|
36
|
|
|
48
|
|
|
48
|
|||
|
|
Total available-for-sale equity securities
|
|
|
135
|
|
|
139
|
|
|
139
|
||
Trading securities
|
|
|
2,301
|
|
|
2,67
|
|
|
2,675
|
||||
Mortgage loans on real estate
|
|
|
6,942
|
|
|
7,608
|
|
|
6,942
|
||||
Real estate
|
|
|
137
|
|
|
N/A
|
|
|
137
|
||||
Policy loans
|
|
|
2,884
|
|
|
N/A
|
|
|
2,884
|
||||
Derivative instruments
|
|
|
1,668
|
|
|
3,151
|
|
|
3,151
|
||||
Other investments
|
|
|
1,069
|
|
|
1,069
|
|
|
1,069
|
||||
|
|
|
Total investments
|
|
$
|
84,797
|
|
|
|
|
$
|
93,130
|
(1)
|
Investments deemed to have declines in value that are other-than-temporary are written down or reserved for to reduce the carrying value to
their estimated realizable value.
|
|
|
|
As of December 31,
|
||||||
|
|
|
2011
|
|
2010
|
||||
|
|
|
|
|
|
|
|
||
ASSETS
|
|
|
|
|
|
||||
Investments in subsidiaries
(1)
|
$
|
16,818
|
|
$
|
15,485
|
||||
Derivative investments
|
|
305
|
|
|
55
|
||||
Other investments
|
|
29
|
|
|
135
|
||||
Cash and invested cash
|
|
622
|
|
|
582
|
||||
Loans and accrued interest to subsidiaries
(1)
|
|
2,605
|
|
|
2,759
|
||||
Other assets
|
|
286
|
|
|
257
|
||||
|
|
Total assets
|
$
|
20,665
|
|
$
|
19,273
|
||
|
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
|
|
||||
Common and preferred dividends payable
|
$
|
23
|
|
$
|
16
|
||||
Short-term debt
|
|
300
|
|
|
350
|
||||
Long-term debt
|
|
5,641
|
|
|
5,649
|
||||
Loans from subsidiaries
(1)
|
|
58
|
|
|
-
|
||||
Other liabilities
|
|
479
|
|
|
452
|
||||
|
|
Total liabilities
|
|
6,501
|
|
|
6,467
|
||
|
|
|
|
|
|
|
|
||
Contingencies and Commitments
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
||
Stockholders' Equity
|
|
|
|
|
|
||||
Preferred stock - 10,000,000 shares authorized; Series A
|
|
-
|
|
|
-
|
||||
Common stock - 800,000,000 shares authorized
|
|
7,590
|
|
|
8,124
|
||||
Retained earnings
|
|
4,126
|
|
|
3,934
|
||||
Accumulated other comprehensive income (loss)
|
|
2,448
|
|
|
748
|
||||
|
|
Total stockholders' equity
|
|
14,164
|
|
|
12,806
|
||
|
|
|
Total liabilities and stockholders' equity
|
$
|
20,665
|
|
$
|
19,273
|
|
|
|
|
For the Years December 31,
|
||||||||||
|
|
|
2011
|
|
2010
|
|
2009
|
|||||||
Revenues
|
|
|
|
|
|
|
|
|
||||||
Dividends from subsidiaries
(1)
|
$
|
875
|
|
$
|
712
|
|
$
|
767
|
||||||
Interest from subsidiaries
(1)
|
|
125
|
|
|
99
|
|
|
94
|
||||||
Net investment income
|
|
2
|
|
|
-
|
|
|
(5
|
) | |||||
Realized gain (loss)
|
|
(3
|
)
|
|
(4
|
)
|
|
1
|
||||||
Other revenue
|
|
-
|
|
|
5
|
|
|
1
|
||||||
|
Total revenues
|
|
999
|
|
|
812
|
|
|
858
|
|||||
Expenses
|
|
|
|
|
|
|
|
|
||||||
Operating and administrative
|
|
2
|
|
|
99
|
|
|
26
|
||||||
Interest - subsidiaries
(1)
|
|
5
|
|
|
6
|
|
|
8
|
||||||
Interest - other
|
|
310
|
|
|
290
|
|
|
195
|
||||||
|
Total expenses
|
|
317
|
|
|
395
|
|
|
229
|
|||||
|
|
Income (loss) before federal income taxes, equity in income (loss) of
|
|
|
|
|
|
|
|
|
||||
|
|
|
subsidiaries, less dividends
|
|
682
|
|
|
417
|
|
|
629
|
|||
|
|
Federal income tax expense (benefit)
|
|
(68
|
)
|
|
(106
|
)
|
|
(50
|
) | |||
|
|
|
Income (loss) before equity in income (loss) of subsidiaries, less dividends
|
|
750
|
|
|
523
|
|
|
679
|
|||
|
|
|
Equity in income (loss) of subsidiaries, less dividends
|
|
(456
|
)
|
|
457
|
|
|
(1,164
|
) | ||
|
|
|
|
Net income (loss)
|
$
|
294
|
|
$
|
980
|
|
$
|
(485
|
) |
|
|
|
|
|
For the Years December 31,
|
||||||||||
|
|
|
|
2011
|
|
2010
|
|
2009
|
|||||||
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|||||||
Net income (loss)
|
$
|
294
|
|
$
|
980
|
|
$
|
(485
|
) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by
|
|
|
|
|
|
|
|
|
|||||||
|
operating activities:
|
|
|
|
|
|
|
|
|
||||||
|
|
Equity in (income) loss of subsidiaries greater than distributions
(1)
|
|
456
|
|
|
(457
|
)
|
|
1,164
|
|||||
|
|
Realized (gain) loss
|
|
3
|
|
|
4
|
|
|
(1
|
) | ||||
|
|
Change in fair value of equity collar
|
|
-
|
|
|
-
|
|
|
3
|
|||||
|
|
Change in legal accruals
|
|
(70
|
)
|
|
70
|
|
|
-
|
|||||
|
|
Change in federal income tax accruals
|
|
32
|
|
|
(190
|
)
|
|
(69
|
) | ||||
|
|
(Gain) loss on early extinguishment of debt
|
|
8
|
|
|
5
|
|
|
(64
|
) | ||||
|
|
Other
|
|
(22
|
)
|
|
(22
|
)
|
|
(4
|
) | ||||
|
|
|
Net cash provided by (used in) operating activities
|
|
701
|
|
|
390
|
|
|
544
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|||||||
Purchases of investments
|
|
-
|
|
|
-
|
|
|
(50
|
) | ||||||
Sales or maturities of investments
|
|
105
|
|
|
-
|
|
|
37
|
|||||||
Capital contribution to subsidiaries
(1)
|
|
(17
|
)
|
|
(125
|
)
|
|
(1,260
|
) | ||||||
Proceeds from sale of subsidiaries/businesses, net of cash disposed
|
|
-
|
|
|
459
|
|
|
320
|
|||||||
|
|
|
Net cash provided by (used in) investing activities
|
|
88
|
|
|
334
|
|
|
(953
|
) | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|||||||
Payment of long-term debt, including current maturities
|
|
(525
|
)
|
|
(405
|
)
|
|
(522
|
) | ||||||
Issuance of long-term debt, net of issuance costs
|
|
300
|
|
|
749
|
|
|
788
|
|||||||
Increase (decrease) in commercial paper, net
|
|
(100
|
)
|
|
1
|
|
|
(216
|
) | ||||||
Increase (decrease) in loans from subsidiaries, net
(1)
|
|
58
|
|
|
(97
|
)
|
|
(291
|
) | ||||||
Increase (decrease) in loans to subsidiaries, net
(1)
|
|
154
|
|
|
(683
|
)
|
|
-
|
|||||||
Common stock issued for benefit plans and excess tax benefits
|
|
1
|
|
|
-
|
|
|
-
|
|||||||
Issuance (redemption) of Series B preferred stock and issuance (repurchase
|
|
|
|
|
|
|
|
|
|||||||
|
and cancellation) of associated common stock warrants
|
|
-
|
|
|
(998
|
|
|
950
|
||||||
Issuance of common stock
|
|
-
|
|
|
368
|
|
|
652
|
|||||||
Repurchase of common stock
|
|
(575
|
)
|
|
(25
|
)
|
|
-
|
|||||||
Dividends paid to common and preferred stockholders
|
|
(62
|
)
|
|
(42
|
)
|
|
(79
|
) | ||||||
|
|
|
Net cash provided by (used in) financing activities
|
|
(749
|
)
|
|
(1,132
|
)
|
|
1,282
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
Net increase (decrease) in cash and invested cash
|
|
40
|
|
|
(408
|
)
|
|
873
|
|||
|
|
|
|
Cash and invested cash as of beginning-of-year
|
|
582
|
|
|
990
|
|
|
117
|
|||
|
|
|
|
|
Cash and invested cash as of end-of-year
|
$
|
622
|
|
$
|
582
|
|
$
|
990
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
Column F
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
||||
|
|
|
|
|
|
Future
|
|
|
|
Contract
|
|
|
|
|||||
|
|
|
DAC and
|
|
Contract
|
|
Unearned
|
|
Holder
|
|
Insurance
|
|||||||
Segment
|
|
VOBA
|
|
Benefits
|
|
Premiums
(1)
|
|
Funds
|
|
Premiums
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2011
|
|||||||||||||||
Annuities
|
|
$
|
2,318
|
|
$
|
3,642
|
|
$
|
-
|
|
$
|
20,701
|
|
$
|
74
|
|||
Retirement Plan Services
|
|
|
331
|
|
|
7
|
|
|
-
|
|
|
13,624
|
|
|
-
|
|||
Life Insurance
|
|
|
5,348
|
|
|
7,984
|
|
|
-
|
|
|
34,066
|
|
|
441
|
|||
Group Protection
|
|
|
194
|
|
|
1,742
|
|
|
-
|
|
|
236
|
|
|
1,778
|
|||
Other Operations
|
|
|
-
|
|
|
6,438
|
|
|
-
|
|
|
839
|
|
|
1
|
|||
|
Total
|
|
$
|
8,191
|
|
$
|
19,813
|
|
$
|
-
|
|
$
|
69,466
|
|
$
|
2,294
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2010
|
|||||||||||||||
Annuities
|
|
$
|
2,250
|
|
$
|
1,707
|
|
$
|
-
|
|
$
|
20,135
|
|
$
|
53
|
|||
Retirement Plan Services
|
|
|
360
|
|
|
2
|
|
|
-
|
|
|
12,773
|
|
|
-
|
|||
Life Insurance
|
|
|
6,145
|
|
|
7,606
|
|
|
-
|
|
|
32,386
|
|
|
439
|
|||
Group Protection
|
|
|
175
|
|
|
1,620
|
|
|
-
|
|
|
256
|
|
|
1,682
|
|||
Other Operations
|
|
|
-
|
|
|
6,592
|
|
|
-
|
|
|
857
|
|
|
2
|
|||
|
Total
|
|
$
|
8,930
|
|
$
|
17,527
|
|
$
|
-
|
|
$
|
66,407
|
|
$
|
2,176
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2009
|
|||||||||||||||
Annuities
|
|
$
|
2,381
|
|
$
|
1,991
|
|
$
|
-
|
|
$
|
19,014
|
|
$
|
89
|
|||
Retirement Plan Services
|
|
|
538
|
|
|
3
|
|
|
-
|
|
|
12,240
|
|
|
-
|
|||
Life Insurance
|
|
|
6,432
|
|
|
7,108
|
|
|
-
|
|
|
30,616
|
|
|
392
|
|||
Group Protection
|
|
|
159
|
|
|
1,459
|
|
|
-
|
|
|
181
|
|
|
1,579
|
|||
Other Operations
|
|
|
-
|
|
|
6,584
|
|
|
-
|
|
|
913
|
|
|
4
|
|||
|
Total
|
|
$
|
9,510
|
|
$
|
17,145
|
|
$
|
-
|
|
$
|
62,964
|
|
$
|
2,064
|
Column A
|
|
Column G
|
|
Column H
|
|
Column I
|
|
Column J
|
|
Column K
|
||||||||
|
|
|
|
|
|
Benefits
|
|
Amortization
|
|
|
|
|
|
|||||
|
|
|
Net
|
|
and
|
|
of DAC
|
|
Other
|
|
|
|
||||||
|
|
Investment
|
|
Interest
|
|
and
|
|
Operating
|
|
Premiums
|
||||||||
Segment
|
|
Income
|
|
Credited
|
|
VOBA
|
|
Expenses
(2)
|
|
Written
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2011
|
|||||||||||||||
Annuities
|
|
$
|
1,106
|
|
$
|
934
|
|
$
|
405
|
|
$
|
841
|
|
$
|
-
|
|||
Retirement Plan Services
|
|
|
793
|
|
|
439
|
|
|
60
|
|
|
284
|
|
|
-
|
|||
Life Insurance
|
|
|
2,294
|
|
|
2,904
|
|
|
539
|
|
|
409
|
|
|
-
|
|||
Group Protection
|
|
|
152
|
|
|
1,317
|
|
|
46
|
|
|
420
|
|
|
-
|
|||
Other Operations
|
|
|
307
|
|
|
239
|
|
|
-
|
|
|
453
|
|
|
-
|
|||
|
Total
|
|
$
|
4,652
|
|
$
|
5,833
|
|
$
|
1,050
|
|
$
|
2,407
|
|
$
|
-
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2010
|
|||||||||||||||
Annuities
|
|
$
|
1,119
|
|
$
|
884
|
|
$
|
421
|
|
$
|
749
|
|
$
|
-
|
|||
Retirement Plan Services
|
|
|
769
|
|
|
440
|
|
|
79
|
|
|
253
|
|
|
-
|
|||
Life Insurance
|
|
|
2,186
|
|
|
2,933
|
|
|
538
|
|
|
370
|
|
|
-
|
|||
Group Protection
|
|
|
141
|
|
|
1,300
|
|
|
46
|
|
|
376
|
|
|
-
|
|||
Other Operations
|
|
|
326
|
|
|
258
|
|
|
-
|
|
|
526
|
|
|
-
|
|||
|
Total
|
|
$
|
4,541
|
|
$
|
5,815
|
|
$
|
1,084
|
|
$
|
2,274
|
|
$
|
-
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2009
|
|||||||||||||||
Annuities
|
|
$
|
1,037
|
|
$
|
783
|
|
$
|
360
|
|
$
|
632
|
|
$
|
-
|
|||
Retirement Plan Services
|
|
|
732
|
|
|
433
|
|
|
75
|
|
|
227
|
|
|
-
|
|||
Life Insurance
|
|
|
1,975
|
|
|
2,558
|
|
|
571
|
|
|
352
|
|
|
-
|
|||
Group Protection
|
|
|
127
|
|
|
1,120
|
|
|
47
|
|
|
355
|
|
|
-
|
|||
Other Operations
|
|
|
307
|
|
|
405
|
|
|
-
|
|
|
372
|
|
|
-
|
|||
|
Total
|
|
$
|
4,178
|
|
$
|
5,299
|
|
$
|
1,053
|
|
$
|
1,938
|
|
$
|
-
|
(2)
|
Excludes impairment of intangibles of $747 million and $730 million for the years ended December 31, 2011 and 2009, respectively. The allocation of expenses between investments and other operations is based on a number of assumptions and estimates. Results would change if different methods were applied.
|
Column A
|
|
Column B
|
|
Column C
|
|
Column D
|
|
Column E
|
|
Column F | |||||||||
|
|
|
Ceded
|
|
Assumed
|
|
|
|
Percentage |
|
|||||||||
|
|
|
to
|
|
from
|
|
|
of Amount |
|
||||||||||
|
|
Gross
|
|
Other
|
|
Other
|
|
Net
|
|
Assumed | |||||||||
Description
|
|
Amount
|
|
Companies
|
|
Companies
|
|
Amount
|
|
to Net |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2011 |
|
|||||||||||||||
Individual life insurance in force
(1)
|
|
$
|
881,100
|
|
$
|
331,700
|
|
$
|
2,800
|
|
$
|
552,200
|
|
0.5
|
%
|
||||
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance and annuities
(2)
|
|
|
5,811
|
|
|
1,252
|
|
|
10
|
|
|
4,569
|
|
0.2
|
%
|
|||
|
Accident and health insurance
|
|
|
1,186
|
|
|
24
|
|
|
-
|
|
|
1,162
|
|
-
|
%
|
|||
|
|
Total premiums
|
|
$
|
6,997
|
|
$
|
1,276
|
|
$
|
10
|
|
$
|
5,731
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2010 |
|
|||||||||||||||
Individual life insurance in force
(1)
|
|
$
|
842,300
|
|
$
|
337,800
|
|
$
|
3,000
|
|
$
|
507,500
|
|
0.6
|
%
|
||||
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance and annuities
(2)
|
|
|
5,458
|
|
|
1,170
|
|
|
13
|
|
|
4,301
|
|
0.3
|
%
|
|||
|
Accident and health insurance
|
|
|
1,141
|
|
|
32
|
|
|
-
|
|
|
1,109
|
|
-
|
%
|
|||
|
|
Total premiums
|
|
$
|
6,599
|
|
$
|
1,202
|
|
$
|
13
|
|
$
|
5,410
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
As of or for the Year Ended December 31, 2009 |
|
|||||||||||||||
Individual life insurance in force
(1)
|
|
$
|
799,900
|
|
$
|
342,600
|
|
$
|
3,000
|
|
$
|
460,300
|
|
0.7
|
%
|
||||
Premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Life insurance and annuities
(2)
|
|
|
5,025
|
|
|
1,126
|
|
|
10
|
|
|
3,909
|
|
0.3
|
%
|
|||
|
Accident and health insurance
|
|
|
1,099
|
|
|
22
|
|
|
-
|
|
|
1,077
|
|
-
|
%
|
|||
|
|
Total premiums
|
|
$
|
6,124
|
|
$
|
1,148
|
|
$
|
10
|
|
$
|
4,986
|
|
|
|
(1)
|
Includes Group Protection segment and Other Operations in force amounts.
|
(2)
|
Includes insurance fees on universal life and other interest-sensitive products.
|
Column A
|
Column B
|
Column C
Additions
|
Column D
|
Column E
|
|||||||||||||
|
|
|
Charged
|
|
|
||||||||||||
|
Balance at
|
Charged to
|
to Other
|
Balance
|
|||||||||||||
|
Beginning-
|
Costs
|
Accounts -
|
Deductions -
|
at End-
|
||||||||||||
Description
|
of-Year
|
Expenses
(1)
|
Describe
|
Describe
(2)
|
of-Year
|
||||||||||||
|
|
|
|
|
|||||||||||||
|
For the Year Ended December 31, 2011
|
||||||||||||||||
Deducted from asset accounts:
|
|
|
|
|
|||||||||||||
Reserve for mortgage loans on real estate
|
$ | 13 | $ | 24 | $ | - | $ | (6 | ) | $ | 31 | ||||||
|
|||||||||||||||||
|
For the Year Ended December 31, 2010
|
||||||||||||||||
Deducted from asset accounts:
|
|||||||||||||||||
Reserve for mortgage loans on real estate
|
$ | 22 | $ | 18 | $ | - | $ | (27 | ) | $ | 13 | ||||||
|
|||||||||||||||||
|
For the Year Ended December 31, 2009
|
||||||||||||||||
Deducted from asset accounts:
|
|||||||||||||||||
Reserve for mortgage loans on real estate
|
$ | - | $ | 35 | $ | - | $ | (13 | ) | $ | 22 |
(1)
|
Excludes charges for the direct write-off assets.
|
(2)
|
Deductions reflect sales, foreclosures of the underlying holdings or change in reserves.
|
2.1
|
Stock Purchase Agreement between Lincoln Financial Media Company and Raycom Holdings, LLC is incorporated by reference to Exhibit 2.3 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.***
|
2.2
|
Purchase and Sale Agreement By and Among LNC, Lincoln National Investment Companies, Inc. and Macquarie Bank Limited, dated as of August 18, 2009 is incorporated by reference to Exhibit 2.1 to LNC’s Quarterly Report on Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2009.***
|
3.1
|
LNC Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on August 17, 2010.
|
3.2
|
Articles of Amendment to the Restated Articles of Incorporation of LNC dated May 26, 2011 are incorporated by reference to Exhibit 3.1 of LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 31, 2011.
|
3.3
|
Amended and Restated Bylaws of LNC (effective May 31, 2011) are incorporated by reference to Exhibit 3.3 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2011.
|
4.1
|
Indenture of LNC, dated as of September 15, 1994, between LNC and The Bank of New York, as trustee, is incorporated by reference to Exhibit 4(c) to LNC’s Registration Statement on Form S-3/A (File No. 33-55379) filed with the SEC on September 15, 1994.
|
4.2
|
First Supplemental Indenture, dated as of November 1, 2006, to Indenture dated as of September 15, 1994 is incorporated by reference to Exhibit 4.4 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2006.
|
4.3
|
Junior Subordinated Indenture, dated as of May 1, 1996, between LNC and The Bank of New York Trust Company, N.A. (successor in interest to J.P. Morgan Trust Company and The First National Bank of Chicago) is incorporated by reference to Exhibit 4(j) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.
|
4.4
|
First Supplemental Indenture, dated as of August 14, 1998, to Junior Subordinated Indenture dated as of May 1, 1996 is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on August 27, 1998.
|
4.5
|
Second Supplemental Junior Subordinated Indenture, dated April 20, 2006, to Junior Subordinated Indenture, dated as of May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 20, 2006.
|
4.6
|
Third Supplemental Junior Subordinated Indenture dated May 17, 2006, to Junior Subordinated Indenture, dated as of May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 17, 2006.
|
4.7
|
Fourth Supplemental Junior Subordinated Indenture, dated as of November 1, 2006, to Junior Subordinated Indenture, dated May 1, 1996, is incorporated by reference to Exhibit 4.9 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2006.
|
4.8
|
Fifth Supplemental Junior Subordinated Indenture, dated as of March 13, 2007, to Junior Subordinated Indenture, dated May 1, 1996, is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007.
|
4.9
|
Senior Indenture, dated as of March 10, 2009, between LNC and the Bank of New York Mellon, is incorporated by reference to LNC’s Form S-3ASR (File No. 333-157822) filed with the SEC on March 10, 2009.
|
4.10
|
Junior Subordinated Indenture, dated as of March 10, 2009, between LNC and the Bank of New York Mellon, is incorporated by reference to LNC’s Form S-3ASR (File No. 333-157822) filed with the SEC on March 10, 2009.
|
4.11
|
Indenture, dated as of November 21, 1995, between Jefferson-Pilot Corporation and U.S. National Bank Association (as successor in interest to Wachovia Bank, National Association), is incorporated by reference to Exhibit 4.7 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
|
4.12
|
Third Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.8 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
|
4.13
|
Fourth Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.9 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
|
4.14
|
Fifth Supplemental Indenture, dated as of April 3, 2006, to Indenture, dated as of November 21, 1995, incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 3, 2006.
|
4.15
|
Sixth Supplemental Indenture, dated as of March 1, 2007, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.4 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2007.
|
4.16
|
Form of 7% Notes due March 15, 2018 incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 24, 1998.
|
4.17
|
Form of 6.20% Note dated December 7, 2001 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on December 11, 2001.
|
4.18
|
Form of 6.75% Trust Preferred Security Certificate is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003.
|
4.19
|
Form of 6.75% Junior Subordinated Deferrable Interest Debentures, Series F is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003.
|
4.20
|
Form of 4.75% Note due February 15, 2014 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 4, 2004.
|
4.21
|
Form of 7% Capital Securities due 2066 of LNC is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File NO. 1-6028) filed with the SEC on May 17, 2006.
|
4.22
|
Form of 6.75% Capital Securities due 2066 of Lincoln Financial Corporation is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 20, 2006.
|
4.23
|
Form of Floating Rate Senior Note due April 6, 2009 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006.
|
4.24
|
Form of 6.15% Senior Note due April 6, 2036 is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006.
|
4.25
|
Amended and Restated Trust Agreement dated September 11, 2003, among LNC, as Depositor, Bank One Trust Company, National Association, as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein is incorporated by reference to Exhibit 4.1 of Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003.
|
4.26
|
Guarantee Agreement, dated September 11, 2003, between LNC, as Guarantor, and Bank One Trust Company, National Association, as Guarantee Trustee is incorporated by reference to Exhibit 4.4 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on September 16, 2003.
|
4.27
|
Form of 6.05% Capital Securities due 2067 is incorporated by reference to Exhibit 4.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007.
|
4.28
|
Form of Floating Rate Senior Notes due 2010 is incorporated by reference to Exhibit 4.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 13, 2007.
|
4.29
|
Form of 5.65% Senior Notes due 2012 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on August 27, 2007.
|
4.30
|
Form of 6.30% Senior Notes due 2037 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on October 9, 2007.
|
4.31
|
Form of 8.75% Senior Notes due 2019 is incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on June 22, 2009.
|
10.14
|
Amended and Restated Salary Continuation Plan for Executives of LNC and Affiliates is incorporated by reference to Exhibit 10.13 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.*
|
10.15
|
The LNC Outside Directors’ Value Sharing Plan, last amended March 8, 2001, is incorporated by reference to Exhibit 10(e) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.*
|
10.16
|
LNC Deferred Compensation and Supplemental/Excess Retirement Plan, as amended and restated effective December 31, 2010, is incorporated by reference to Exhibit 10.16 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2010.*
|
10.17
|
LNC 1993 Stock Plan for Non-Employee Directors, as last amended May 10, 2001, is incorporated by reference to Exhibit 10(g), to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2001.*
|
10.18
|
Amendment No. 2 to the LNC 1993 Stock Plan for Non-Employee Directors (effective February 1, 2006) is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 13, 2006.*
|
10.19
|
Non-Qualified Stock Option Agreement (For Non-Employee Directors) under the LNC 1993 Stock Plan for Non-Employee Directors is incorporated by reference to Exhibit 10(z) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2004.*
|
10.20
|
Amendment of outstanding Non-Qualified Option Agreements (for Non-Employee Directors) under the LNC 1993 Stock Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 12, 2006.*
|
10.21
|
LNC Executives’ Severance Benefit Plan (effective August 7, 2008) is incorporated by reference to Exhibit 10.3 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2008.*
|
10.22
|
Amendment No. 1 to the LNC Executives’ Severance Benefit Plan (effective November 9, 2011) is filed herewith.*
|
10.23
|
Amended and Restated LNC Excess Retirement Plan is incorporated by reference to Exhibit 10.26 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.*
|
10.24
|
LNC Deferred Compensation Plan for Non-Employee Directors, as amended and restated November 5, 2008 is incorporated by reference to Exhibit 10.23 to LNC’s Form 10-K (File NO. 1-6028) for the year ended December 31, 2008.*
|
10.25
|
Form of LNC Restricted Stock Agreement is incorporated by reference to Exhibit 10(b) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.*
|
10.26
|
Form of LNC Stock Option Agreement is incorporated by reference to Exhibit 10(c) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.*
|
10.27
|
Form of 2008-2010 Performance Cycle Agreement under the LNC Amended and Restated Incentive Compensation Plan, is incorporated by reference to Exhibit 10.1 of LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2008.*
|
10.28
|
Description of Special 2008 Annual Incentive Payout Arrangement with Terrance J. Mullen, Former President of Lincoln Financial Distributors, is incorporated by reference to Exhibit 10.4 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.*
|
10.29
|
2009 Executive compensation Matters dated March 30, 2009 is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2009.*
|
10.30
|
Agreement, Waiver and General Release between Elizabeth L. Reeves and LNC is incorporated by reference to Exhibit 10.2 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2008.*
|
10.31
|
Form of 2008 Non-Qualified Stock Option Agreement under the LNC Amended and Restated Incentive Compensation Plan is incorporated by reference to Exhibit 10.2 of LNC’s Form 8-K (File No. 1-6028) filed with the SEC on February 13, 2008.*
|
10.32
|
LNC Employees’ Supplemental Pension Benefit Plan is incorporated by reference to Exhibit 10(e) to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on January 20, 2005.*
|
10.33
|
Description of resolution dated January 13, 2005 amending the LNC Employees’ Supplemental Pension benefit Plan incorporated by reference to Exhibit 10(d) to LNC’s Form 10-Q (File No 1-6028) for the quarter ended March 31, 2005.*
|
10.34
|
Form of Indemnification between LNC and each director incorporated by reference to Exhibit 10.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2009.*
|
10.35
|
Form of Stock Option Agreement is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 18, 2006.*
|
10.36
|
Form of nonqualified LNC restricted stock award agreement is incorporated by reference to Exhibit 10.15 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 7, 2006.*
|
10.37
|
LNC Domestic Relocation Policy Home Sale Assistance Plan, effective as of September 6, 2007, is incorporated by reference to Exhibit 10.35 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2009.*
|
10.38
|
Jefferson Pilot Corporation Long Term Stock Incentive Plan, as amended in February 2005, is incorporated by reference to Exhibit 10(iii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004.*
|
10.39
|
Jefferson Pilot Corporation Non-Employee Directors’ Stock Option Plan, as amended in February 2005, is incorporated by reference to Exhibit 10(iv) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004.*
|
10.40
|
Jefferson Pilot Corporation Non-Employee Directors’ Stock Option Plan, as last amended in 1999, is incorporated by reference to Exhibit 10(vii) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 1998.*
|
10.41
|
Jefferson Pilot Corporation forms of stock option terms for non-employee directors are incorporated by reference to Exhibit 10(xi) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004 and to Exhibit 10.2 of Jefferson-Pilot’s Form 8-K filed with the SEC on February 17, 2006.*
|
10.42
|
Jefferson Pilot Corporation forms of stock option terms for officers are incorporated by reference to Exhibit 10(xi) of Jefferson-Pilot’s Form 10-K (File No. 1-5955) for the year ended December 31, 2004 and to Exhibit 10.1 of Jefferson-Pilot’s Form 8-K filed with the SEC on February 17, 2006.*
|
10.43
|
Jefferson-Pilot Deferred Fee Plan for Non-Employee Directors, as amended and restated November 5, 2008 is incorporated by reference to Exhibit 10.55 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2008.*
|
10.44
|
Lease and Agreement dated August 1, 1984, with respect to LNL’s offices located at Clinton Street and Harrison Street, Fort Wayne, Indiana is incorporated by reference to Exhibit 10(n) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1995.
|
10.45
|
First Amendment of Lease, dated as of June 16, 2006, between Trona Cogeneration Corporation and The Lincoln National Life Insurance Company, is incorporated by reference to Exhibit 10.22 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
|
10.46
|
Agreement of Lease dated February 17, 1998, with respect to LNL’s offices located at 350 Church Street, Hartford, Connecticut is incorporated by reference to Exhibit 10(q) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 1997.
|
10.47
|
Stock and Asset Purchase Agreement by and among LNC, The Lincoln National Life Insurance Company, Lincoln National Reinsurance Company (Barbados) Limited and Swiss Re Life & Health America Inc. dated July 27, 2001 is incorporated by reference to Exhibit 99.1 to LNC’s Form 8-K (File No. 1-6028) filed with the Commission on August 1, 2001. Omitted schedules and exhibits listed in the Agreement will be furnished to the Commission upon request.
|
10.48
|
Credit Agreement, dated as of June 10, 2010, among Lincoln National Corporation, as an Account Party and Guarantor, the Subsidiary Account Parties, as additional Account Parties, JPMorgan Chase Bank, N.A. as administrative agent, and the other lenders named therein, incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on June 15, 2011.
|
Exhibit 10.22
|
For the Years Ended December 31,
|
||||||||||||||||||
2011
|
2010
|
2009
|
2008
|
2007
|
||||||||||||||
Income (loss) from continuing operations before taxes
|
$ | 599 | $ | 1,234 | $ | (521 | ) | $ | (137 | ) | $ | 1,675 | ||||||
Sub-total of fixed charges
|
308 | 307 | 292 | 303 | 325 | |||||||||||||
Sub-total of adjusted income (loss)
|
907 | 1,541 | (229 | ) | 166 | 2,000 | ||||||||||||
Interest on annuities and financial products
|
2,488 | 2,499 | 2,513 | 2,538 | 2,525 | |||||||||||||
Adjusted income (loss) base
|
$ | 3,395 | $ | 4,040 | $ | 2,284 | $ | 2,704 | $ | 4,525 | ||||||||
Fixed Charges
|
||||||||||||||||||
Interest and debt expense
(1)
|
$ | 286 | $ | 286 | $ | 261 | $ | 281 | $ | 284 | ||||||||
Interest expense related to uncertain tax positions
|
9 | 7 | 13 | 2 | 21 | |||||||||||||
Portion of rent expense representing interest
|
13 | 14 | 18 | 20 | 20 | |||||||||||||
Sub-total of fixed charges excluding interest on
annuities and financial products
|
308 | 307 | 292 | 303 | 325 | |||||||||||||
Interest on annuities and financial products
|
2,488 | 2,499 | 2,513 | 2,538 | 2,525 | |||||||||||||
Total fixed charges
|
$ | 2,796 | $ | 2,806 | $ | 2,805 | $ | 2,841 | $ | 2,850 | ||||||||
Ratio of sub-total of adjusted income (loss) to sub-total
of fixed charges excluding interest on annuities and financial products
(2)
|
2.94 | 5.02 |
NM
|
NM
|
6.15 | |||||||||||||
Ratio of adjusted income (loss) base to total fixed
charges
(2)
|
1.21 | 1.44 |
NM
|
NM
|
1.59 |
(1)
|
Interest and debt expense excludes an $8 million loss, $5 million loss and $64 million gain related to the early retirement of debt in 2011, 2010 and 2009, respectively.
|
(2)
|
The ratios of earnings to fixed charges for the years ended December 31, 2009 and 2008, indicated a less than one-to-one coverage and are therefore not presented. Additional earnings of $521 million and $137 million would have been required for the years ended December 31, 2009 and 2008, respectively, to achieve ratios of one-to-one coverage.
|
|
Organized
Under Law of:
|
|
Ownership
|
||||||
Lincoln National Corporation |
|
Indiana
|
|
||||||
First Penn-Pacific Life Insurance Company |
|
Indiana
|
|
100
|
%
|
||||
Hampshire Funding, Inc. |
|
New Hampshire
|
|
100
|
%
|
||||
Lincoln Financial Investment Services Corporation |
|
North Carolina
|
|
100
|
%
|
||||
Jefferson-Pilot Investments, Inc. |
|
North Carolina
|
|
100
|
%
|
||||
Lincoln Financial Securities Corporation |
|
New Hampshire
|
|
100
|
%
|
||||
Lincoln Insurance Services Limited |
England
|
100
|
%
|
||||||
Lincoln Investment Management Company |
Delaware
|
100
|
%
|
||||||
Lincoln National Management Corporation |
|
Pennsylvania
|
|
100
|
%
|
||||
Lincoln National Reinsurance Company (Barbados) Limited |
|
Barbados
|
|
100
|
%
|
||||
Lincoln Reinsurance Company of Bermuda, Limited |
|
Bermuda
|
|
100
|
%
|
||||
The Lincoln National Life Insurance Company |
|
Indiana
|
|
100
|
%
|
||||
California Fringe Benefit and Insurance Marketing Corporation |
|
California
|
|
100
|
%
|
||||
LFA, Limited Liability Company |
|
Indiana
|
|
100
|
%
|
||||
LFD Insurance Agency, Limited Liability Company |
|
Delaware
|
|
100
|
%
|
||||
Lincoln Financial Advisors Corporation |
|
Indiana
|
|
100
|
%
|
||||
Lincoln Financial Distributors, Inc. |
|
Connecticut
|
|
100
|
%
|
||||
Lincoln Financial Holdings, LLC II |
|
Delaware
|
|
100
|
%
|
||||
Lincoln Financial Media Company |
North Carolina
|
100
|
%
|
||||||
Lincoln Investment Advisors Corporation |
|
Tennessee
|
|
100
|
%
|
||||
Lincoln Investment Solutions, Inc. |
|
Delaware
|
|
100
|
%
|
||||
Lincoln Life & Annuity Company of New York |
|
New York
|
|
100
|
%
|
||||
Lincoln National Financial Holdings, LLC II
|
Delaware
|
100
|
%
|
||||||
Lincoln Reinsurance Company of South Carolina |
South Carolina
|
100
|
%
|
||||||
Lincoln Retirement Services Company, LLC |
|
Indiana
|
|
100
|
%
|
||||
Lincoln Financial Group Trust Company, LLC
|
New Hampshire
|
100
|
%
|
||||||
Lincoln Variable Insurance Products Trust |
|
Delaware
|
|
100
|
%
|
||||
Westfield Assigned Benefits Company |
|
Ohio
|
|
100
|
%
|
||||
Tomco2 Equipment Company |
Georgia
|
29
|
%
|
1.
|
Forms S-3
|
a.
|
No. 333-178946 pertaining to the Lincoln National Corporation automatic shelf registration for certain securities,
|
b.
|
Nos. 333-133086 and 333-159314 pertaining to the Jefferson-Pilot Corporation Long Term Stock Incentive Plan,
|
c.
|
Nos. 333-131943 and 333-163672 pertaining to The Lincoln National Life Insurance Company Agents’ Savings and Profit-Sharing Plan,
|
d.
|
Nos. 333-142871 pertaining to the Lincoln National Corporation Amended and Restated Incentive Compensation Plan and 333-159290 pertaining to the Lincoln National Corporation 2009 Amended and Restated Incentive Compensation Plan,
|
e.
|
Nos. 333-84728, 333-84728-01, 333-84728-02, 333-84728-03 and 333-84728-04 pertaining to the Lincoln National Corporation shelf registration for certain securities,
|
f.
|
No. 333-32667 pertaining to the Lincoln National Corporation 1997 Incentive Compensation Plan, and
|
g.
|
Nos. 333-146213, 33-51415, and 333-165504 pertaining to the Lincoln National Corporation Executive Deferred Compensation Plan for Agents;
|
2.
|
Form S-4 (No. 333-130226) pertaining to the proposed business combination with Jefferson-Pilot Corporation;
|
3.
|
Forms S-8
|
a.
|
No. 333-155385 pertaining to the Lincoln National Corporation Deferred Compensation and Supplemental/Excess Retirement Plan,
|
b.
|
No. 333-142872 pertaining to the Lincoln National Corporation Stock Option Plan for Non-Employee Directors,
|
c.
|
No. 333-133039 pertaining to various Jefferson-Pilot Corporation benefit plans,
|
d.
|
Nos. 333-143796 and 333-126452 pertaining to the Lincoln National Corporation Executive Deferred Compensation Plan for Employees,
|
e.
|
No. 333-126020 pertaining to the Lincoln National Corporation Employees’ Savings and Profit-Sharing Plan and No. 333-161989 pertaining to the Lincoln National Corporation Employees’ Savings and Retirement Plan,
|
f.
|
Nos. 333-143795 and 333-121069 pertaining to the Lincoln National Corporation Deferred Compensation Plan for Non-Employee Directors,
|
g.
|
No. 033-58113 pertaining to the Lincoln National Corporation 1993 Stock Plan for Non-Employee Directors,
|
h.
|
No. 333-105344 pertaining to the Lincoln National Corporation 1993 Stock Plan for Non-Employee Directors;
|
/s/ Ernst & Young LLP
|
Philadelphia, Pennsylvania
|
February 23, 2012
|
1.
|
I have reviewed this annual report on Form 10-K of Lincoln National Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Exhibit 31.2
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Exhibit 32.1
|
Exhibit 32.2
|